<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 1996.
REGISTRATION NOS. 33-11716
811-5018
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 (X)
POST-EFFECTIVE AMENDMENT NO. 17 (X)
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 (X)
AMENDMENT NO. 17 (X)
</TABLE>
COMMON SENSE TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, IL 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (708) 684-6000
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPY TO:
GERALD L. BAXTER
LEGAL COUNSEL
PFS DISTRIBUTORS, INC.
3120 BRECKINRIDGE BLVD., BLDG. 1200
DULUTH, GEORGIA 30199-0001
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
---------------------
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b) of Rule 485
/X/ 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24F-2
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST,
$0.01 PAR VALUE, AND FILED A FORM 24F-2 FOR ITS FISCAL YEAR ENDING OCTOBER 31,
1995. A FORM 24F-2 WILL BE FILED FOR ITS FISCAL YEAR ON OR BEFORE DECEMBER 31,
1996.
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<PAGE> 2
COMMON SENSE TRUST -
COMMON SENSE EMERGING GROWTH FUND
COMMON SENSE GROWTH FUND
COMMON SENSE GROWTH AND INCOME FUND
COMMON SENSE GOVERNMENT FUND
COMMON SENSE INTERNATIONAL EQUITY FUND
COMMON SENSE MONEY MARKET FUND
COMMON SENSE MUNICIPAL BOND FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION 5-K)
<TABLE>
<CAPTION>
FORM N-1A ITEM
PART A PROSPECTUS CAPTION
- ------------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Cover Page................................. Front Cover Page
2. Synopsis................................... Prospectus Summary; Expense Synopsis
3. Condensed Financial Information............ Financial Highlights
4. General Description of Registrant.......... The Trust and its Management; Goals and
Investment Policies; Investment Practices
and Risks
5. Management of the Fund..................... The Trust and Its Management
6. Capital Stock and Other Securities......... Alternative Sales Arrangements; The Trust
and Its Management; Redemption of Shares;
Dividends, Distributions and Taxes;
Additional Information
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares
8. Redemption or Repurchase................... Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ------------------------------------------------- -------------------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Goals and Investment Policies; and
Investment Restrictions
14. Management of the Registrant............... General Information; and Investment
Advisory Agreements
15. Control Persons and Principal Holders of
Securities............................... Trustees and Executive Officers
16. Investment Advisory and Other Services..... Investment Advisory Agreement; Distributor;
Portfolio Transactions and Brokerage;
Other Information
17. Brokerage Allocation....................... Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities......... See Prospectus under captions Alternative
Sales Arrangements; The Trust and Its
Management; Redemption of Shares;
Dividends, Distributions and Taxes
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Alternative
Sales Arrangements
20. Tax Status................................. Dividends, Distributions and Taxes
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Other Information
23. Financial Statements....................... Financial Statements
</TABLE>
PART C
- -----
Information required to be included in Part C is set forth under the
appropriate item in Part C of the registration statement.
<PAGE> 3
[LOGO] MAY 20, 1996
Common Sense(R) Trust (the "Trust") is a diversified open-end management
investment company which offers shares in a number of separate Funds, seven of
which are described in this Prospectus. The goals of such Funds are as follows:
Common Sense(R) Emerging Growth Fund, formerly known as Common Sense
II Emerging Growth Fund (the "Emerging Growth Fund"), seeks capital
appreciation by investing in a portfolio of securities consisting
principally of common stocks of small and medium sized companies considered
by Van Kampen American Capital Asset Management, Inc. (the "Adviser") to be
emerging growth companies.
Common Sense(R) International Equity Fund, formerly known as Common
Sense II International Equity Fund (the "International Equity Fund"), seeks
total return on its assets from growth of capital and income. The Fund
seeks to achieve its goal by investing at least 65% of its assets in a
diversified portfolio of equity securities of established non-United States
issuers.
Common Sense(R) Growth Fund (the "Growth Fund") seeks capital
appreciation through investments in common stocks and options on common
stocks. Any income realized on its investments will be purely incidental to
its goal of capital appreciation.
Common Sense(R) Growth and Income Fund (the "Growth and Income Fund")
seeks reasonable growth and income through investments in equity securities
that provide dividend or interest income, including common and preferred
stocks and securities convertible into common or preferred stocks.
Common Sense(R) Government Fund (the "Government Fund") seeks high
current return consistent with preservation of capital by investing in debt
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Common Sense(R) Municipal Bond Fund (the "Municipal Bond Fund") seeks
as high a level of current interest income exempt from federal income tax
as is consistent with the preservation of capital.
Common Sense(R) Money Market Fund (the "Money Market Fund") seeks
protection of capital and a high level of current income through
investments in money market securities.
INVESTMENTS IN THE MONEY MARKET FUND ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. ALTHOUGH THE MONEY MARKET FUND SEEKS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE THERE IS NO ASSURANCE
THAT IT WILL BE ABLE TO DO SO.
In seeking their respective goals, each Fund, except the Money Market
Fund, may engage in portfolio management strategies and techniques
involving options, futures contracts and options on futures. See "Goals and
Investment Policies."
There is no assurance that each Fund will be successful in achieving
its goals.
EACH FUND, EXCEPT THE INTERNATIONAL EQUITY FUND, WILL NOT PURCHASE ANY
SECURITIES ISSUED BY COMPANIES PRIMARILY ENGAGED IN THE MANUFACTURE OF
ALCOHOL OR TOBACCO.
This Prospectus tells investors briefly the information they should know
before investing in a Fund. Investors should read and retain this Prospectus for
future reference.
A Statement of Additional Information dated the same date as this
Prospectus has been filed with the Securities and Exchange Commission ("SEC")
and contains further information about the Funds. A copy of the Statement of
Additional Information may be obtained without charge by writing PFS
Distributors, Inc., 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0001. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus. Please call Customer Service at (800) 544-5445
for information on the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CST-1
<PAGE> 4
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COMMON SENSE(R) TRUST
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CUSTODIAN: INVESTMENT ADVISER:
State Street Bank and Trust Company Van Kampen American Capital
225 Franklin Street Asset Management, Inc.
Boston, Massachusetts 02110 One Parkview Plaza
Oakbrook Terrace, Illinois 60181
TRANSFER AGENT:
PFS Shareholder Services INVESTMENT SUBADVISER:
3100 Breckinridge Blvd., Bldg. 200 (International Equity Fund)
Duluth, Georgia 30199-0062 Smith Barney Mutual Funds Management, Inc.
(800) 544-5445 388 Greenwich Street
(800) 544-7278 Spanish-speaking Representatives New York, New York 10013
(800) 824-1721 TDD Service for Hearing Impaired
DISTRIBUTOR:
PFS Distributors, Inc.
3100 Breckinridge Blvd., Bldg. 200
Duluth, Georgia 30199-0001
</TABLE>
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TABLE OF CONTENTS
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<TABLE>
<S> <C> <C> <C>
Prospectus Summary.................... 2 Alternative Sales Arrangements........ 34
Expense Synopsis...................... 5 Purchase of Shares.................... 35
Financial Highlights.................. 18 Distribution Plans.................... 40
Introduction.......................... 19 Shareholder Services.................. 41
Goals and Investment Policies......... 19 Redemption of Shares.................. 43
Investment Practices and Risks........ 25 Dividends, Distributions and Taxes.... 44
The Trust and Its Management.......... 32 Performance Information............... 46
Additional Information................ 48
</TABLE>
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NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE
FUND OR BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
- --------------------------------------------------------------------------------
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PROSPECTUS SUMMARY
TYPE OF COMPANY. The Trust is a diversified, open-end management investment
company which offers shares of beneficial interest in seven Funds: the Emerging
Growth Fund, the International Equity Fund, the Growth Fund, the Growth and
Income Fund, the Government Fund, the Money Market Fund and the Municipal Bond
Fund.
MINIMUM PURCHASE. $250 minimum initial investment and $25 for each subsequent
investment (or less as described under "Purchase of Shares").
GOALS. The Emerging Growth Fund seeks capital appreciation; the International
Equity Fund seeks total return on its assets from growth of capital and income;
the Growth Fund seeks capital appreciation; the Growth and Income Fund seeks
reasonable growth and income; the Government Fund seeks high current return
consistent with preservation of capital; the Money Market Fund seeks protection
of capital and a high level of current income; and the Municipal Bond Fund seeks
current interest income exempt from federal income tax. There is, however, no
assurance that each Fund will be successful in achieving its goals.
INVESTMENT POLICIES AND RISKS. The Emerging Growth Fund invests at least 65% of
its total assets in common stocks of small and medium sized companies (less than
$2 billion of market capitalization or annual sales), both domestic and foreign,
considered by the Adviser to be emerging growth companies. The companies in
which the Fund invests may offer greater opportunities for growth of capital
than larger, more established companies, but investments in such companies may
involve special risks. See "Goals and Investment Policies -- Emerging Growth
Fund" and "Investment Practices and Risks -- Foreign Securities." The use of
options, futures contracts and related options may include additional risks. See
"Investment Practices and Risks -- Options, Futures Contracts and Related
Options" and the Statement of Additional Information for a discussion of risk
factors relating to options and futures strategies.
- --------------------------------------------------------------------------------
2
<PAGE> 5
The International Equity Fund invests at least 65% of its assets in a
diversified portfolio of equity securities of established non-United States
issuers. Investing in equity securities of non-United States issuers may subject
the Fund to risks of foreign, political, economic and legal conditions and
developments. See "Goals and Investment Policies -- International Equity Fund,"
"Investment Practices and Risks -- Options, Futures Contracts and Related
Options, Currency Transactions, Interest Rate Transactions and Market Index
Transactions" and the Statement of Additional Information, for a discussion of
risk factors relating to these strategies.
The Growth Fund invests principally in common stocks that the investment adviser
believes provide unusually attractive growth opportunities and options on such
common stocks. Any income from these investments will be incidental to the
capital appreciation goal. The Fund may use portfolio management techniques and
strategies involving options, futures contracts and options on futures. The
utilization of options, futures contracts and options on futures contracts may
involve greater than ordinary investment risks and the likelihood of more
volatile price fluctuation. See "Goals and Investment Policies -- Growth Fund,"
"Investment Practices and Risks -- Using Options, Futures Contracts and Related
Options," and the Statement of Additional Information, for a discussion of risk
factors relating to options and futures strategies.
The Growth and Income Fund invests principally in common and preferred stocks,
and in securities convertible into common and preferred stocks, that have
provided dividend or interest income to their security holders during the past
twelve months. The Fund may use portfolio management techniques and strategies
involving options, futures contracts and options on futures. The utilization of
options, futures contracts and options on futures contracts may involve greater
than ordinary investment risks and the likelihood of more volatile price
fluctuation. See "Goals and Investment Policies -- Growth and Income Fund,"
"Investment Practices and Risks -- Using Options, Futures Contracts and Related
Options," and the Statement of Additional Information, for a discussion of risk
factors relating to options and futures strategies.
The Government Fund invests in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund may sell and purchase
options on U.S. Government securities; and purchase and sell interest rate
futures contracts and options on such contracts since such transactions are
entered into for bona fide hedging purposes. The market prices of debt
securities, including U.S. Government securities, generally fluctuate with
changes in interest rates so that the Fund's net asset value can be expected to
decrease as interest rates rise. See "Goals and Investment
Policies -- Government Fund." The Fund may also purchase or sell U.S. Government
securities on a forward commitment basis. See "Investment Practices and
Risks -- Options, Futures Contracts and Related Options" and "Forward
Commitments" and the Statement of Additional Information, for a discussion on
forward commitments and risk factors relating to options and futures strategies.
The Municipal Bond Fund invests in a diversified portfolio of obligations issued
by states, territories or possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest from which is exempt from federal income tax ("Municipal Bonds"). The
Fund will not purchase any "private activity bonds" subject to the alternative
minimum tax. See "Goals and Investment Policies -- Municipal Bond Fund." The
Fund invests primarily in long-term Municipal Bonds which tend to produce higher
yields and are subject to greater market fluctuations as a result of changes in
interest rates ("market risk") than Municipal Bonds with shorter maturities and
lower yields. At least 75% of the Fund's total assets will be invested in
Municipal Bonds rated "A" or higher. Lower rated securities are subject to
greater market risks and are also subject to the ability of the issuer to meet
its principal and interest obligations ("credit risk"). The Fund may acquire
stand-by commitments. Stand-by commitments involve an element of risk. See
"Investment Practices and Risks -- Stand-by Commitments." The Fund may seek to
hedge interest rate risk through transactions in listed futures contracts
related to U.S. Government securities, Municipal Bonds or to an index of
Municipal Bonds, and options on such contracts. Any net gains from futures and
options transactions are subject to federal income tax and such transactions may
involve certain risks. See "Investment Practices and Risks -- Options, Futures
Contracts and Related Options" and the Statement of Additional Information for
further discussion. The market prices of debt securities, including Municipal
Bonds, generally fluctuate with changes in interest rates so that the Fund's net
asset value can be expected to decrease as long-term interest rates rise and to
increase as long-term interest rates fall.
The Money Market Fund invests in a diversified portfolio of money market
securities. This Fund seeks to maintain a constant net asset value of $1.00 per
share. There can be no guarantee that the Fund will maintain its net asset value
per share at $1.00.
Under certain market conditions, all Funds except the Money Market Fund may
experience a high rate of portfolio turnover. Higher portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs. See
"Investment Practices and Risks -- Portfolio Turnover."
INVESTMENT ADVISER. The Adviser serves as the investment adviser to the Trust.
Smith Barney Mutual Funds Management, Inc. (the "Subadviser") provides advisory
services to the Adviser with respect to the International Equity Fund. See "The
Trust and Its Management."
DISTRIBUTOR. PFS Distributors, Inc. (the "Distributor").
3
<PAGE> 6
ALTERNATIVE SALES ARRANGEMENTS. Each Fund (other than the Money Market Fund)
offers two classes of shares to the general public, each with its own sales
charge structure: Class A shares and Class B shares. Each class has distinct
advantages and disadvantages for different investors, and investors may choose
the class of shares that best suits their circumstances and objectives. The per
share dividends on Class A and Class B shares will be lower than the per share
dividends on Class 1 shares. As of May 20, 1996, all of the previously
outstanding shares of the Growth Fund, the Growth and Income Fund, the
Government Fund, the Money Market Fund and the Municipal Bond Fund were
redesignated as Class 1 shares without any other changes, and Class A and Class
B shares were authorized for issuance. With respect to the Emerging Growth Fund
and the International Equity Fund, as of May 20, 1996, Class 1 shares were
authorized for issuance. Each Fund offers Class 1 shares only to accounts of
previously established shareholders or members of their immediate family, and
Class 1 shareholders of other Common Sense Funds exchanging their Class 1 shares
for Class 1 shares of the Fund. Each class of shares represents an interest in
the same portfolio of investments of a Fund. See "Alternative Sales
Arrangements -- Factors for Consideration." For information on redeeming shares
see "Redemption of Shares."
Class A Shares. Class A shares of the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund are offered at net
asset value per share plus a maximum initial sales charge of 5.50% of the
offering price. Class A shares of the Government Fund and Municipal Bond Fund
are offered at net asset value per share plus a maximum initial sales charge of
4.75% and 4.50%, respectively, of the offering price. Investments of $1 million
or more are not subject to any sales charge at the time of purchase, but a
contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares of the Money
Market Fund are sold at net asset value. Each Fund pays an annual service fee at
the rate of 0.25% of its average daily net assets (0.10% for Money Market Fund)
attributable to such class of shares. See "Purchase of Shares -- Class A Shares"
and "Distribution Plans."
Class B Shares. Class B shares of the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund are offered at net
asset value per share and are subject to a maximum contingent deferred sales
charge of 5% of redemption proceeds during the first year, declining each year
thereafter to 0% after the fifth year. Class B shares of the Government Fund and
the Municipal Bond Fund are offered at net asset value per share and are subject
to a maximum contingent deferred sales charge of 4% of redemption proceeds
during the first and second year, declining each year thereafter to 0% after the
fifth year. See "Redemption of Shares." Each Fund (other than Money Market Fund)
pays a combined annual distribution fee and service fee at the rate of 1% of its
average daily net assets attributable to such class of shares. Class B shares of
the Money Market Fund are available only through exchanges by Class B
shareholders of another Common Sense Fund and remain subject to the contingent
deferred sales charge imposed by the original fund. The Money Market Fund pays a
distribution fee at the rate of 0.75% of its average daily net assets
attributable to Class B shares. See "Purchase of Shares -- Class B Shares" and
"Distribution Plans." Class B shares will convert automatically to Class A
shares six years after the shareholder's order to purchase was accepted. See
"Alternative Sales Arrangements -- Conversion Feature."
Class 1 Shares. Class 1 shares are offered to the persons described above.
Class 1 shares of the Emerging Growth Fund, the International Equity Fund, the
Growth and Income Fund and the Growth Fund are offered at a sales charge of
8.50% of offering price (9.29% of net amount invested); Class 1 shares of the
Government Fund are offered at a sales charge of 6.75% of offering price (7.24%
of net amount invested); and Class 1 shares of the Municipal Bond Fund are
offered at a sales charge of 4.75% of offering price (4.99% of net amount
invested). The sales charge is reduced on investments of $10,000 or more for the
Emerging Growth Fund, the International Equity Fund, the Growth Fund and the
Growth and Income Fund, $25,000 or more for the Government Fund, and $100,000 or
more for the Municipal Bond Fund. Shares of the Money Market Fund are sold
without a sales charge. See "Purchase of Shares -- Class 1 Shares."
DIVIDENDS AND DISTRIBUTIONS. The Emerging Growth Fund, the International Equity
Fund and the Growth Fund may declare and pay dividends and capital gain
distributions annually. The Growth and Income Fund may declare and pay dividends
quarterly and capital gain distributions annually. Income dividends are declared
each business day and paid monthly for the Government Fund, the Municipal Bond
Fund and the Money Market Fund; any net short-term or long-term capital gains
are distributed at least annually. All dividends and distributions are
automatically reinvested in shares of a Fund at net asset value per share
(without a sales charge) unless payment in cash is requested. See "Dividends,
Distributions and Taxes."
ONLY CLASS 1 SHARES OF THE GROWTH FUND, THE GROWTH AND INCOME FUND, THE
GOVERNMENT FUND, THE MONEY MARKET FUND AND THE MUNICIPAL BOND FUND ARE AVAILABLE
TO THE GENERAL PUBLIC THROUGH THIS PROSPECTUS. UPON THE COMPLETION OF THE
REORGANIZATIONS OF COMMON SENSE II GROWTH FUND, COMMON SENSE II GROWTH AND
INCOME FUND AND COMMON SENSE II GOVERNMENT FUND CURRENTLY ANTICIPATED ON OR
BEFORE JULY 31, 1996, CLASS A AND CLASS B SHARES OF EACH OF THE ABOVE REFERENCED
FUNDS INCLUDING THE EMERGING GROWTH FUND AND THE INTERNATIONAL EQUITY FUND WILL
BE AVAILABLE FOR SALE TO THE GENERAL PUBLIC. IN ADDITION, EACH FUND WILL THEN
SUSPEND SALES TO THE PUBLIC OF CLASS 1 SHARES EXCEPT TO ACCOUNTS OF PREVIOUSLY
ESTABLISHED SHAREHOLDERS OR MEMBERS OF THEIR IMMEDIATE FAMILY, AND CLASS 1
SHAREHOLDERS OF OTHER COMMON SENSE FUNDS EXCHANGING THEIR CLASS 1 SHARES FOR
CLASS 1 SHARES OF THE FUND.
4
<PAGE> 7
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EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING GROWTH(B)
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES(F) SHARES SHARES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)............ 8.50% 5.50% None
Maximum sales charge on reinvestment of
dividends...................................... None None None
Deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)......................................... None None Year 1 - 5%
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee................................... None None None
Exchange fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees.................................. 0.03%(g) 0.03%(g) 0.03% (g)
12b-1 fees(c).................................... 0.00% 0.25% 1.00% (e)
Other expenses(d)................................ 2.47% 2.47% 2.46%
Total fund operating expenses.................... 2.50%(g) 2.75%(g) 3.49% (g)
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) Most recent fiscal period on an annualized basis.
(c) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(d) See "The Trust and Its Management."
(e) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(f) Based on estimated amounts for the first year of operation on an
annualized basis.
(g) After expense reimbursement. In the absence of such expense
reimbursement, management fees for all Classes would be 0.65% and total
fund operating expenses would be 3.12%, 3.35%, and 4.11%, for Class 1, A,
and B shares, respectively.
5
<PAGE> 8
- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY(B)
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES(F) SHARES SHARES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)............ 8.50% 5.50% None
Maximum sales charge on reinvestment of
dividends...................................... None None None
Deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)......................................... None None Year 1 - 5%
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee................................... None None None
Exchange fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees.................................. 0.00%(g) 0.00%(g) 0.00% (g)
12b-1 fees(c).................................... 0.00% 0.25% 1.00% (e)
Other expenses(d)................................ 2.50%(g) 2.50%(g) 2.50% (g)
Total fund operating expenses.................... 2.50%(g) 2.75%(g) 3.50% (g)
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) Most recent fiscal period on an annualized basis.
(c) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(d) See "The Trust and Its Management."
(e) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(f) Based on estimated amounts for the first year of operation on an
annualized basis.
(g) After expense reimbursement. In the absence of such expense
reimbursement, management fees for all Classes would be 1.00%; other
expenses would be 4.72%, 4.72%, 4.72%, for Class 1, A, and B shares,
respectively; and total fund operating expenses would be 5.72%, 5.97%,
and 6.67%, for Class 1, A, and B shares, respectively.
6
<PAGE> 9
- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES(E) SHARES(E)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)............ 8.50% 5.50% None
Maximum sales charge on reinvestment of
dividends...................................... None None None
Deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)......................................... None None Year 1 - 5%
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee................................... None None None
Exchange fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees.................................. 0.61% 0.61% 0.61%
12b-1 fees(b).................................... 0.00% 0.25% 1.00% (d)
Other expenses(c)................................ 0.39% 0.39% 0.39%
Total fund operating expenses.................... 1.00% 1.25% 2.00%
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(c) See "The Trust and Its Management."
(d) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(e) Based on estimated amounts for the first year of operation on an
annualized basis.
7
<PAGE> 10
- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES(E) SHARES(E)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)............ 8.50% 5.50% None
Maximum sales charge on reinvestment of
dividends...................................... None None None
Deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)......................................... None None Year 1 - 5%
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee................................... None None None
Exchange fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees.................................. 0.65% 0.65% 0.65%
12b-1 fees(b).................................... 0.00% 0.25% 1.00% (d)
Other expenses(c)................................ 0.31% 0.31% 0.31%
Total fund operating expenses.................... 0.96% 1.21% 1.96%
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(c) See "The Trust and Its Management."
(d) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(e) Based on estimated amounts for the first year of operation on an
annualized basis.
8
<PAGE> 11
- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES(E) SHARES(E)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)............ 6.75% 4.75% None
Maximum sales charge on reinvestment of
dividends...................................... None None None
Deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)......................................... None None Year 1 - 4%
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee................................... None None None
Exchange fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees.................................. 0.60% 0.60% 0.60%
12b-1 fees(b).................................... 0.00% 0.25% 1.00% (d)
Other expenses(c)................................ 0.23% 0.23% 0.23%
Total fund operating expenses.................... 0.83% 1.08% 1.83%
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(c) See "The Trust and Its Management."
(d) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(e) Based on estimated amounts for the first year of operation on an
annualized basis.
9
<PAGE> 12
- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BOND
------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES(E) SHARES(E)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)............ 4.75% 4.50% None
Maximum sales charge on reinvestment of
dividends...................................... None None None
Deferred sales charge (as a percentage of the
lesser of original purchase price or redemption
value)......................................... None None Year 1 - 4%
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee................................... None None None
Exchange fee..................................... None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees.................................. 0.60% 0.60% 0.60%
12b-1 fees(b).................................... 0.00% 0.25% 1.00% (d)
Other expenses(c)................................ 0.36% 0.36% 0.36%
Total fund operating expenses.................... 0.96% 1.21% 1.96%
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(c) See "The Trust and Its Management."
(d) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(e) Based on estimated amounts for the first year of operation on an
annualized basis.
10
<PAGE> 13
- --------------------------------------------------------------------------------
EXPENSE SYNOPSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
------------------------------------------------
CLASS 1 CLASS A CLASS B
SHARES SHARES(F) SHARES(F)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
Maximum sales load imposed on purchases
(as a percentage of offering price)....... None None None
Maximum sales charge on reinvestment of
dividends................................. None None None
Deferred sales charge (as a percentage of
the lesser of original purchase price or
redemption value)......................... None None Year 1 - 4% or 5% (b)
Year 2 - 4%
Year 3 - 3%
Year 4 - 2.5%
Year 5 - 1.5%
After - None (a)
Redemption fee.............................. None None None
Exchange fee................................ None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees............................. 0.00%(g) 0.00%(g) 0.00% (g)
12b-1 fees(c)............................... 0.00% 0.10% 0.75% (e)
Other expenses(d)........................... 1.00%(g) 1.00%(g) 1.00% (g)
Total fund operating expenses............... 1.00%(g) 1.10%(g) 1.75% (g)
</TABLE>
- --------------------------------------------------------------------------------
(a) See "Purchase of Shares -- Class B Shares."
(b) Class B shares acquired in exchange for Class B shares of another Common
Sense Fund remain subject to the contingent deferred sales charge of the
original fund.
(c) 0.25% for Class A shares and 1% for Class B shares. See "Distribution
Plans."
(d) See "The Trust and Its Management."
(e) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by NASD Rules.
(f) Based on estimated amounts for the first year of operation on an
annualized basis.
(g) After expense reimbursement. In the absence of such expense
reimbursement, management fees and other expenses would be 0.50% and
1.21%, respectively, for all Classes of shares; total fund operating
expenses would be 1.71%, 1.81%, and 2.46%, for Class 1, A, and B shares,
respectively.
11
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH GROWTH GROWTH & INCOME
---------------------------- ---------------------------- -----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
EXAMPLE
An investor would pay the
following expenses on a $1,000
investment, assuming (i) total
fund operating expenses as
reflected in the synopsis, and
(ii) a 5% annual return and
(iii) redemption at the end of
each time period:
Class 1..................... 108 156 207 314 94 114 136 197 94 113 134 193
Class A..................... 81 136 192 346 67 92 120 198 67 91 118 194
Class B..................... 86 138 197 345* 72 96 125 196* 71 94 123 191*
An investor would pay the
following expenses on the same
$1,000 investment assuming no
redemption at the end of each
time period:
Class 1..................... 108 156 207 344 94 114 136 197 94 113 134 193
Class A..................... 81 136 192 346 67 92 120 198 67 91 118 194
Class B..................... 35 107 181 345* 20 63 108 196* 20 62 106 191*
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
GOVERNMENT INTERNATIONAL EQUITY MONEY MARKET**
---------------------------- ---------------------------- -----------------------------
ONE THREE FIVE TEN ONE THREE FIVE TEN ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
EXAMPLE
An investor would pay the
following expenses on a $1,000
investment, assuming (i) total
fund operating expenses as
reflected in the synopsis, and
(ii) a 5% annual return and
(iii) redemption at the end of
each time period:
Class 1..................... 75 92 110 163 108 168 207 344 10 32 55 122
Class A..................... 58 80 104 173 81 136 192 346 11 35 61 134
Class B..................... 60 91 117 177* 86 139 198 345* 69 88 112 173*
An investor would pay the
following expenses on the same
$1,000 investment assuming no
redemption at the end of each
time period:
Class 1..................... 75 92 110 163 108 156 207 344 10 32 55 122
Class A..................... 58 80 104 173 81 136 192 346 11 35 61 134
Class B..................... 19 58 99 177* 35 107 182 345* 18 55 95 173*
<CAPTION>
- ---------------------------------------------------------------
MUNICIPAL BOND
-----------------------------
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
EXAMPLE
An investor would pay the
following expenses on a $1,000
investment, assuming (i) total
fund operating expenses as
reflected in the synopsis, and
(ii) a 5% annual return and
(iii) redemption at the end of
each time period:
Class 1..................... 57 77 98 160
Class A..................... 57 82 108 185
Class B..................... 61 94 123 191*
An investor would pay the
following expenses on the same
$1,000 investment assuming no
redemption at the end of each
time period:
Class 1..................... 57 77 98 160
Class A..................... 57 82 108 185
Class B..................... 20 62 106 191*
</TABLE>
- ---------------
* Based on conversion to Class A shares after six years.
** Based on the higher deferred sales charge in year one.
- --------------------------------------------------------------------------------
The purpose of the foregoing tables is to assist the investor in
understanding the various costs and expenses that an investor in any Fund will
bear directly or indirectly. The "Example" reflects expenses based on the
"Annual Fund Operating Expenses" table as shown above carried out to future
years and is included to provide a means for the investor to compare expense
levels of funds with different fee structures over varying investment periods.
To facilitate such comparison, all funds are required to utilize a five percent
annual return assumption. Class B shares acquired through the exchange privilege
are subject to the deferred sales charge schedule relating to the Class B shares
of the Fund from which the purchase of Class B shares was originally made.
Accordingly, future expenses as projected could be lower than those determined
in the tables herein if the investor's Class B shares were exchanged from a fund
with a lower contingent deferred sales charge. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "The Trust and
Its Management" and "Redemption of Shares."
12
<PAGE> 15
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share of beneficial interest outstanding throughout the period)
The information through October 31, 1995 has been audited by the Trust's
independent auditors, Ernst & Young LLP, whose report thereon was unqualified.
This information should be read in conjunction with the related financial
statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------------------------------------------------------
GROWTH FUND -- CLASS 1 SHARES 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $15.31 $16.26 $16.02 $15.47 $11.26 $13.15
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .32 .29 .281 .30 .36 .38
Expenses................................................ (.16) (.16) (.165) (.17) (.17) (.175)
-------- -------- -------- -------- -------- --------
Net investment income..................................... .16 .13 .116 .13 .19 .205
Net realized and unrealized gain or loss on securities.... 3.18 .2075 2.0065 1.3925 4.2425 (1.25)
-------- -------- -------- -------- -------- --------
Total from investment operations.......................... 3.34 .3375 2.1225 1.5225 4.4325 (1.045)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.155) (.1125) (.115) (.17) (.2225) (.2025)
Net realized gain on securities......................... (1.035) (1.175) (1.3996) (.8025) -- (.6425)
Excess of book-basis net realized gain on securities.... -- -- (.3679) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions....................................... (1.19) (1.2875) (1.8825) (.9725) (.2225) (.845)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............................ $17.46 $15.31 $16.26 $16.02 $15.47 $11.26
======== ======== ======== ======== ======== ========
TOTAL RETURN(3)........................................... 24.01% 2.04% 14.27% 9.83% 39.90% (8.73%)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in millions)................. $2,611.5 $2,169.9 $2,065.7 $1,648.0 $1,311.5 $866.1
Ratios to average net assets (annualized)
Expenses................................................ 1.00% 1.09% 1.14% 1.18% 1.26% 1.53%
Net investment income (loss)............................ 1.04% .89% .80% .91% 1.44% 1.79%
Portfolio turnover rate................................... 230% 164% 166% 134% 100% 99%
<CAPTION>
GROWTH FUND -- CLASS 1 SHARES 1989 1988 1987(1)
-------- ------ ------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $10.81 $9.37 $11.44(2)
-------- ------ -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .36 .24 .16
Expenses................................................ (.17) (.14) (.16)
-------- ------ -------
Net investment income..................................... .19 .10 --
Net realized and unrealized gain or loss on securities.... 2.26 1.435 (2.07)
-------- ------ -------
Total from investment operations.......................... 2.45 1.535 (2.07)
-------- ------ -------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.11) -- --
Net realized gain on securities......................... -- (.095) --
Excess of book-basis net realized gain on securities.... -- -- --
-------- ------ -------
Total distributions....................................... (.11) (.095) --
-------- ------ -------
Net asset value, end of period............................ $13.15 $10.81 $9.37
======== ====== =======
TOTAL RETURN(3)........................................... 22.90% 16.51% (18.09%)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in millions)................. $767.8 $492.2 $196.3
Ratios to average net assets (annualized)
Expenses................................................ 1.63% 1.93% 2.82%
Net investment income (loss)............................ 1.75% 1.30% (.09%)
Portfolio turnover rate................................... 101% 63% 17%
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on average month-end shares outstanding.
(2) The net asset value on April 14, 1987, the date the Fund commenced
operations.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
13
<PAGE> 16
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share of beneficial interest outstanding throughout the period)
The information through October 31, 1995 has been audited by the Trust's
independent auditors, Ernst & Young LLP, whose report thereon was unqualified.
This information should be read in conjunction with the related financial
statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-------------------------------------------------------------------------
GROWTH AND INCOME FUND -- CLASS 1 SHARES 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $15.77 $17.13 $15.54 $14.70 $11.49 $12.51
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .51 .45 .46 .435 .46 .47
Expenses................................................ (.15) (.16) (.17) (.16) (.155) (.165)
-------- -------- -------- -------- -------- -------
Net investment income..................................... .36 .29 .29 .275 .305 .305
Net realized or unrealized gain or loss on securities..... 2.715 (.2125) 1.8775 1.2875 3.2225 (.9975)
-------- -------- -------- -------- -------- -------
Total from investment operations.......................... 3.075 .0775 2.1675 1.5625 3.5275 (.6925)
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.30) (.275) (.2775) (.295) (.3175) (.325)
Net realized gain on securities......................... (1.595) (1.1625) (.30) (.4275) -- (.0025)
-------- -------- -------- -------- -------- -------
Total distributions....................................... (1.895) (1.4375) (.5775) (.7225) (.3175) (.3275)
-------- -------- -------- -------- -------- -------
Net asset value, end of period............................ $16.95 $15.77 $17.13 $15.54 $14.70 $11.49
======== ======== ======== ======== ======== =======
TOTAL RETURN(3)........................................... 22.45% .51% 14.13% 10.85% 31.68% (5.84%)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in millions)................. $828.3 $712.9 $712.4 $591.0 $499.6 $366.6
Ratios to average net assets (annualized)
Expenses................................................ .96% 1.02% 1.05% 1.09% 1.14% 1.37%
Net investment income................................... 2.27% 1.84% 1.76% 1.84% 2.29% 2.55%
Portfolio turnover rate................................... 117% 88% 51% 32% 42% 48%
<CAPTION>
GROWTH AND INCOME FUND -- CLASS 1 SHARES 1989 1988 1987(1)
-------- ------ --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $10.49 $9.84 $11.44(2)
-------- ------ --------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .46 .40 .29
Expenses................................................ (.15) (.13) (.14)
-------- ------ --------
Net investment income..................................... .31 .27 .15
Net realized or unrealized gain or loss on securities..... 2.00 .655 (1.685)
-------- ------ --------
Total from investment operations.......................... 2.31 .925 (1.535)
-------- ------ --------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.29) (.24) (.065)
Net realized gain on securities......................... -- (.035) --
-------- ------ --------
Total distributions....................................... (.29) (.275) (.065)
-------- ------ --------
Net asset value, end of period............................ $12.51 $10.49 $9.84
======== ====== ========
TOTAL RETURN(3)........................................... 22.38% 9.55% (13.48%)
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in millions)................. $278.4 $168.0 $72.8
Ratios to average net assets (annualized)
Expenses................................................ 1.39% 1.57% 2.38%
Net investment income................................... 2.81% 3.04% 2.64%
Portfolio turnover rate................................... 26% 64% 4%
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on average month-end shares outstanding.
(2) The net asset value on April 14, 1987, the date the Fund commenced
operations.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
14
<PAGE> 17
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share of beneficial interest outstanding throughout the period)
The information through October 31, 1995 has been audited by the Trust's
independent auditors, Ernst & Young LLP, whose report thereon was unqualified.
This information should be read in conjunction with the related financial
statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-----------------------------------------------------------
GOVERNMENT FUND -- CLASS 1 SHARES 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................ $9.99 $11.80 $11.56 $11.47 $10.79
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................... .79 .78 .8536 .97 1.012
Expenses.................................................. (.09) (.09) (.092) (.11) (.107)
------- ------- ------- ------- -------
Net investment income....................................... .70 .69 .7616 .86 .905
Net realized and unrealized gain or loss on
securities................................................ .6779 (1.358) .4249 .1639 .6788
------- ------- ------- ------- -------
Total from investment operations............................ 1.3779 (.668) 1.1865 1.0239 1.5838
------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM
Net investment income..................................... (.6979) (.6878) (.7615) (.8639) (.9038)
Net realized gain on securities........................... -- -- (.185) (.07) --
Excess of book-basis net realized gains on securities..... -- (.4542) -- -- --
------- ------- ------- ------- -------
Total distributions......................................... (.6979) (1.142) (.9465) (.9339) (.9038)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $10.67 $9.99 $11.80 $11.56 $11.47
======= ======= ======= ======= =======
TOTAL RETURN(3)............................................. 14.27% (5.45%) 10.55% 9.32% 15.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)..................... $329.0 $335.0 $370.2 $282.0 $189.0
Ratios to average net assets (annualized)
Expenses.................................................. .83% .89% .89% .95% .96%
Net investment income..................................... 6.84% 7.06% 7.35% 7.46% 8.15%
Portfolio turnover rate..................................... 214% 256% 218% 112% 39%
<CAPTION>
GOVERNMENT FUND -- CLASS 1 SHARES 1990 1989 1988 1987(1)
------- -------- ------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................ $11.46 $11.13 $11.08 $11.66(2)
------- -------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income......................................... 1.073 1.16 1.09 .52
Expenses.................................................. (.118) (.13) (.15) (.12)
------- -------- ------- --------
Net investment income....................................... .955 1.03 .94 .40
Net realized and unrealized gain or loss on
securities................................................ (.4421) .3274 .0436 (.58)
------- -------- ------- --------
Total from investment operations............................ .5129 1.3574 .9836 (.18)
------- -------- ------- --------
LESS DISTRIBUTIONS FROM
Net investment income..................................... (.9579) (1.0274) (.9336) (.40)
Net realized gain on securities........................... (.225) -- -- --
Excess of book-basis net realized gains on securities..... -- -- -- --
------- -------- ------- --------
Total distributions......................................... (1.1829) (1.0274) (.9336) (.40)
------- -------- ------- --------
Net asset value, end of period.............................. $10.79 $11.46 $11.13 $11.08
======= ======== ======= ========
TOTAL RETURN(3)............................................. 4.94% 12.87% 9.20% (1.56%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)..................... $140.9 $101.0 $70.6 $21.6
Ratios to average net assets (annualized)
Expenses.................................................. 1.09% 1.20% 1.44% 2.12%
Net investment income..................................... 8.78% 9.29% 8.55% 7.13%
Portfolio turnover rate..................................... 28% 29% 51% 52%
</TABLE>
- --------------------------------------------------------------------------------
(1) Based on average month-end shares outstanding.
(2) The net asset value on April 14, 1987, the date the Fund commenced
operations.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
15
<PAGE> 18
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share of beneficial interest outstanding throughout the period)
The information through October 31, 1995 has been audited by the Trust's
independent auditors, Ernst & Young LLP, whose report thereon was unqualified.
This information should be read in conjunction with the related financial
statements and notes thereto included in the Statement of Additional
Information.
MUNICIPAL BOND FUND -- CLASS 1 SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
---------------------------------------------
1995 1994 1993 1992
-------- -------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................................... $12.89 $14.07 $13.03 $12.84
-------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................................... .87 .84 .859 .875
Expenses................................................................ (.13) (.13) (.141) (.15)
Expense reimbursement................................................... -- -- .01 --
-------- -------- ------- -------
Net investment income..................................................... .74 .71 .728 .725
Net realized and unrealized gain or loss on securities.................... .867 (1.182) 1.038 .2175
-------- -------- ------- -------
Total from investment operations.......................................... 1.607 (.472) 1.766 .9425
-------- -------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME.................................. (.727) (.708) (.726) (.7525)
-------- -------- ------- -------
Net asset value, end of period............................................ $13.77 $12.89 $14.07 $13.03
======== ======== ======= =========
TOTAL RETURN(3)........................................................... 12.72% (3.38%) 13.84% 7.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)................................... 119.1 $112.1 $95.9 $60.3
Ratios to average net assets (annualized)
Expenses................................................................ .96% .99% .96% 1.14%
Expenses, without expense reimbursement................................. -- -- 1.04% --
Net investment income................................................... 5.58% 5.27% 5.29% 5.56%
Net investment income, without expense reimbursement.................... -- -- 5.21% --
Portfolio turnover rate................................................... 49% 4% 4% 6%
<CAPTION>
1991 1990 1989 1988
------- ------- ------- --------
<S> <<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................................... $12.18 $12.37 $12.26 $11.91(1)
------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................................... .905 .91 .92 .25
Expenses................................................................ (.145) (.16) (.23) (.07)
Expense reimbursement................................................... -- .01 .08 .01
------- ------- ------- --------
Net investment income..................................................... .76 .76 .77 .19
Net realized and unrealized gain or loss on securities.................... .648 (.185) .10 .315
------- ------- ------- --------
Total from investment operations.......................................... 1.408 .575 .87 .505
------- ------- ------- --------
DISTRIBUTIONS FROM NET INVESTMENT INCOME.................................. (.748) (.765) (.76) (.155)
------- ------- ------- --------
Net asset value, end of period............................................ $12.84 $12.18 $12.37 $12.26
======= ========= ======= ========
TOTAL RETURN(3)........................................................... 11.79% 4.77% 7.31% 4.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)................................... $42.5 $37.1 $24.7 $6.4
Ratios to average net assets (annualized)
Expenses................................................................ 1.15% 1.25% 1.25% 1.91%
Expenses, without expense reimbursement................................. -- 1.28% 1.93% 2.22%
Net investment income................................................... 6.08% 6.21% 6.28% 5.55%
Net investment income, without expense reimbursement.................... -- 6.18% 5.60% 5.24%
Portfolio turnover rate................................................... 1% 4% 0% 5%
</TABLE>
- --------------------------------------------------------------------------------
(1) The net asset value on July 13, 1988, the date the Fund commenced
operations.
(2) The net asset value on December 15, 1987, the date the Fund commenced
operations.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
16
<PAGE> 19
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share of beneficial interest outstanding throughout the period)
The information through October 31, 1995 has been audited by the Trust's
independent auditors, Ernst & Young LLP, whose report thereon was unqualified.
This information should be read in conjunction with the related financial
statements and notes thereto included in the Statement of Additional
Information.
MONEY MARKET FUND -- CLASS 1 SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
---------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................................... $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income..................................................... .0593 .0388 .033 .0424 .0647
Expenses.............................................................. (.0172) (.0184) (.0174) (.016) (.014)
Expense reimbursement................................................. .0071 .0084 .0074 .006 .0041
-------- -------- -------- -------- -------
Net investment income................................................... .0492 .0288 .023 .0324 .0548
Net realized and unrealized gain or loss on securities.................. -- -- -- -- --
-------- -------- -------- -------- -------
Total from investment operations........................................ .0492 .0288 .023 .0324 .0548
-------- -------- -------- -------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME................................ (.0492) (.0288) (.023) (.0324) (.0548)
-------- -------- -------- -------- -------
Net asset value, end of period.......................................... $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== =======
TOTAL RETURN(3)......................................................... 5.01% 2.91% 2.31% 3.29% 5.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)................................. $60.3 $56.4 $59.2 $72.5 $84.8
Ratios to average net assets (annualized)
Expenses.............................................................. 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, without expense reimbursement............................... 1.71% 1.84% 1.74% 1.60% 1.41%
Net investment income................................................. 4.89% 2.87% 2.30% 3.27% 5.53%
Net investment income, without expense reimbursement.................. 4.18% 2.03% 1.56% 2.67% 5.12%
<CAPTION>
1990 1989 1988
------- ------- ---------
<S> <<C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................................... $1.00 $1.00 $1.00(2)
------- ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income..................................................... .0839 .0946 .068
Expenses.............................................................. (.014) (.012) (.015)
Expense reimbursement................................................. .004 .002 .007
------- ------- ---------
Net investment income................................................... .0739 .0846 .06
Net realized and unrealized gain or loss on securities.................. -- -- (.0037)
------- ------- ---------
Total from investment operations........................................ .0739 .0846 .0563
------- ------- ---------
DISTRIBUTIONS FROM NET INVESTMENT INCOME................................ (.0739) (.0846) (.0563)
------- ------- ---------
Net asset value, end of period.......................................... $1.00 $1.00 $1.00
======= ======= =========
TOTAL RETURN(3)......................................................... 7.61% 8.80% 5.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in millions)................................. $95.7 $66.2 $21.1
Ratios to average net assets (annualized)
Expenses.............................................................. 1.00% 1.00% .94%
Expenses, without expense reimbursement............................... 1.36% 1.18% 1.76%
Net investment income................................................. 7.37% 8.51% 7.10%
Net investment income, without expense reimbursement.................. 7.01% 8.33% 6.28%
</TABLE>
- --------------------------------------------------------------------------------
(1) The net asset value on July 13, 1988, the date the Fund commenced
operations.
(2) The net asset value on December 15, 1987, the date the Fund commenced
operations.
(3) Total returns for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
17
<PAGE> 20
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share of beneficial interest outstanding throughout the period)
The following information for the period May 3, 1994 through October 31,
1995 has been audited by the Trust's independent auditors, Ernst & Young LLP,
whose report thereon was unqualified. This summary should be read in conjunction
with the related financial statements and notes thereto included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
GROWTH GROWTH & INCOME
------------------------------------------ -----------------------------------------
CLASS A(2) CLASS B(2) CLASS A(2) CLASS B(2)
------------------ ------------------ ------------------ ------------------
MAY 3, MAY 3, MAY 3, MAY 3,
YEAR- 1994(1) YEAR- 1994(1) YEAR- 1994(1) YEAR- 1994(1)
ENDED THROUGH ENDED THROUGH ENDED THROUGH ENDED THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995 1994 1995 1994
------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period... $11.89 $11.81 $11.85 $11.81 $11.71 $11.81 $11.70 $ 11.81
------ ------ ------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT
OPERATIONS
Investment income..... .28 .29 .27 .28 .41 .42 .42 .42
Expenses.............. (.37) (.29) (.46) (.32) (.31) (.21) (.41) (.25)
------ ------ ------ ------ ------ ------- ------ -------
Net investment income
(loss)................ (.09) 0 (.19) (.04) .10 .21 .01 .17
Net realized and
unrealized gains or
losses on securities.. 2.77 .08 2.75 .08 2.255 (.26) 2.234 (.251)
------ ------ ------ ------ ------ ------- ------ -------
Total from investment
operations............ 2.68 .08 2.56 .04 2.355 (.05) 2.244 (.081)
------ ------ ------ ------ ------ ------- ------ -------
Less Distributions from
net investment
income................ -- -- -- -- (.10) (.05) (.01) (.029)
Excess of book-basis net
investment income..... -- -- -- -- (.045) -- (.054) --
------ ------ ------ ------ ------ ------- ------ -------
Total distributions..... -- -- -- -- (.145) (.05) (.064) (.029)
------ ------ ------ ------ ------ ------- ------ -------
Net asset value, end of
period................ $14.57 $11.89 $14.41 $11.85 $13.92 $11.71 $13.88 $ 11.70
====== ====== ======= ======= ====== ======= ======= ========
TOTAL RETURN(3)......... 22.44% .76% 21.50% .42% 20.20% (.42%) 19.19% (.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)..... $21.1 $ 4.4 $33.3 $ 5.8 $13.5 $ 3.5 $21.2 $ 3.6
Ratios to average net assets
(annualized)
Expenses.............. 2.75% 4.89% 3.50% 5.79% 2.44% 3.37% 3.15% 4.42%
Expenses, without
expense
reimbursement....... 2.90% -- 3.65% -- 2.59% 3.40% 3.30% 4.45%
Net investment income
(loss).............. (.68%) (.05%) (1.45%) (.78%) .81% 3.38% .05% 3.00%
Net investment income
(loss), without
expense
reimbursement....... (.83%) -- (1.60%) -- .66% 3.35% (.10%) 2.97%
Portfolio turnover
rate.................. 193% 151% 193% 151% 108% 215% 108% 215%
<CAPTION>
GOVERNMENT EMERGING GROWTH INTERNATIONAL EQUITY
------------------------------------------ ------------------------ ----------------------
CLASS A(2) CLASS B(2) CLASS A(2) CLASS B(2) CLASS A(2) CLASS B(2)
------------------ ------------------- ---------- -------- -------- --------
MAY 3, MAY 3, FEBRUARY 21, FEBRUARY 21, FEBRUARY 21, FEBRUARY 21,
YEAR- 1994(1) YEAR- 1994(1) 1995(1) 1995(1) 1995(1) 1995(1)
ENDED THROUGH ENDED THROUGH THROUGH THROUGH THROUGH THROUGH
OCTOBER 31, CTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995 1995 1995 1995
-------- ------ -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period... $11.54 $11.91 $11.54 $11.91 $11.81 $11.81 $11.81 $11.81
-------- ------ -------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income..... .93 .38 .93 .38 .15 .15 .19 .19
Expenses.............. (.32) (.15) (.42) (.18) (.39) (.50) (.33) (.40)
-------- ------ -------- ------ ------ ------ ------ ------
Net investment income
(loss)................ .61 .23 .51 .20 (.24) (.35) (.14) (.21)
Net realized and
unrealized gains or
losses on securities.. .6366 (.40) .6523 (.41) 3.55 3.58 2.19 2.19
-------- ------ -------- ------ ------ ------ ------ ------
Total from investment
operations............ 1.2466 (.17) 1.1623 (.21) 3.31 3.23 2.05 1.98
-------- ------ -------- ------ ------ ------ ------ ------
Less Distributions from
net investment
income................ (.61) (.20) (.51) (.16) -- -- -- --
Excess of book-basis net
investment income..... (.0366) -- (.0523) -- -- -- -- --
-------- ------ -------- ------ ------ ------ ------ ------
Total distributions..... (.6466) (.20) (.5623) (.16) -- -- -- --
-------- ------ -------- ------ ------ ------ ------ ------
Net asset value, end of
period................ $12.14 $11.54 $12.14 $11.54 $15.12 $15.04 $13.86 $13.79
======== ======= ======== ======= ======= ======= ======= =======
TOTAL RETURN(3)......... 11.20% (1.53%) 10.42% (1.83%) 28.11% 27.43% 16.28%(4) 15.69%(4)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)..... $ 9.8 $ 4.6 $ 9.5 $ 2.8 $15.9 $10.8 $ 6.6 $ 2.7
Ratios to average net assets
(annualized)
Expenses.............. 2.74% 2.32% 3.48% 3.25% 2.75% 3.49% 3.64% 4.33%
Expenses, without
expense
reimbursement....... -- -- -- -- 3.37% 4.11% 5.97% 6.67%
Net investment income
(loss).............. 5.11% 3.54% 4.32% 3.49% (1.65%) (2.45%) (1.40%) (2.80%)
Net investment income
(loss), without
expense
reimbursement....... -- -- -- -- (2.27%) (3.07%) (3.73%) (5.13%)
Portfolio turnover
rate.................. 113% 155% 113% 155% 83% 83% 17% 17%
</TABLE>
(1) Commencement of operations.
(2) Based on average shares outstanding.
(3) Total return for periods of less than one year have not been annualized.
Total return does not consider the effect of sales charges.
(4) Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995.
18
<PAGE> 21
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
The Trust is a duly organized Massachusetts business trust with a number of
separate Funds, seven of which are described in this Prospectus. Each Fund has
separate assets and liabilities and a separate net asset value per share. Shares
of a Fund represent an interest only in the assets of that Fund. Since market
risks are inherent in all securities to varying degrees, assurance cannot be
given that the goal of any of the Funds will be met.
- --------------------------------------------------------------------------------
GOALS AND INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Although each Fund of the Trust has a different goal which it pursues
through separate investment policies described below, each Fund, except the
International Equity Fund, will not purchase any securities issued by any
company primarily engaged in the manufacture of alcohol or tobacco. The
differences in goals and investment policies among the Funds can be expected to
affect the return of each Fund and the degree of market and financial risk to
which each Fund is subject. The goal and investment policies, the percentage
limitations, and the kinds of securities in which each Fund may invest are
generally not fundamental policies and may be changed by the Trustees, unless
expressly governed by those limitations as described under "Investment Practices
and Risks" which can be changed only by action of the shareholders. If there is
a change in the goal of any Fund, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs.
EMERGING GROWTH FUND
The goal of the Emerging Growth Fund is to seek capital appreciation by
investing in a portfolio of securities consisting principally of common stocks
of small and medium sized companies considered by the Adviser to be emerging
growth companies. Any ordinary income received from portfolio securities is
entirely incidental. There can, of course, be no assurance that the objective of
capital appreciation will be realized; therefore, full consideration should be
given to the risks inherent in the investment techniques that the Adviser may
use to achieve such objective.
Under normal conditions, the Fund invests at least 65% of its total assets
in common stocks of small and medium sized companies, both domestic and foreign,
in the early stages of their life cycle that the Adviser believes have the
potential to become major enterprises. Investments in such companies may offer
greater opportunities for growth of capital than larger, more established
companies, but also may involve certain special risks. Emerging growth companies
often have limited product lines, markets, or financial resources, and they may
be dependent upon one or a few key people for management. The securities of such
companies may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. While the Fund will invest primarily in common stocks, to a limited
extent, it may invest in other securities such as preferred stocks, convertible
securities and warrants.
The Fund does not limit its investment to any single group or type of
security. The Fund may also invest in special situations involving new
management, special products and techniques, unusual developments, mergers or
liquidations. Investments in unseasoned companies and special situations often
involve much greater risks than are inherent in ordinary investments, because
securities of such companies may be more likely to experience unexpected
fluctuations in price.
The Fund's primary approach is to seek what the Adviser believes to be
unusually attractive growth investments on an individual company basis. The Fund
may invest in securities that have above average volatility of price movement.
Because prices of common stocks and other securities fluctuate, the value of an
investment in the Fund will vary based upon the Fund's investment performance.
The Fund attempts to reduce overall exposure to risk from declines in securities
prices by spreading its investments over many different companies in a variety
of industries. There is, however, no assurance that the Fund will be successful
in achieving its objective.
The Fund may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. Such investments may be increased by the Fund up to 100% of its
assets, when deemed appropriate by the Adviser for temporary defensive purposes.
Short-term investments may include repurchase agreements with banks or
broker-dealers. See "Investment Practices and Risks -- Repurchase Agreements."
The Fund may invest up to 20% of its total assets in securities of foreign
issuers. See "Investment Practices and Risks -- Securities of Foreign Issuers."
INTERNATIONAL EQUITY FUND
The goal of the International Equity Fund is to seek total return on its
assets from growth of capital and income. The Fund seeks to achieve its goal by
investing at least 65% of its assets in a diversified portfolio of equity
securities of established non-United States issuers.
Under normal market conditions, the Fund invests at least 65% of its total
assets in a diversified portfolio of equity securities consisting of dividend
and non-dividend paying common stock, preferred stock, convertible debt and
rights and warrants to such securities and up to 35% of the Fund's assets in
bonds, notes and debt securities (consisting of securities issued in the
Eurocurrency markets or obligations of the United States or foreign governments
and their political subdivisions) of established non-United States issuers.
Investments may be made for capital appreciation or for income or any
combination of both for the purpose of achieving a higher overall return than
might otherwise be obtained solely from investing for growth of capital or for
income. There is no limitation on the percentage or amount of the Fund's assets
which may be invested for growth or income and, therefore, from time to time the
investment emphasis may be placed solely or primarily on growth of capital or
solely or primarily on income.
19
<PAGE> 22
In seeking to achieve its goal, the Fund presently expects to invest its
assets primarily in common stocks of established non-United States companies
which in the opinion of the Subadviser have potential for growth of capital.
However, there is no requirement that the Fund invest exclusively in common
stocks or other equity securities and, if deemed advisable, the Fund may invest
up to 35% of its assets in bonds, notes and other debt securities (including
securities issued in the Eurocurrency markets or obligations of the United
States or foreign governments and their political subdivisions). The Fund may
invest in debt securities rated A or higher by Moody's Investors Services, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") or other nationally
recognized statistical rating agency or in nonrated securities considered by the
Subadviser to be of comparable quality. When the Subadviser believes that the
return on debt securities will equal or exceed the return on common stocks, the
Fund may, in seeking its goal of total return, substantially increase its
holdings (up to a maximum of 35% of its assets) in such debt securities. In
determining whether the Fund will be invested for capital appreciation or for
income or any combination of both, the Subadviser regularly analyzes a broad
range of international equity and fixed income markets in order to assess the
degree of risk and level of return that can be expected from each market.
In general, the prices of debt securities vary inversely with interest
rates. If interest rates rise, debt security prices generally fall; if interest
rates fall, debt security prices generally rise. In addition, for a given change
in interest rates, longer-maturity debt securities fluctuate more in price
(gaining or losing more in value) than shorter-maturity debt securities, and
generally offer higher yields than shorter-maturity debt securities, all other
factors, including credit quality, being equal.
The Fund will generally invest its assets broadly among countries and will
normally have represented in the portfolio business activities in not less than
three different foreign countries. Except as stated below, the Fund will invest
at least 65% of its assets in companies organized or governments located in any
area of the world other than the United States, such as the Far East (e.g.,
Japan, Hong Kong, Singapore, Malaysia), Western Europe (e.g., United Kingdom,
Germany, The Netherlands, France Italy, Switzerland), Eastern Europe (e.g.,
Hungary, Poland, The Czech Republic and the countries of the former Soviet
Union), Central and South America (e.g., Mexico, Chile and Venezuela),
Australia, Canada and such other areas and countries as the Subadviser may
determine from time to time. However, under unusual economic or market
conditions as determined by the Subadviser, for defensive purposes the Fund may
temporarily invest all or a major portion of its assets in U.S. Government
securities or in United States currency denominated debt issues of foreign
governments or agencies. To the extent the Fund's assets are invested for
temporary defensive purposes, such assets will not be invested in a manner
designed to achieve the Fund's investment goal.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Subadviser ordinarily considers the
following factors: prospects for relative economic growth between countries;
expected levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range of individual
investment opportunities available to international investors. In the future, if
any other relevant factors arise they will also be considered. In analyzing
companies for investment, the Subadviser ordinarily looks for one or more of the
following characteristics: an above-average earnings growth per share; high
return on invested capital; healthy balance sheet; sound financial and
accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing; efficient
service; pricing flexibility; strength of management; and general operating
characteristics which will enable the company to compete successfully in its
market place. Ordinarily, the Subadviser will not view a company as being
sufficiently well established to be considered for inclusion in the Fund's
portfolio's unless the company, together with any predecessors, has been
operating for at least three fiscal years.
It is expected that portfolio securities will ordinarily be traded on a
stock exchange or other market in the country in which the issuer is principally
based, but may also be traded on markets in other countries including, in many
cases, the United States securities exchanges and over-the-counter markets.
To the extent that the Fund's assets are not otherwise invested as
described above, the assets may be held in cash, in any currency, or invested in
United States as well as foreign high quality money market instruments and
equivalents.
GROWTH FUND
The goal of the Growth Fund is to seek capital appreciation through
investments in common stocks and options on common stocks. Any income realized
on its investments will be purely incidental to its goal of capital
appreciation.
Portfolio securities are selected by the Adviser using an investment
research process blending traditional security analysis and quantitative
security selection techniques. Such process includes focusing on securities of
companies that the Adviser believes either: (1) experienced above-average and
consistent long-term growth of earnings and have excellent prospects for
outstanding future growth in earnings; (2) are presently experiencing or
expected to have a material increase in profits and sales; (3) are undervalued
either in that such securities are selling at prices that do not reflect the
current market value of its securities and there is reason to expect realization
of this potential in the form of increased equity values or that the potential
improving prospects of the security is not reflected in the price of the
security; (4) will experience a fundamental change in structure that potentially
may result in higher earnings; or (5) will produce new products, new services or
new processes. The Fund may invest in options and other securities that have
above average volatility of price movement. Because prices of common stocks,
options and other investments fluctuate, the value of an investment in the Fund
will vary based upon the Fund's investment performance. The Fund attempts to
reduce overall exposure to risk from declines in securities prices by spreading
its investments over many different companies in a variety of industries and by
using stock index options and stock index futures and options thereon, as
discussed in the Statement of Additional Information. There is no assurance that
the Fund will be successful in achieving its goal.
The Fund may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. The amount of assets the Fund may hold for liquidity purposes is
based on market conditions and the need to meet redemption requests. Such
investments may be increased by the Fund, up to 100% of its assets, when deemed
appropriate by the Adviser for temporary defensive
20
<PAGE> 23
purposes. A description of the ratings of commercial paper and bonds is
contained in the Appendix to the Statement of Additional Information. Short-term
investments may include repurchase agreements with banks or broker-dealers. See
"Investment Practices and Risks -- Repurchase Agreements."
Certain policies of the Fund, such as purchasing and selling options on
stocks, purchasing options on stock indices and purchasing stock index futures
contracts and options thereon inherently involve greater than ordinary
investment risk and the likelihood of more volatile price fluctuations. Options,
futures contracts and related options are described in "Investment Practices and
Risks -- Options, Futures Contracts and Related Options" and the Statement of
Additional Information. The Fund may also invest up to 20% of its total assets
in securities of foreign issuers and in investment companies. See "Investment
Practices and Risks -- Securities of Foreign Issuers" and "Investment in
Investment Companies." Since the Fund may take substantial risks in seeking its
goal of capital appreciation, it is not suitable for investors unable or
unwilling to assume such risks.
GROWTH AND INCOME FUND
The goal of Growth and Income Fund is to seek reasonable growth and income
through investments in equity securities that provide dividend or interest
income, including common and preferred stocks and securities convertible into
common and preferred stocks.
Portfolio securities are selected by the Adviser using an investment
research process blending traditional security analysis and quantitative
security selection techniques. Such process includes focusing on securities of
companies that the Adviser believes either: (1) experienced above-average and
consistent long-term growth of earnings and have excellent prospects for
outstanding future growth in earnings; (2) are presently experiencing or
expected to have a material increase in profits and sales; (3) are undervalued
either in that such securities are selling at prices that do not reflect the
current market value of its securities and there is reason to expect realization
of this potential in the form of increased equity values or that the potential
improving prospects of the security is not reflected in the price of the
security; (4) will experience a fundamental change in structure that potentially
may result in higher earnings; or (5) will produce new products, new services or
new processes. In general, the Fund intends to invest primarily in securities
that have yielded a dividend or interest income to security holders within the
past twelve months; however, it may invest in non-income producing investments
held for anticipated increase in value. There is no assurance that the Fund will
be successful in achieving its goal.
Convertible securities rank senior to common stocks in a corporation's
capital structure. They are consequently of higher quality and entail less risk
than the corporation's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as fixed income security. The Fund may purchase
convertible securities rated Ba or lower by Moody's Investors Services, Inc.
("Moody's") or BB or lower by Standard & Poor's Corporation ("S&P") or in
non-rated securities considered by the Adviser to be of comparable quality.
Although the Fund selects these securities primarily on the basis of their
equity characteristics, investors should be aware that debt securities rated in
these categories are considered high risk securities; the rating agencies
consider them speculative, and payment of interest and principal is not
considered well assured. To the extent that such convertible securities are
acquired by the Fund there is a greater risk as to the timely payment of the
principal of, and timely payment of interest or dividends on, such securities
than in the case of higher rated convertible securities.
Although the portfolio turnover rate will not be considered a limiting
factor, the Fund does not intend to engage in trading directed at realizing
short-term profits. Nevertheless, changes in the portfolio will be made promptly
when determined to be advisable by reason of developments not foreseen at the
time of the investment decision, and usually without reference to the length of
time the security has been held.
The Fund may hold a portion of its assets in high grade short-term debt
securities and high grade corporate or government bonds in order to provide
liquidity. The amount of assets the Fund may hold for liquidity purposes is
based on market conditions and the need to meet redemption requests. Such
investments may be increased by the Fund, up to 100% of its assets, when deemed
appropriate by the Adviser for temporary defensive purposes. Short-term
investments may include repurchase agreements with banks or broker-dealers. See
"Investment Practices and Risks -- Repurchase Agreements." The Fund may also
invest up to 20% of its total assets in securities of foreign issuers and in
investment companies. See "Investment Practices and Risks -- Securities of
Foreign Issuers" and "Investment in Investment Companies." The Fund may engage
in portfolio management strategies and techniques involving options, futures
contracts and options on futures. Options, futures contracts and related options
are described in "Investment Practices and Risks -- Options, Futures Contracts
and Related Options" and the Statement of Additional Information.
GOVERNMENT FUND
The goal of the Government Fund is to seek high current return consistent
with preservation of capital. The Fund invests primarily in debt securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
In order to hedge against changes in interest rates, the Fund may purchase or
sell options on U.S. Government securities and engage in transactions involving
interest rate futures contracts and options on such contracts. See "Investment
Practices and Risks -- Options, Futures Contracts and Related Options" and the
Statement of Additional Information for further discussion. The Fund may invest
in repurchase agreements fully collateralized by U.S. Government securities. The
Fund may also purchase or sell U.S. Government securities on a forward
commitment basis. See "Investment Practices and Risks -- Repurchase Agreements"
and "Forward Commitments." The Fund is not designed for investors seeking
long-term capital appreciation. Shares of the Fund are not insured or guaranteed
by the U.S. Government, its agencies or instrumentalities or by any other person
or entity. There is no assurance that the Fund will be successful in achieving
its goal.
The Fund may also engage in transactions involving obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are supported
by any of the following: (a) the full faith and credit of the U.S. Government
(such as Government National Mortgage Association ("GNMA" Certificates), (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Government, (c) discretionary authority of the U.S. Government
agency or instrumentality, or (d) the credit of the instrumentality. Agencies
and instrumentalities include, but are not limited to: Federal Land Banks,
Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks and
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Federal National Mortgage Association. The Fund expects in any event that at all
times at least 80% of its assets will be invested in U.S. Government
securities.
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities include: (1) U.S. Treasury obligations, which differ in their
interest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturity of one to ten years), and
U.S. Treasury bonds (generally maturities of greater than ten years), including
the principal components or the interest components issued by the U.S.
Government under the Separate Trading of Registered Interest and Principal of
Securities program (i.e., "STRIPS"), all of which are backed by the full faith
and credit of the United States; and (2) obligations issued or guaranteed by
U.S. Government agencies or instrumentalities, including government guaranteed
mortgage-related securities, some of which are backed by the full faith and
credit of the U.S. Treasury, some of which are supported by the right of the
issue to borrow from the U.S. Government and some of which are backed only by
the credit of the issuer itself.
Mortgage loans made by banks, savings and loan institutions, and other
lenders are often assembled into pools, which are issued or guaranteed by an
agency or instrumentality of the U.S. Government, though not necessarily by the
U.S. Government itself. Interests in such pools are what this Prospectus calls
"mortgage-related securities."
Mortgage-related securities include, but are not limited to, obligations
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA is a wholly owned corporate instrumentality
of the United States whose securities and guarantees are backed by the full
faith and credit of the United States. FNMA, a federally chartered and
privately-owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the United States. The securities and guarantees of FNMA
and FHLMC are not backed, directly or indirectly, by the full faith and credit
of the United States. Although the Secretary of the Treasury of the United
States has discretionary authority to lend FNMA up to $2.25 billion outstanding
at any time, neither the United States nor any agency thereof is obligated to
finance FNMA's or FHLMC's operations or to assist FNMA or FHLMC in any other
manner. Securities of FNMA and FHLMC include those issued in principal only or
interest only components.
Mortgage-related securities are characterized by monthly payments to the
holder, reflecting the monthly payments made by the borrowers who received the
underlying mortgage loans. The payments to the securityholders (such as the
Fund), like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, such as 20 or 30 years, the borrowers can, and typically do, pay them off
sooner. Thus, the securityholders frequently receive prepayments of principal,
in addition to the principal which is part of the regular monthly payment. A
borrower is more likely to prepay a mortgage which bears a relatively high rate
of interest. This means that in times of declining interest rates, some of the
Fund's higher yielding securities might be converted to cash, and the Fund will
be forced to accept lower interest rates when that cash is used to purchase
additional securities. The increased likelihood of prepayment when interest
rates decline also limits market price appreciation of mortgage-related
securities. If the Fund buys mortgage-related securities at a premium, mortgage
foreclosures or mortgage prepayments may result in a loss to the Fund of up to
the amount of the premium paid since only timely payment of principal and
interest is guaranteed.
In general, the prices of debt securities vary inversely with interest
rates. If interest rates rise, debt security prices generally fall; if interest
rates fall, debt security prices generally rise. In addition, for a given change
in interest rates, longer-maturity debt securities fluctuate more in price
(gaining or losing more in value) than shorter-maturity debt securities, and
generally offer higher yields than shorter-maturity debt securities, all other
factors, including credit quality, being equal. This potential for a decline in
prices of debt securities due to rising interest rates is referred to herein as
"market risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, the Adviser seeks to moderate market risk by
generally maintaining a portfolio duration within a range of approximately four
to six years. Duration is a measure of the expected life of a debt security that
was developed as a more precise alternative to the concept of "term to
maturity." Duration incorporates a debt security's yield, coupon interest
payments, final maturity and call features into one measure.
Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration measures the length of the
time interval between the present and the time when the interest and principal
payments are scheduled to be received (or in the case of a callable bond,
expected to be received), weighing them by the present value of the cash to be
received at each future point in time. In general, the lower the coupon rate of
interest or the longer the maturity, or the lower the yield-to-maturity of a
debt security, the longer its duration; conversely, the higher the coupon rate
of interest, the shorter the maturity or the higher the yield-to-maturity of a
debt security, the shorter its duration.
With respect to some securities, there are some situations where even the
standard duration calculation does not properly reflect the interest rate
exposure of a security. In these and other similar situations, the Adviser will
use more sophisticated analytical techniques that incorporate the economic life
of a security into the determination of its interest rate exposure. At October
31, 1995, the average maturity of the debt securities owned by the Fund, as
adjusted for investments in options, futures contracts and related options, was
approximately 6.3 years and the duration of the portfolio was approximately 4.8
years. The duration is likely to vary from time to time as the Adviser pursues
its strategy of striving to maintain an active balance between seeking to
maximize income and endeavoring to maintain the value of the Fund's capital.
Thus, the objective of providing high current return consistent with
preservation of capital to shareholders is tempered by seeking to avoid undue
market risk and thus provide reasonable total return as well as high distributed
return. There is, of course, no assurance that the Adviser will be successful in
achieving such results for the Fund.
The Fund generally purchases debt securities at a premium over the
principal or face value in order to obtain higher current income. The amount of
any premium declines during the term of the security to zero at maturity. Such
decline generally is reflected in the market price of the security and
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thus in the Fund's net asset value. Any such decline is realized for accounting
purposes as a capital loss at maturity or upon resale. Prior to maturity or
resale, such decline in value could be offset, in whole or part, or increased by
changes in the value of the security due to changes in interest rate levels.
The principal reason for selling call or put options is to obtain, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. By selling options, the Fund reduces its potential
for capital appreciation on debt securities if interest rates decline. Thus if
market prices of debt securities increase, the Fund receives less total return
from its optioned positions than it would have received if the options had not
been sold. The purpose of selling options is intended to improve the Fund's
total return and not to "enhance" monthly distributions. During periods when the
Fund has capital loss carry forwards any capital gains generated from such
transactions will be retained in the Fund. See "Investment Practices and
Risks -- Options, Futures Contracts and Related Options," "Dividends,
Distributions and Taxes" and the Statement of Additional Information for further
discussion.
The purchase and sale of options may result in a high portfolio turnover
rate. The Fund's turnover rate is shown in the table of Financial Highlights.
See "Investment Practices and Risks -- Portfolio Turnover."
MUNICIPAL BOND FUND
The goal of the Municipal Bond Fund is to seek as high a level of current
interest income exempt from federal income tax as is consistent with the
preservation of capital. Because the value of and yield on Municipal Bonds
fluctuate, there can be no assurance that the Fund's goal will be achieved.
The Fund seeks to achieve its objective by investing in a diversified
portfolio of obligations issued by or on behalf of states, territories or
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which,
in the opinion of bond counsel for the issuer, is exempt from federal income
tax. See "Municipal Bonds." It is a fundamental policy of the Fund under normal
conditions to invest at least 80% of its assets in Municipal Bonds which are
considered tax-exempt. The Fund does not independently evaluate the tax-exempt
status of the Municipal Bonds in which it invests. The Fund invests principally
in Municipal Bonds rated at the time of purchase within the three highest grades
assigned by Moody's or S & P. Ratings at the time of purchase determine which
securities may be acquired, and a subsequent reduction in rating does not
require the Fund to dispose of a security. At least 75% of the Fund's total
assets will be invested in Municipal Bonds rated "A" or higher. The Fund may
invest up to 25% of its total assets in Municipal Bonds rated "Baa" by Moody's
or "BBB" by S & P or any non-rated Municipal Bonds having characteristics
similar to Municipal Bonds rated "Baa" or "BBB." Municipal Bonds rated BBB or
Baa may have speculative characteristics so that changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher grade Municipal
Bonds. The market prices of Municipal Bonds generally fluctuate with changes in
interest rates so that the value of investments in such securities can be
expected to decrease as interest rates rise and increase as interest rates fall.
Because investment in lower rated securities involves greater investment risks,
achievement of the Fund's goal may be more dependent on the Adviser's credit
analysis than would be the case if the Fund invested only in higher rated
securities. Non-rated Municipal Bonds are not necessarily of lower quality than
rated Municipal Bonds, but the market for rated Municipal Bonds is often
broader. The Fund may seek to hedge against changes in interest rates through
transactions in listed futures contracts related to U.S. Government securities,
Municipal Bonds or to an index of Municipal Bonds, and options on such
contracts. See the Statement of Additional Information for discussion of futures
contracts and options.
On a temporary basis, due to market conditions or pending investment in
Municipal Bonds, the Fund may invest up to 100% of its assets in "Temporary
Investments" consisting of short-term municipal notes rated MIG 1 through MIG 4
by Moody's or SP-1 or SP-2 by S & P; tax-exempt commercial paper rated P-1 or
P-2 in the case of Moody's or A-1 or A-2 by S & P; securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; corporate
bonds and debentures; certificates of deposit and bankers' acceptances of
domestic banks with assets of $500 million or more and having deposits insured
by the Federal Deposit Insurance Corporation; commercial paper and repurchase
agreements. The income on corporate bonds and debentures, certificates of
deposit and bankers' acceptances, commercial paper and repurchase agreements is
taxable. See the Appendix in the Statement of Additional Information for
discussion of ratings of commercial paper and bonds.
The Fund may invest up to 10% of its net assets in illiquid securities
which include Municipal Bonds issued in limited placements under which the Fund
represents that it is purchasing for investment purposes only, repurchase
agreements maturing in more than seven days and other securities subject to
legal or contractual restrictions on resale. Municipal Bonds acquired in limited
placements generally may be resold only in a privately negotiated transaction to
one or more other institutional investors. Restricted securities are generally
purchased at a discount from the market price of unrestricted securities of the
same issuer. Investments in restricted securities are not readily marketable
without some time delay. A Fund position in restricted securities might
adversely affect the liquidity and marketability of such securities. Such
limitation could result in the Fund's inability to realize a favorable price
upon disposition, and in some cases might make disposition of such securities at
the time desired by the Fund impossible. The 10% limitation applies at the time
the purchase commitment is made. See "Investment Practices and
Risks -- Repurchase Agreements."
Variations in the quality and maturity of the Fund's portfolio investments
can be expected to affect the Fund's yield and the degree of market and
financial risk to which the Fund is subject. Generally, Municipal Bonds with
longer maturities tend to produce higher yields and are subject to greater
market fluctuations as a result of changes in interest rates than Municipal
Bonds with shorter maturities and lower yields. The market value of Municipal
Bonds generally rises when interest rates decline and falls when interest rates
rise. Generally lower rated Municipal Bonds provide a higher yield than higher
rated Municipal Bonds of similar maturity but are subject to greater market and
financial risk. The Fund is not limited as to the maturities of the Municipal
Bonds in which it invests. Such securities may have remaining maturities of up
to 30 years or more.
MUNICIPAL BONDS. Municipal Bonds include debt obligations of a state,
territory or a possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities issued to obtain
funds for various public purposes, including the construction of a wide range of
public facilities such as airports, highways, bridges, schools, hospitals,
housing, mass transportation, streets and water and sewer
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works. Other public purposes for which Municipal Bonds may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to other public institutions and
facilities. Certain types of Municipal Bonds are issued to obtain funding for
privately operated facilities.
Many new issues of Municipal Bonds are sold on a "when issued" basis. While
the Fund has ownership rights to the bonds, the Fund does not have to pay for
them until they are delivered, normally 15 to 45 days later. To meet that
payment obligation, the Fund sets aside with the custodian sufficient cash or
high grade securities equal to the amount that will be due. When the Fund
engages in when-issued and delayed delivery transactions, the Fund relies on the
buyer or seller, as the case may be, to consummate the trade. Failure of the
buyer or seller to do so may result in the Fund missing the opportunity of
obtaining a price considered to be advantageous. See "Investment Practices and
Risks -- Delayed Delivery and When-Issued Securities."
The yields of Municipal Bonds depend on, among other things, general money
market conditions, general conditions of the Municipal Bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of Moody's and S & P represent their opinions of the quality of the
Municipal Bonds they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
Municipal Bonds with the same maturity, coupon and rating may have different
yields while Municipal Bonds of the same maturity and coupon with different
ratings may have the same yield. A description of the ratings is included in the
Statement of Additional Information.
Among the various types of Municipal Bonds are general obligation bonds,
revenue or special obligation bonds, industrial development bonds, pollution
control bonds, variable rate demand notes, and short-term tax-exempt municipal
obligations such as tax anticipation notes.
General obligation bonds are backed by the taxing power of the issuing
municipality. Revenue bonds are backed by the revenues of a project or
facility -- tolls from a toll-bridge, for example. Industrial development
revenue bonds are a specific type of revenue bond backed by the credit and
security of a private user. The Fund's ability to achieve its goal depends to a
great extent on the ability of these various issuers to meet their scheduled
payments of principal and interest.
The Fund considers investments in Municipal Bonds not to be subject to
concentration policies and may invest a relatively high percentage of its assets
in Municipal Bonds issued by entities having similar characteristics. The
issuers may be located in the same geographic area or may pay their interest
obligations from revenue of similar projects such as hospitals, utility systems
and housing finance agencies. This may make the Fund's investments more
susceptible to similar economic, political or regulatory occurrences. As the
similarity in issuers increases, the potential for fluctuation in the Fund's per
share net asset value also increases. The Fund may invest more than 25% of its
total assets in industrial development revenue bonds, but it does not intend to
invest more than 25% of its assets in industrial development revenue bonds
issued for companies in the same industry or state. Sizeable investments in such
obligations could involve an increased risk to the Fund should any of such
issuers of any such related projects or facilities experience financial
difficulties.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Bonds. It may be expected that similar proposals may be
introduced in the future. If any such proposals were to be enacted, the ability
of the Fund to pay "exempt-interest" dividends may be adversely affected and the
Fund would re-evaluate its investment objective and policies and consider
changes in its structure.
TAX LEGISLATION. Interest on certain "private-activity bonds" issued after
August 7, 1986, is an item of tax preference subject to the alternative minimum
tax on individuals and corporations. THE TRUST WILL NOT PURCHASE ANY PRIVATE
ACTIVITY BONDS SUBJECT TO THE ALTERNATIVE MINIMUM TAX.
The Omnibus Budget Reconciliation Act of 1993, which was signed into law on
August 10, 1993, included certain provisions intended to prevent the conversion
of ordinary income into capital gain. One such provision affects tax-exempt
securities by requiring that gains on certain debt instruments purchased at a
market discount be treated as ordinary income to the extent of the accrued
market discount. The new law extends this treatment to market discount bonds
issued before July 18, 1984 and to tax-exempt bonds, if the bonds are acquired
after April 30, 1993. Such bonds were exempt from the market discount rules
under prior law.
MONEY MARKET FUND
The Money Market Fund seeks protection of capital and a high level of
current income through investments in money market securities. Such securities
may include obligations of the U.S. Government, its agencies and
instrumentalities, bank obligations, commercial paper and repurchase agreements
secured by obligations of the U.S. Government, its agencies and
instrumentalities. Such securities are described below and repurchase agreements
are described under the caption "Investment Practices and Risks -- Repurchase
Agreements."
The Fund seeks to maintain a constant net asset value of $1.00 per share by
investing in a diversified portfolio of money market instruments maturing within
13 months with a dollar-weighted average maturity of 90 days or less. It seeks
high current income from these short-term investments to the extent consistent
with protection of capital. Of course, there can be no guarantee that the Fund
will achieve its objective or be able at all times to maintain its net asset
value per share at $1.00. In addition, the daily dividend rate paid by the Fund
may be expected to fluctuate. The Fund uses the amortized cost method for
valuing portfolio securities. See "Purchase of Shares."
OBLIGATIONS OF THE U.S. GOVERNMENT AND ITS AGENCIES. The Fund may invest in
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, and instrumentalities which are supported by any of
the following: (a) the full faith and credit of the U.S. Government, (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Government, (c) discretionary authority of
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the U.S. Government agency or instrumentality, or (d) the credit of the
instrumentality. Such agencies or instrumentalities include, but are not limited
to, FNMA, GNMA, Federal Land Banks, and the Farmer's Home Administration.
BANK OBLIGATIONS. The Fund may invest in negotiable time deposits,
certificates of deposit and bankers' acceptances which are obligations of
domestic banks having total assets in excess of $1 billion as of the date of
their most recently published financial statements. The Fund is also authorized
to invest up to 5% of its total assets in certificates of deposit issued by
domestic banks having total assets of less than $1 billion, provided that the
principal amount of the certificate of deposit acquired by the Fund is insured
in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. The Fund may invest in short-term obligations of
companies which at the time of investment are (a) rated in the two highest
categories by S & P (A-1 and A-2) or by Moody's (Prime-1 and Prime-2), or (b) if
not rated, are in the opinion of the Adviser, of comparable quality. Commercial
paper consists of short-term (usually from 1 to 270 days) unsecured promissory
notes issued by corporations in order to finance their current operations. (See
the Statement of Additional Information for an explanation of these ratings.)
The Fund's current policy is to limit investments in commercial paper to
obligations rated A-1 or Prime-1.
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INVESTMENT PRACTICES AND RISKS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (ALL FUNDS). Each Fund may enter into repurchase
agreements with broker-dealers or domestic banks. A repurchase agreement is a
short-term investment in which the purchaser (e.g., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the purchaser's
holding period. Repurchase agreements involve certain risks in the event of a
default by the other party. No Fund will invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by such Fund, exceeds in the case of the Growth Fund,
the Growth and Income Fund, the Government Fund and the Municipal Bond Fund 10%
of the value of the Fund's net assets and, in the case of the Emerging Growth
Fund and the International Equity Fund, 15% of the value of the Fund's net
assets. The International Equity Fund may enter into repurchase agreements of up
to 25% of its assets but the Fund currently does not expect that it will enter
into repurchase agreements on more than 5% of its assets. See the Statement of
Additional Information.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that substantially all of the funds advised or subadvised by
the Adviser would otherwise invest separately into a joint account. The cash in
the joint account is then invested and the funds that contributed to the joint
account share pro rata in the net revenue generated. The Adviser believes that
the joint account produces greater efficiencies and economies of scale that may
contribute to reduced transaction costs, higher returns, higher quality
investments and greater diversity of investments for a Fund than would be
available to a Fund investing separately. The manner in which the joint account
is managed is subject to conditions set forth in the SEC order authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
ADJUSTING INVESTMENT EXPOSURE (ALL FUNDS EXCEPT MONEY MARKET FUND). The
Funds, other than Money Market Fund, can use various techniques to increase or
decrease their exposure to changing security prices, interest rates, commodity
prices, or other factors that affect security values. These techniques may
involve derivative securities such as options, futures contracts, swaps, and
forward commitments, all as discussed more fully below.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS (ALL FUNDS EXCEPT MONEY
MARKET FUND). The Funds expect to utilize options, futures contracts and options
thereon in several different ways, depending upon the status of a Fund's
portfolio and the Adviser's or, in the case of the International Equity Fund,
the Subadviser's, expectations concerning the securities markets.
For example, in times of stable or rising security prices, a Fund generally
seeks to obtain maximum exposure to the securities markets, i.e., to be "fully
invested." Nevertheless, even when a Fund is fully invested, prudent management
requires that at least a small portion of assets be available as cash to honor
redemption requests and for other short-term needs. A Fund may also have cash on
hand that has not yet been invested. The portion of a Fund's assets that is
invested in cash equivalents does not fluctuate with security market prices, so
that, in times of rising market prices, a Fund may underperform the market in
proportion to the amount of cash equivalents in its portfolio. By purchasing
futures contracts, however, a Fund can compensate for the cash portion of its
assets and obtain equivalent performance to investing 100% of its assets in
equity securities.
If the Adviser or, in the case of the International Equity Fund, the
Subadviser, forecasts a market decline, a Fund may take a defensive position,
reducing its exposure to the securities markets by increasing its cash position.
By selling futures contracts instead of portfolio securities, a similar result
can be achieved to the extent that the performance of the futures contracts
correlates to the performance of a Fund's portfolio securities. Sale of futures
contracts could frequently be accomplished more rapidly and at less cost than
the actual sale of securities. Once the desired hedged position has been
effected, a Fund could then liquidate securities in a more deliberate manner,
reducing its futures position simultaneously to maintain the desired balance, or
it could maintain the hedged position.
As an alternative to selling futures contracts, a Fund can purchase puts
(or futures puts) to hedge the portfolio's risk in a declining market. Since the
value of a put increases as the index declines below a specified level, the
portfolio's value is protected against a market decline to the degree the
performance of the index correlates with the performance of a Fund's investment
portfolio. If the market remains stable or advances, a Fund can refrain from
exercising the put and its portfolio will participate in the advance, having
incurred only the premium cost for the put.
In many cases, a Fund could achieve results similar to those available from
options and futures contracts without investing in the options and futures
markets. For example, instead of hedging portfolio securities it owned with
options and futures contracts, the Fund could sell the securities and
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invest the proceeds in money market instruments. In other cases, however, the
options and futures markets provide investment or risk management opportunities
that are not available from direct investments in securities. In addition, some
strategies can be implemented with greater ease and at lower cost by utilizing
the options and futures markets.
The International Equity Fund may enter into futures contracts and options
for non-hedging purposes, subject to applicable law. Such transactions may be
considered a form of speculation.
POTENTIAL RISKS OF OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The
purchase and sale of options and futures contracts involve risks different from
those involved with direct investments in securities. While utilization of
options, futures contracts and similar instruments may be advantageous to a
Fund, if the Adviser or, in the case of the International Equity Fund, the
Subadviser, is not successful in employing such instruments in managing a Fund's
investments, a Fund's performance will be worse than if a Fund did not make such
investments. In addition, a Fund would pay commissions and other costs in
connection with such investments, which may increase a Fund's expenses and
reduce its return.
Each Fund other than the Money Market Fund and the Municipal Bond Fund may
write or purchase options in privately negotiated transactions ("OTC Options")
as well as listed options. OTC Options can be closed out only by agreement with
the other party to the transaction. Any OTC Option purchased by a Fund will be
considered an illiquid security. Any OTC Option written by a Fund will be with a
qualified dealer pursuant to an agreement under which the Fund may repurchase
the option at a formula price. Such options will be considered illiquid to the
extent that the formula price exceeds the intrinsic value of the option. Each
Fund other than the International Equity Fund may not purchase or sell futures
contracts or related options for which the aggregate initial margin and premiums
exceed five percent of the fair market value of the Fund's assets. The
International Equity Fund may enter into transactions in futures contracts and
options on futures contracts only (i) for bona fide hedging purposes (as defined
in the regulations of the Commodity Futures Trading Commission (the "CFTC")), or
(ii) for non-hedging purposes provided that the aggregate initial margin and
premiums on such non-hedging positions does not exceed 5% of the liquidation
value of the Fund's assets. In order to prevent leverage in connection with the
purchase of futures contracts thereon by the Fund, an amount of cash, cash
equivalents or liquid high grade debt securities equal to the market value of
the obligation under the futures contracts (less any related margin deposits)
will be maintained in a segregated account with the Custodian. The Growth Fund,
the Growth and Income Fund, the Government Fund and the Municipal Bond Fund may
not invest more than 10% of their net assets in illiquid securities and
repurchase agreements which have a maturity of longer than seven days; the
Emerging Growth Fund and the International Equity Fund are limited to 15% of
their net assets. The successful use of futures and options is dependent upon
the ability of the Adviser or Subadviser to predict changes in interest rates.
The daily deposit requirements in futures contracts create an ongoing greater
potential financial risk than do option purchase transactions, where the
exposure is limited to the cost of the premium for the option. Transactions in
futures and options on futures for non-hedging purposes involve greater risks
and could result in losses which are not offset by gains on other portfolio
assets. A more complete discussion of the potential risks involved in
transactions involving options or futures contracts and related options, is
contained in the Statement of Additional Information.
SPECIAL RISKS ASSOCIATED WITH FUTURES TRANSACTIONS (ALL FUNDS EXCEPT MONEY
MARKET FUND). There are several risks connected with the use of futures
contracts as a hedging device. These include the risk of imperfect correlation
between movements in the price of the futures contracts and of the underlying
securities, the risk of market distortion, the illiquidity risk and the risk of
error in anticipating price movement.
CURRENCY TRANSACTIONS (INTERNATIONAL EQUITY FUND). In order to protect the
dollar equivalent value of its portfolio securities against declines resulting
from currency value fluctuations and changes in interest rate or other market
changes, the Fund may enter into the following hedging transactions: forward
foreign currency contracts, interest rate and currency swaps and various futures
contracts and related options contracts. The Fund will enter into various
currency transactions, i.e., forward foreign currency contracts, currency swaps,
foreign currency or currency index futures contracts and put and call options on
such contracts or on currencies. A forward foreign currency contract involves an
obligation to purchase or sell a specific currency for a set price at a future
date. A currency swap is an arrangement whereby each party exchanges one
currency for another on a particular date and agrees to reverse the exchange on
a later date at a specific exchange rate. Forward foreign currency contracts and
currency swaps are established in the interbank market conducted directly
between currency traders (usually large commercial banks or other financial
institutions) on behalf of their customers. Futures contracts are similar to
forward contracts except that they are traded on an organized exchange and the
obligations thereunder may be offset by taking an equal but opposite position to
the original contract, with profit or loss determined by the relative prices
between the opening and offsetting positions. Each Fund may enter into these
currency contracts and swaps in primarily the following circumstances to "lock
in" the U.S. dollar equivalent price of a security the Fund is contemplating to
buy or sell that is denominated in a non-U.S. currency; or to protect against a
decline against the U.S. dollar of the currency of a particular country to which
the Fund has exposure. The Fund may seek to achieve the same economic result by
using from time to time for such hedging a currency different from the one of
the given portfolio security as long as, in the view of the Subadviser, such
currency is essentially correlated to the currency of the relevant portfolio
security based on historic and expected exchange rate patterns.
INTEREST RATE TRANSACTIONS (INTERNATIONAL EQUITY FUND). The Fund will enter
into various interest rate transactions (i.e., futures contracts in various
financial instruments and interest rate related indices, put and call options on
such futures contracts and on such financial instruments and interest rate
swaps). The Fund will enter into these transactions primarily to "lock-in" a
return or spread on a particular investment or portion of its portfolio and to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. Interest rate swaps involve the exchange by the Fund
with another party of their respective commitment to pay or receive interest
(e.g., an exchange of floating rate payments for fixed rate payments). The Fund
will not enter into an interest rate swap transaction in which its interest
commitment is greater or measured differently than the interest receivable on
specific portfolio securities. Interest rate swaps may be combined with currency
swaps to take advantage of rate differentials in different markets on the same
or similar securities.
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MARKET INDEX TRANSACTIONS (INTERNATIONAL EQUITY FUND). The Fund may enter
into various market index contracts (i.e., index futures contracts on particular
non-U.S. securities markets or industry segments and related put and call
options). These contracts are used primarily to protect the value of the Fund's
securities against a decline in a particular market or industry in which it is
invested.
POTENTIAL RISKS OF CURRENCY TRANSACTIONS, INTEREST RATE TRANSACTIONS AND
MARKET INDEX TRANSACTIONS (INTERNATIONAL EQUITY FUND). The Fund will engage in
these transactions primarily as a means to hedge risks associated with
management of its portfolio. All of the foregoing transactions present certain
risks. In particular, the variable degree of correlation between price movements
of futures contracts and dollar equivalent price movements in the currency or
security being hedged creates the possibility that losses on the hedge may be
greater than gains in the value of the Fund's securities. In addition, these
instruments may not be liquid in all circumstances and are generally closed out
by entering into offsetting transactions rather than by disposing of the Fund's
obligations. As a result, in volatile markets, the Fund may not be able to close
out a transaction without incurring losses. Although the contemplated use of
these contracts should tend to minimize the risk of loss due to a decline in the
value of the hedged currency or security, at the same time they tend to limit
any potential gain which might result from an increase in the value of such
currency or security.
With respect to interest rate swaps, the Fund recognizes that such
arrangements are relatively illiquid and will include the principal amount of
the obligations owed to it under a swap as an illiquid security for purposes of
the Fund's investment restrictions except to the extent a third party (such as a
large commercial bank) has guaranteed the Fund's ability to offset the swap at
any time.
SECURITIES OF FOREIGN ISSUERS (ALL FUNDS EXCEPT GOVERNMENT FUND). The
International Equity Fund invests at least 65% of its total assets in the equity
securities of foreign issuers and the Emerging Growth Fund, the Growth Fund and
the Growth and Income Fund may invest up to 20% of the value of their total
assets in securities of foreign governments and companies of developed and
emerging markets countries.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Since each Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of investments in the portfolio and the accrued
income and unrealized appreciation or depreciation of investments. Changes in
foreign currency rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and the Fund's yield on
such assets.
Each Fund may also purchase foreign securities in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") or other
securities representing underlying shares of foreign companies. ADRs are
publicly traded on exchanges or over-the-counter in the United States and are
issued through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the ADR holders. In addition, less information is available in the
United States about an unsponsored ADR than about a sponsored ADR, and the
financial information about a company may not be as reliable for an unsponsored
ADR as it is for a sponsored ADR. Each Fund may invest in ADRs through both
sponsored and unsponsored arrangements. For further information on ADRs and
EDRs, investors should refer to the Statement of Additional Information.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign security than
about a United States security, and foreign entities may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of United States entities. In addition, certain foreign
investments made by the Fund may be subject to foreign withholding taxes, which
would reduce the Fund's total return on such investments and the amounts
available for distributions by the Fund to its shareholders. See "Dividends,
Distributions and Taxes." Foreign financial markets, while growing in volume,
have, for the most part, substantially less volume than United States markets,
and securities of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The foreign markets
also have different clearance and settlement procedures, and in certain markets
there have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Fund are not invested and no return is earned thereon. The inability of
each Fund to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to dispose
of portfolio securities due to settlement problems could result either in losses
to the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser. Costs associated with transactions in
foreign securities, including custodial costs and foreign brokerage commissions,
are generally higher than with transactions in United States securities. In
addition, each Fund will incur cost in connection with conversions between
various currencies. There is generally less government supervision and
regulation of exchanges, financial institutions and issuers in foreign countries
than there are in the United States. These risks may be intensified in the case
of investments in developing or emerging markets. In many developing markets,
there is less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. The foreign securities markets of many of the countries in which the
Fund may invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States. Finally, in the event of a default
on any such foreign debt obligations, it may be more difficult for the Fund to
obtain or to enforce a judgment against the issuers of such securities.
The Emerging Growth Fund, the International Equity Fund, the Growth Fund
and the Growth and Income Fund may invest in the securities of developing
countries. A developing country generally is considered to be a country that is
in the initial stages of its industrialization cycle. Investing in the equity
and fixed-income markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and
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to political systems that can be expected to have less stability, than those of
developed countries. Historical experience indicates that the markets of
developing countries have been more volatile than the markets of the more mature
economies of developed countries; however, such markets often have provided
higher rates of return to investors.
One or more of the risks discussed above could affect adversely the economy
of a developing market or a Fund's investments in such a market. In Eastern
Europe, for example, upon the accession to power of Communist regimes in the
past, the governments of a number of Eastern European countries expropriated a
large amount of property. The claims of many property owners against those
governments were never finally settled. There can be no assurance that any
investments that the Fund might make in such emerging markets would not be
expropriated, nationalized or otherwise confiscated at some time in the future.
In such an event, the Fund could lose its entire investment in the market
involved. Moreover, changes in the leadership or policies of such markets could
halt the expansion or reverse the liberalization of foreign investment policies
now occurring in certain of these markets and adversely affect existing
investment opportunities.
FORWARD COMMITMENTS (GOVERNMENT FUND). The Fund may purchase or sell U.S.
Government securities on a "when-issued" or "delayed delivery" basis ("Forward
Commitments"). These transactions occur when securities are purchased or sold by
the Fund with payment and delivery taking place in the future, frequently a
month or more after such transactions. The price is fixed on the date of the
commitment, and the seller continues to accrue interest on the securities
covered by the Forward Commitment until delivery and payment take place. At the
time of settlement, the market value of the securities may be more or less than
the purchase or sale price.
The Fund may either settle a Forward Commitment by taking delivery of the
securities or may either resell or repurchase a Forward Commitment on or before
the settlement date in which event the Fund may reinvest the proceeds in another
Forward Commitment. The Fund's use of Forward Commitments may increase its
overall investment exposure and thus its potential for gain or loss. When
engaging in Forward Commitments, the Fund relies on the other party to complete
the transaction; should the other party fail to do so, the Fund might lose a
purchase or sale opportunity that could be more advantageous than alternative
opportunities at the time of the failure.
The Fund maintains a segregated account (which is marked to market daily)
of cash, U.S. Government securities or the security covered by the Forward
Commitment with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase or sell continues.
LOANS OF PORTFOLIO SECURITIES (ALL FUNDS). Each Fund may lend portfolio
securities to unaffiliated brokers, dealers and financial institutions provided
that (a) immediately after any such loan, the value of the securities loaned
does not exceed 10% of the total value of that Fund's assets, (15% in the case
of the Emerging Growth Fund and the International Equity Fund) and (b) any
securities loan is collateralized in accordance with applicable regulatory
requirements. The Adviser or, in the case of the International Equity Fund, the
Subadviser, believes the risk of loss on such transactions is slight, because,
if a borrower was to default for any reason, the collateral should satisfy the
obligation. See the Statement of Additional Information.
VARIABLE RATE DEMAND NOTES (MUNICIPAL BOND FUND). The Fund may invest in
variable rate demand notes ("VRDNs") which are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and which are
subject to an unconditional right of demand to receive payment of the principal
balance plus accrued interest either at any time or at specified intervals not
exceeding one year and in either case upon no more than seven days' notice. The
interest rates are adjustable at intervals ranging from daily ("floating rate")
to up to one year to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the prime rate of a bank or some other
appropriate interest rate adjustment index.
The Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDNs from the
institution upon a specified number of days' notice, not to exceed seven days.
The Fund has an undivided interest in the underlying obligation and thus
participates on the same basis as the institution in such obligation except that
the institution typically retains fees out of the interest paid on the
obligation for servicing the obligation and issuing the repurchase commitment.
STAND-BY COMMITMENTS (MUNICIPAL BOND FUND). The Fund may acquire stand-by
commitments with respect to Municipal Bonds held by it. Under a stand-by
commitment, a bank or dealer from which Municipal Bonds are acquired agrees to
purchase from the Fund, at the Fund's option,
the Municipal Bonds at a specified price. Such commitments are sometimes called
"liquidity puts."
The amount payable to the Fund upon its exercise of a stand-by commitment
is normally (i) the Fund's acquisition cost of the Municipal Bonds (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period.
Stand-by commitments generally can be acquired when the remaining maturity of
the underlying Municipal Bonds is not greater than one year, and are exercisable
by the Fund at any time before the maturity of such obligations.
The Fund's right to exercise stand-by commitments is unconditional and
unqualified. A stand-by commitment generally is not transferable by the Fund,
although the Fund can sell the underlying Municipal Bonds to a third party at
any time.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
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are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held in the Fund will not exceed
one-half of one percent of the value of the Fund's total assets calculated
immediately after each stand-by commitment is acquired. The Fund intends to
enter into stand-by commitments only with banks and dealers which, in the
Adviser's opinion, present minimal credit risks.
The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment would not affect the
valuation of the underlying Municipal Bonds which would continue to be valued in
accordance with the method of valuation employed by the Fund. Stand-by
commitments acquired by the Fund would be valued at zero in determining net
asset value. Where the Fund paid any consideration directly or indirectly for a
stand-by commitment, the cost would be reflected as unrealized depreciation for
the period during which the commitment was held by the Fund.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES (MUNICIPAL BOND
FUND). Municipal Bonds may at times be purchased or sold on a "delayed
delivery" or a "when-issued" basis. These transactions arise when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future, often a month or more after the purchase. The payment obligation and the
interest rate are each fixed at the time the Fund enters into the commitment.
The Fund will only make commitments to purchase such securities with the
intention of actually acquiring the securities, but the Fund may sell these
securities prior to settlement date if it is deemed advisable. Purchasing
Municipal Bonds on a when-issued basis involves the risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself; if yields so increase, the value
of the when-issued obligation will generally decrease. The Fund maintains a
separate account at its custodian bank consisting of cash or liquid high grade
debt obligations (valued on a daily basis) equal at all times to the amount of
any when-issued commitment.
RESTRICTED SECURITIES (ALL FUNDS). The Growth Fund, the Growth and Income
Fund, the Government Fund, the Money Market Fund and the Municipal Bond Fund may
each invest up to 5% of their net assets and the Emerging Growth Fund and the
International Equity Fund may each invest up to 15% of their net assets in
restricted securities and other illiquid assets. As used herein, restricted
securities are those that have been sold in the United States without
registration under the Securities Act of 1933 and are thus subject to
restrictions on resale. Excluded from the limitation, however, are any
restricted securities which are eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 and which have been determined to be liquid by the
Trustees or by the Adviser pursuant to board-approved guidelines. The
determination of liquidity is based on the volume of reported trading in the
institutional secondary market for each security. Since it is not possible to
predict with assurance how the markets for restricted securities sold and
offered under Rule 144A will develop, the Trustees will carefully monitor each
Fund's investment in these securities focusing on such factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in each Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. These difficulties and delays could
result in a Fund's inability to realize a favorable price upon disposition of
restricted securities, and in some cases might make disposition of such
securities at the time desired by the Fund impossible. Since market quotations
are not readily available for restricted securities, such securities will be
valued by a method that the Trustees believe accurately reflects fair value.
Notwithstanding the foregoing, due to various state regulations, the
Emerging Growth Fund and the International Equity Fund will not invest more than
10% of each Fund's net assets in restricted securities; restricted securities
eligible for resale pursuant to Rule 144A are not included within this
limitation. In the event that the Funds' shares cease to be qualified under the
laws of such states or if such regulations are amended or otherwise cease to be
operative, the Funds would not be subject to this 10% restriction.
PORTFOLIO TURNOVER (ALL FUNDS). Each Fund may purchase or sell securities
without regard to the length of time the security has been held and thus may
experience a high rate of portfolio turnover. A 100% turnover rate would occur,
for example, if all the securities in a portfolio were replaced in a period of
one year. Under certain market conditions, the Growth Fund and the Government
Fund may experience a high rate of portfolio turnover. This may occur, for
example, if the Fund writes a substantial number of covered call options and the
market prices of the underlying securities appreciate. The rate of portfolio
turnover is not a limiting factor when the Adviser or, in the case of the
International Equity Fund, the Subadviser, deems it desirable to purchase or
sell securities or to engage in options transactions. The annual turnover rates
of the Growth Fund, the Government Fund and the Municipal Bond Fund are not
expected to exceed 400%; and the annual turnover rate of the Emerging Growth
Fund, the Growth and Income Fund and the International Equity Fund is not
expected to exceed 100%. High portfolio turnover involves correspondingly
greater transaction costs, including any brokerage commissions, which are borne
directly by the respective Fund and may increase the recognition of short-term,
rather than long-term, capital gains. See "Dividends, Distributions and Taxes."
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES (ALL FUNDS). The Adviser or,
in the case of the International Equity Fund, the Subadviser, is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Trust and the negotiation of brokerage commissions on such transactions.
Brokerage firms are selected on the basis of their professional capability for
the type of transaction and the value and quality of execution services rendered
on a continuous basis. Brokerage firms are selected on the basis of their
professional capability for the type of transaction and the value and quality of
execution services rendered on a continuing basis. The Trust also executes
transactions through Alex Brown & Sons, Inc., a director of which is also a
Trustee of the Trust. Orders may be directed to any broker including, to the
extent and in the manner permitted by applicable law, Smith Barney, Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Smith Barney and
Robinson Humphrey may be considered affiliated persons of the Distributor
because they are each an indirect subsidiary of Travelers Group Inc.
("Travelers"). In order for Smith Barney and Robinson Humphrey to effect any
such transaction, the commissions, fees or other remuneration received by Smith
Barney and Robinson Humphrey must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities, futures or options on
futures being purchased or sold on an exchange during a comparable period of
time. This standard would allow Smith Barney and Robinson Humphrey to receive no
more than the remuneration that would be expected to be received by an
unaffiliated broker in a commensurate arms-length transaction. Furthermore, the
Board of
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Trustees of the Trust, including a majority of the Trustees who are not
"interested" Trustees, has adopted procedures that are reasonably designed to
provide that any commissions, fees or other remuneration paid to Smith Barney
and Robinson Humphrey are consistent with the foregoing standard. Brokerage
transactions with Smith Barney and Robinson Humphrey are also subject to such
fiduciary standards as may be imposed upon Smith Barney and Robinson Humphrey by
applicable law. U.S. Government securities in which the Trust invests are traded
in the over-the-counter market. Such securities are generally traded on a net
basis with a dealer acting as principal for its own account without a stated
commission, although the prices of the securities usually include a profit to
the dealer. Most transactions made by the Money Market Fund are principal
transactions at net prices which incur little or no brokerage costs. It is the
policy of the Trust to seek to obtain the best net results taking into account
such factors as price (including the applicable dealer spread), the size, type
and difficulty of the transaction involved, the firm's general execution and
operational facilities, the firm's risk in positioning the securities involved,
and the provision of supplemental investment research by the firm. While the
Trust seeks reasonably competitive spreads, the Trust will not necessarily be
paying the lowest spread available. Brokerage commissions are paid on
transactions in listed options, futures contracts and options thereon. The
Adviser or, in the case of the International Equity Fund, the Subadviser, is
authorized to place portfolio transactions with broker-dealers participating in
the distribution of shares of the Trust if it reasonably believes that the
quality of the execution and any commission are comparable to that available
from other qualified firms. The Adviser or, in the case of the International
Equity Fund, the Subadviser, is authorized to pay higher commissions to
brokerage firms that provide it with investment and research information than to
firms which do not provide such service if they determine that such commissions
are reasonable in relation to the overall services provided. The information
received may be used by the Adviser in managing the assets of other advisory
accounts managed by the Adviser as well as in the management of the assets of
the Trust.
INVESTMENT IN INVESTMENT COMPANIES (INTERNATIONAL EQUITY FUND, GROWTH FUND
AND GROWTH AND INCOME FUND). The Growth Fund, the Growth and Income Fund and the
International Equity Fund, may invest in a separate investment company, Van
Kampen American Capital Small Capitalization Fund ("Small Cap Fund"), that
invests in a broad selection of small capitalization securities. The shares of
the Small Cap Fund are available only to investment companies advised by the
Adviser. The Adviser believes that the use of the Small Cap Fund provides the
Funds with the most effective exposure to the performance of the small
capitalization sector of the stock market while at the same time minimizing
costs. The Adviser charges no advisory fee for managing the Small Cap Fund, nor
are there any sales load or other charges associated with distribution of its
shares. Other expenses incurred by the Small Cap Fund are borne by it, and thus
indirectly by the Funds and the Van Kampen American Capital funds that invest in
it. With respect to such other expenses, the Adviser anticipates that the
efficiencies resulting from use of the Small Cap Fund will result in cost
savings for the Funds and the Van Kampen American Capital funds that invest in
the Small Cap Fund. In large part, these savings will be attributable to the
fact that administrative actions that would have to be performed multiple times
if each Fund held its own portfolio of small capitalization stocks will need to
be performed only once. The Adviser expects that the Small Cap Fund will
experience trading costs that will be substantially less than the trading costs
that would be incurred if small capitalization stocks were purchased separately
for the Funds and the Van Kampen American Capital funds.
The securities of small and medium sized companies that the Small Cap Fund
may invest in may be subject to more abrupt or erratic market movements than
securities of larger, more established companies or the market averages in
general. In addition, small capitalization companies typically are subject to a
greater degree of change in earnings and business prospects than are larger,
more established companies. In light of these characteristics of small
capitalization companies and their securities, the Small Cap Fund may be subject
to greater investment risk than that assumed through investment in the equity
securities of larger capitalization companies.
Each Fund will be deemed to own a pro rata portion of each investment of
the Small Cap Fund. For example, if a Fund's investment in the Small Cap Fund
were $10 million, and the Small Cap Fund had five percent of its assets invested
in the electronics industry, the Fund would be considered to have an investment
of $500,000 in the electronics industry.
SHORT SALES AGAINST THE BOX (EMERGING GROWTH FUND, INTERNATIONAL EQUITY
FUND, GROWTH FUND AND GROWTH AND INCOME FUND). Each Fund may from time to time
make short sales of securities it owns or has the right to acquire through
conversion or exchange of other securities it owns. A short sale is "against the
box" to the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short. In a short
sale, the Fund does not immediately deliver the securities sold and does not
receive the proceeds from the sale. The Fund is said to have a short position in
the securities sold until it delivers the securities sold, at which time it
receives the proceeds of the sale. The Fund may not make short sales or maintain
a short position if to do so would cause more than 25% of its total assets,
taken at market value, to be held as collateral for such sales.
To secure its obligation to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its Custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short. However, the Fund
will not purchase and deliver new securities to satisfy its short order if such
purchase and sale would cause the Fund to derive more than 30% of its gross
income from the sale of securities held for less than three months.
LEVERAGE (INTERNATIONAL EQUITY FUND). The Fund may borrow from banks, on a
secured or unsecured basis, up to 25% of the value of its assets. If the Fund
borrows and uses the proceeds to make additional investments, income and
appreciation from such investments will improve its performance if they exceed
the associated borrowing costs but impair its performance if they are less than
such borrowing costs. This speculative factor is known as "leverage."
Leverage creates an opportunity for increased returns to shareholders of
the Fund but, at the same time, creates special risk considerations. For
example, leverage may exaggerate changes in the net asset value of the Fund's
shares and in the Fund's yield. Although the principal or stated value of
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such borrowings will be fixed, the Fund's assets may change in value during the
time the borrowing is outstanding. Leverage will create interest or dividend
expenses for the Fund which can exceed the income from the assets retained. To
the extent the income or other gain derived from securities purchased with
borrowed funds exceed the interest or dividends the Fund will have to pay in
respect thereof, the Fund's net income or other gain will be greater than if
leverage had not been used. Conversely, if the income or other gain from the
incremental assets is not sufficient to cover the cost of leverage, the net
income or other gain of the Fund will be less than if leverage had not been
used. If the amount of income from the incremental securities is insufficient to
cover the cost of borrowing, securities might have to be liquidated to obtain
required funds. Depending on market or other conditions, such liquidations could
be disadvantageous to the Fund.
INVESTMENT RESTRICTIONS
RESTRICTIONS APPLICABLE TO ALL OF THE FUNDS. Each Fund has adopted a number
of investment restrictions which may not be changed without the approval of the
holders of a majority (as defined by the 1940 Act) of the shares of such Fund.
The percentage limitations need only be met at the time the investment is made
or other relevant action taken. These restrictions provide, among other things,
that a Fund may not:
1. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except obligations of the U.S. Government, its
agencies or instrumentalities and repurchase agreements secured thereby), or
purchase more than 10% of the outstanding voting securities of any one issuer.
Neither limitation shall apply to the acquisition of shares of other open-end
investment companies by the Emerging Growth Fund, the International Equity Fund,
the Growth Fund and the Growth and Income Fund to the extent permitted by rule
or order of the SEC exempting them from the limitations imposed by Section
12(d)(1) of the 1940 Act;
2. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry; provided, however, that with respect to the
Emerging Growth Fund, the International Equity Fund, the Growth Fund and the
Growth and Income Fund, this limitation shall exclude shares of other open-end
investment companies owned by the Fund but include the Fund's pro rata portion
of the securities and other assets owned by any such company. (This does not
restrict any of the Funds from investing in obligations of the U.S. Government
and repurchase agreements secured thereby.);
3. With respect to all Funds other than the Emerging Growth Fund and the
International Equity Fund, borrow in excess of 10% of the market or other fair
value of its total assets, or pledge its assets to an extent greater than 5% of
the market or other fair value of its total assets, provided that so long as any
borrowing exceeds 5% of the value of the Fund's total assets, the Fund shall not
purchase portfolio securities. Any such borrowings shall be from banks and shall
be undertaken only as a temporary measure for extraordinary or emergency
purposes. With respect to the Emerging Growth Fund, borrow money except
temporarily from banks to facilitate payment of redemption requests and then
only in amounts not exceeding 33 1/3% of its net assets, or pledge more than 10%
of its net assets in connection with permissible borrowings or purchase
additional securities when money borrowed exceeds 5% of its net assets. With
respect to the International Equity Fund, borrow money from banks on a secured
or unsecured basis, in excess of 25% of the value of its total assets. (See
"Leverage".) Deposits in escrow in connection with the writing of covered call
or secured put options, or in connection with the purchase or sale of forward
contracts, futures contracts, foreign currency futures and related options, are
not deemed to be a pledge or other encumbrance. This restriction shall not
prevent the International Equity Fund from entering into reverse repurchase
agreements, provided that reverse repurchase agreements and any transactions
constituting borrowing by the Fund may not exceed 33 1/3% of the Fund's total
assets. The International Equity Fund may not mortgage or pledge its assets
except to secure borrowings permitted under this restriction;
4. Lend money except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investments in repurchase agreements. A Fund will not
invest in repurchase agreements maturing in more than seven days (unless subject
to a demand feature) if any such investment, together with any illiquid
securities (including securities which are subject to legal or contractual
restrictions on resale) held by the Fund, exceeds 10% (or in the case of the
Emerging Growth Fund and the International Equity Fund, 15%) of the market or
other fair value of its total net assets; provided, however, that with respect
to the Emerging Growth Fund, the International Equity Fund, the Growth Fund and
the Growth and Income Fund, illiquid securities shall exclude shares of other
open-end investment companies owned by the Fund but include the Fund's pro rata
portion of the securities and other assets owned by any such company. See
"Investment Practices and Risks -- Repurchase Agreements";
5. Underwrite securities of other companies, except insofar as a Fund might
be deemed to be an underwriter for purposes of the Securities Act of 1933 in the
resale of any securities owned by the Fund; and
6. Lend its portfolio securities in excess of 10% (15% in the case of the
Emerging Growth Fund and the International Equity Fund) of its total assets,
both taken at market value provided that any loans shall be in accordance with
the guidelines established for such loans by the Trustees as described under
"Loans of Portfolio Securities," including the maintenance of collateral from
the borrower equal at all times to the current market value of the securities
loaned.
Each state and each political subdivision, agency or instrumentality of
such state, and each multi-state agency of which a state is a member is a
separate "issuer" as that term is used in this Prospectus. The non-government
user of facilities financed by industrial development or pollution control bonds
is also considered as a separate issuer. In certain circumstances, the guarantor
of a guaranteed security may also be considered to be an issuer in connection
with such guarantee.
The Emerging Growth Fund retains the right to invest up to 25% of the value
of its total assets in one company, but intends to do so only if a particular
company is believed to afford better than average prospects in market
appreciation at a time when general business conditions and trends in the market
as a whole are considered to make greater diversification less desirable.
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<PAGE> 34
In addition to the foregoing, the Trust has adopted additional investment
restrictions, which may be changed by the Trustees without a vote of
shareholders, as follows:
FOREIGN INVESTMENTS FOR FUNDS OTHER THAN THE INTERNATIONAL EQUITY FUND. The
Emerging Growth Fund, the Growth Fund and the Growth and Income Fund may not
invest in the securities of a foreign issuer if, at the time of acquisition,
more than 20% of the value of a Fund's total assets would be invested in such
securities.
FUTURES CONTRACTS AND OPTIONS. In addition, the Growth and Income Fund and
the Growth Fund may not write, purchase or sell puts, calls or combinations
thereof, except that each Fund may (a) write covered call options with respect
to any part or all of its portfolio securities, write secured put options, or
enter into closing purchase transactions with respect to such options, (b)
purchase and sell put and call options to the extent that the premiums paid for
all such options do not exceed 10% of its total assets and only if the Fund owns
the securities covered by the put option at the time of purchase, and (c) engage
in futures contracts and related options transactions as described in the
Statement of Additional Information.
The Emerging Growth Fund, the International Equity Fund, the Growth Fund
and the Growth and Income Fund may purchase put and call options which are
purchased on an exchange or over-the-counter in other markets, or currencies
and, as developed from time to time, various futures contracts on market indices
and other instruments. Purchasing options may increase investment flexibility
and improve total return, but also risks loss of the option premium if an asset
the Fund has the option to buy declines in value.
The Government Fund may not write, purchase or sell puts, calls or
combinations thereof, except that the Fund may (a) write covered or fully
collateralized call options, write secured put options, and enter into closing
or offsetting purchase transactions with respect to such options, (b) purchase
and sell options to the extent that the premiums paid for all such options owned
at any time do not exceed 10% of its total assets, and (c) engage in futures
contracts and related options transactions as described in the Statement of
Additional Information.
The Municipal Bond Fund may engage in futures contracts and related options
as described in the Statement of Additional Information.
ALCOHOL OR TOBACCO. Each Fund, except the International Equity Fund, may
not purchase any security issued by any company deriving more than 25% of its
gross revenues from the manufacture of alcohol or tobacco.
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THE TRUST AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
The Trust is a diversified, open-end management investment company,
generally known as a mutual fund, organized as a Massachusetts business trust on
January 29, 1987. A mutual fund provides, for those who have similar investment
goals, a practical and convenient way to invest in a diversified portfolio of
securities by combining their resources in an effort to achieve such goals.
The Trustees have the responsibility for overseeing the affairs of the
Trust. The Adviser, One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
determines the investment of the Trust's assets, provides administrative
services and manages the Trust's business and affairs. The Adviser is a wholly
owned subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American
Capital"). Van Kampen American Capital is a diversified asset management company
with more than two million retail investor accounts, extensive capabilities for
managing institutional portfolios, and more than $50 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,800 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc.
is controlled through the ownership of a substantial majority of its common
stock, by The Clayton & Dubilier Private Equity Fund IV Limited Partnership (the
"C&D L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc., a New York private investment firm. The general partner
of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D
Associates L.P."). The general partners of C&D Associates L.P. are Joseph L.
Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel,
Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition certain officers,
directors and employees of Van Kampen American Capital own, in the aggregate,
not more than seven percent of the common stock of VK/AC Holding, Inc. and have
the right to acquire, upon the exercise of options, approximately an additional
13% of the common stock of VK/AC Holding, Inc. Presently, and after giving
effect to the exercise of such options, no officer or trustee of the Trust owns
or would own five percent or more of the common stock of VK/AC Holding, Inc. The
Adviser, together with its predecessors, has been in the investment advisory
business since 1926.
The Subadviser is located at 388 Greenwich Street, New York, New York
10013. The Subadviser is an indirect wholly-owned subsidiary of Travelers Group
Inc. ("Travelers"), a financial services holding company engaged through its
subsidiaries principally in three business segments -- investment services,
consumer finance services and insurance services. The Subadviser was formed in
1968 and serves as investment manager to numerous other investment companies
having aggregate assets as of the date of this Prospectus in excess of $60
billion.
The Trust retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under
separate investment advisory agreements with each Fund, the Trust pays the
Adviser an annual fee for the Emerging Growth Fund, the Growth Fund and the
Growth and Income Fund, calculated separately for each Fund at the following
rates: 0.65% of the first $1 billion of the Fund's average daily net assets;
0.60% of the next $1 billion of the Fund's average daily net assets; 0.55% of
the next $1 billion of the Fund's average daily net assets; 0.50% of the next $1
billion of the Fund's average daily net assets; and 0.45% of the Fund's average
daily net assets in excess of $4 billion. The Trust pays the Adviser an annual
fee for the Government Fund of 0.60% of the first $1 billion of the Fund's
average daily net assets; 0.55% of the next $1 billion of the Fund's average
daily net assets; 0.50% of the next $1 billion of the Fund's average daily net
assets; 0.45% of the next $1 billion of the Fund's average daily net assets;
0.40% of the next $1 billion of the Fund's average daily net assets; and 0.35%
of the Fund's average daily net assets in excess of
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<PAGE> 35
$5 billion. For the Municipal Bond Fund, the Trust pays the Adviser an annual
fee of 0.60% of the first $1 billion of the Fund's average daily net assets;
0.55% of the next $1 billion of the Fund's average daily net assets; 0.50% of
the next $1 billion of the Fund's average daily net assets; and 0.45% of the
Fund's average daily net assets over $3 billion. For the Money Market Fund, the
Trust pays the Adviser an annual fee of 0.50% of the first $2 billion of the
Fund's average daily net assets; 0.475% of the next $2 billion of the Fund's
average daily net assets; and 0.45% of the Fund's average daily net assets over
$4 billion. The Trust pays the Adviser an annual fee for the International
Equity Fund at the rate of 1.00% of the Fund's average daily net assets. This
fee is higher than that charged by most other mutual funds but the Trust
believes it is justified by the special international nature of the Fund and is
not necessarily higher than the fees charged by certain mutual funds with
investment objectives and policies similar to those of the Fund. The fee is
computed daily and payable monthly with respect to each Fund. Each of the
investment advisory agreements described above is referred to in this Prospectus
as an "Advisory Agreement" and together, as the "Advisory Agreements." The
Adviser has entered into a subadvisory agreement (the "Subadvisory Agreement")
with the Subadviser to assist it in performing its investment advisory functions
with respect to the International Equity Fund. Pursuant to the Subadvisory
Agreement, the Subadviser receives on an annual basis 50% of the compensation
received by the Adviser from the International Equity Fund.
Under the Advisory Agreement with the International Equity Fund, the
Adviser is responsible for furnishing or causing to be furnished to the Fund
advice and assistance with respect to the acquisition, holding or disposal of
investments and recommendations with respect to other aspects and affairs of the
International Equity Fund, bookkeeping, accounting and administrative services,
office space and equipment, and the services of the officers and employees of
the Fund. Pursuant to the Subadvisory Agreement, the Subadviser is responsible
for the day to day operations and investment decisions for the International
Equity Fund and is authorized, in its discretion and without prior consultation
with the Adviser, to: (a) manage the Fund's assets in accordance with its
investment goal and policies; (b) make investment decisions; (c) place purchase
and sale orders for portfolio transactions; and (d) employ professional
portfolio managers and securities analysts who provide research services.
Under each of the foregoing Advisory Agreements, the Trust also reimburses
the Adviser for the actual cost of the Trust's accounting services, which
include maintaining its financial books and records and calculating the daily
net asset value of each Fund. Operating expenses paid by the Trust include
transfer agency fees, custodian fees, legal and auditing fees, trustees' fees,
the cost of registration of its shares under federal laws and state blue sky
laws, the cost of reports and proxies to shareholders, and all other ordinary
business expenses not specifically assumed by the Adviser or any other party.
For the last fiscal year, advisory fees plus the cost of accounting services
paid by the Growth Fund, Growth and Income Fund, Government Fund, Municipal Bond
Fund and Money Market Fund equaled .63%, .67%, .63%, .69% and .10%,
respectively, of each Fund's average net assets. For the same period, the total
operating expenses of the Growth Fund, Growth and Income Fund, Government Fund,
Municipal Bond Fund and Money Market Fund were .46%, .35%, .26%, .30% and .90%,
respectively, of average net assets. The Emerging Growth Fund and the
International Equity Fund have not been in operation for a complete fiscal year.
The Adviser and, in the case of the International Equity 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.
PERSONAL INVESTING POLICIES. The Trust and the Adviser have adopted Codes
of Ethics designed to recognize the fiduciary relationship between the Fund and
the Adviser and its employees. The Codes permit directors/trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to pre-clearance and other procedures designed to prevent conflicts of
interest.
PORTFOLIO MANAGEMENT. Stephen Boyd has been primarily responsible for the
day-to-day management of Growth Fund's investment portfolio since 1989. Mr. Boyd
is Senior Vice President -- Portfolio Manager of the Adviser. James Gilligan has
been primarily responsible for the day-to-day management of Growth and Income
Fund's investment portfolio since July 11, 1994. Mr. Gilligan is Vice
President -- Portfolio Manager of the Adviser. John Reynoldson has been
primarily responsible for the day-to-day management of Government Fund's
investment portfolio since 1988. Mr. Reynoldson is Senior Vice
President -- Portfolio Manager of the Adviser. David Troth has been primarily
responsible for the day-to-day management of Money Market Fund's investment
portfolio since its inception. Mr. Troth is Senior Investment Vice President of
the Adviser. Mr. Troth was formerly Investment Vice President of the Adviser
from March, 1978 to July, 1991. David Johnson has been primarily responsible for
the day-to-day management of Municipal Bond Fund's investment portfolio since
June 13, 1995. Mr. Johnson is Vice President of the Adviser. Mr. Johnson has
been employed by Van Kampen American Capital Investment Advisory Corp., an
affiliate of the Adviser, for the last five years. Gary M. Lewis has been
primarily responsible for the day-to-day management of the Emerging Growth
Fund's investment portfolio since its inception. Mr. Lewis is Vice
President -- Portfolio Manager of the Adviser.
The International Equity Fund is co-managed by Jeffrey Russell and James
Conheady of the Subadviser. Mr. Russell and Mr. Conheady, Managing Directors of
Smith Barney, are members of the international equity team. Together, Messrs.
Conheady and Russell currently manage in excess of $2.2 billion of global equity
assets for other investment companies and managed accounts. Prior to joining
Smith Barney in February 1990, Mr. Conheady was a First Vice President and Mr.
Russell was Vice President of Drexel Burnham.
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ALTERNATIVE SALES ARRANGEMENTS
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The Alternative Sales Arrangements permit an investor to choose the method
of purchasing shares of each Fund that is most beneficial given the amount of
the purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares of the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund are
sold at net asset value plus an initial maximum sales charge of up to 5.50% of
the offering price. Class A shares of the Government Fund and Municipal Bond
Fund are sold at net asset value plus an initial maximum sales charge of up to
4.75% or 4.50%, respectively, of the offering price. Investments of $1 million
or more are not subject to any sales charge at the time of purchase, but a
contingent deferred sales charge of one percent may be imposed on certain
redemptions made within one year of the purchase. Class A shares of the Money
Market Fund are sold at net asset value. Class A shares of each Fund are subject
to an ongoing service fee at an annual rate of 0.25% of each Fund's aggregate
average daily net assets (0.10% for the Money Market Fund) attributable to the
Class A shares. Certain purchases of Class A shares qualify for reduced initial
sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares of each Fund (other than Money Market Fund)
are sold at net asset value and are subject to a contingent deferred sales
charge if they are redeemed within five years of purchase. Class B shares of
each Fund (other than Money Market Fund) are subject to an ongoing service fee
at an annual rate of 0.25% of each Fund's aggregate average daily net assets
attributable to the Class B shares and an ongoing distribution fee at an annual
rate of 0.75% of each Fund's aggregate average daily net assets attributable to
the Class B shares. Class B shares of the Money Market Fund are available only
through exchanges by Class B shareholders of another Common Sense Fund and
remain subject to the contingent deferred sales charge imposed by the original
fund. The Money Market Fund pays a distribution fee at the rate of 0.75% of its
average daily net assets attributable to Class B shares. The ongoing
distribution fee paid by Class B shares will cause such shares to have a higher
expense ratio and to pay lower dividends than those related to Class A or Class
1 shares. See "Purchase of Shares -- Class B Shares." Class B shares of each
Fund will automatically convert to Class A shares six years after the
shareholder's order to purchase was accepted. See "Conversion Feature" herein
for discussion on applicability of the conversion feature to Class B shares.
CLASS 1 SHARES. Upon the completion of the reorganization of Common Sense
II Growth Fund, Common Sense II Growth and Income Fund and Common Sense II
Government Fund, each Fund will suspend sales of Class 1 shares to the general
public. Class 1 shares will then be available only to accounts of previously
established shareholders or members of their immediate family, and Class 1
shareholders exchanging their Class 1 shares for Class 1 shares of the Fund.
Class 1 shares of each Fund (other than Money Market Fund) are sold at net asset
value plus an initial maximum sales charge. See "Purchase of Shares -- Class 1
Shares."
CONVERSION FEATURE. Class B shares of each Fund will automatically convert
to Class A shares six years after the shares were purchased and will no longer
be subject to the distribution fee. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The purpose of the conversion feature is to relieve the
holders of the Class B shares of each Fund that have been outstanding for a
period of time sufficient for the Distributor to have been substantially
compensated for distribution expenses related to the Class B shares as the case
may be, from the burden of the ongoing distribution fee.
For purposes of conversion to Class A, shares purchased of each Fund
through the reinvestment of dividends and distributions paid on Class B shares
in a shareholder's Fund account will be considered to be held in a separate
sub-account. Each time any Class B shares in the shareholder's Fund account
(other than those in the sub-account) convert to Class A, an equal pro rata
portion of the Class B shares in the sub-account will also convert to Class A.
The conversion of Class B shares to Class A shares is subject to a private
letter ruling to the effect that (i) the assessment of the distribution fee and
incremental transfer agency costs, if any, with respect to Class B shares does
not result in a Fund's dividends or distributions constituting "preferential
dividends" under the Internal Revenue Code, as amended (the "Code"), and (ii)
the conversion of shares does not constitute a taxable event under federal
income tax law. The conversion of Class B shares may be suspended if such a
private letter ruling is no longer available. In that event, no further
conversions of Class B shares would occur, and shares might continue to be
subject to the distribution fee for an indefinite period which may extend beyond
the period ending six years after the shareholder's order to purchase was
accepted.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in each Fund,
the accumulated distribution fees and contingent deferred sales charges on Class
B shares prior to conversion would be less than the initial sales charge on
Class A or Class 1 shares, if any, purchased at the same time, and to what
extent such differential would be offset by the higher dividends per share on
Class A or Class 1 shares. To assist investors in making this determination, the
table under the caption "Expense Synopsis" sets forth examples of the charges
applicable to each class of shares. In this regard, Class A or Class 1 shares
may be more beneficial to the investor who qualifies for reduced initial sales
charges, as described herein under "Purchase of Shares -- Class A Shares --
Class 1 Shares." For these reasons, the Distributor will reject any order of
$500,000 or more for Class B shares.
Class A and Class 1 shares of each Fund are not subject to an ongoing
distribution fee and, accordingly, receive correspondingly higher dividends per
share than Class B shares. However, because initial sales charges, if any, are
deducted at the time of purchase, investors in Class A or Class 1 shares of all
Funds other than the Money Market Fund do not have all their funds invested
initially and, therefore, initially own fewer shares. Other investors might
determine that it is more advantageous to purchase Class B shares and have all
their funds invested initially, although remaining subject
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to ongoing distribution fees and, for a five-year period being subject to a
contingent deferred sales charge. Ongoing distribution fees on Class B shares
will be offset to the extent of the additional funds originally invested and any
return realized on those funds. There can, of course, be no assurance as to the
return, if any, which will be realized on such additional funds.
Class A or Class 1 shares of all Funds other than the Money Market Fund may
be appropriate for investors who prefer to pay the sales charge up front, want
to take advantage of the reduced sales charges available on larger investments,
wish to maximize their current income from the start and/or prefer not to pay
redemption charges. Class B shares may be appropriate for investors who wish to
avoid a front-end sales charge and/or put 100% of their investment dollars to
work immediately.
The distribution expenses incurred by the Distributor in connection with
the sale of the shares of each Fund other than the Money Market Fund will be
reimbursed, in the case of Class A or Class 1 shares, from the proceeds of the
initial sales charge and, in the case of Class B shares, from the proceeds of
the ongoing distribution fee and any contingent deferred sales charge incurred
upon redemption within five years, of purchase. Registered representations of
PFS Investments Inc. ("PFS Investments") distributing each Fund's shares may
receive differing compensation for selling Class A, Class B or Class 1 shares of
such Fund. INVESTORS SHOULD UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE
CONTINGENT DEFERRED SALES CHARGE AND ONGOING DISTRIBUTION FEE WITH RESPECT TO
THE CLASS B SHARES OF EACH FUND ARE THE SAME AS THOSE OF THE INITIAL SALES
CHARGE WITH RESPECT TO CLASS A OR CLASS 1 SHARES. See "Distribution Plans."
GENERAL. Dividends paid by each Fund with respect to Class A, Class B and
Class 1 shares will be calculated in the same manner at the same time on the
same day, except that the distribution fees and any incremental transfer agency
costs relating to Class B shares will be borne by the respective class. See
"Dividends, Distributions and Taxes." Shares of a Fund may be exchanged, subject
to certain limitations, for shares of the same class of the other Funds offered
in this Prospectus. See "Shareholder Services -- Exchange Privilege."
The Trustees of the Trust have determined that currently no conflict of
interest exists between the classes of shares of each Fund. On an ongoing basis,
the Trustees, pursuant to their fiduciary duties under the Investment Company
Act of 1940 (the "1940 Act") and state laws, will seek to ensure that no such
conflict arises.
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PURCHASE OF SHARES
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GENERAL
Each Fund, other than the Money Market Fund, offers two classes of shares
to the general public on a continuous basis through the Distributor, an indirect
subsidiary of Travelers, 65 East 55th Street, New York, New York 10022. As of
May 20, 1996, all of the previously outstanding shares of the Growth Fund, the
Growth and Income Fund, the Government Fund, the Money Market Fund and the
Municipal Bond Fund were redesignated as Class 1 shares without any other
changes, and Class A and Class B shares were authorized for issuance. With
respect to the Emerging Growth Fund and the International Equity Fund, as of May
20, 1996, Class 1 shares were authorized for issuance. Each Fund offers Class 1
shares only to accounts of previously established shareholders or their
immediate family, and Class 1 shareholders of other Common Sense Funds
exchanging their Class 1 shares for Class 1 shares of the Fund. Each class of
shares represents an interest in the same portfolio of investments of a Fund.
ONLY CLASS 1 SHARES OF THE GROWTH FUND, THE GROWTH AND INCOME FUND, THE
GOVERNMENT FUND, THE MONEY MARKET FUND AND THE MUNICIPAL BOND FUND ARE AVAILABLE
TO THE GENERAL PUBLIC THROUGH THIS PROSPECTUS. UPON THE COMPLETION OF THE
REORGANIZATIONS OF COMMON SENSE II GROWTH FUND, COMMON SENSE II GROWTH AND
INCOME FUND AND COMMON SENSE II GOVERNMENT FUND CURRENTLY ANTICIPATED ON OR
BEFORE JULY 31, 1996, CLASS A AND CLASS B SHARES OF EACH OF THE ABOVE REFERENCED
FUNDS INCLUDING THE EMERGING GROWTH FUND AND THE INTERNATIONAL EQUITY FUND WILL
BE AVAILABLE FOR SALE TO THE GENERAL PUBLIC. IN ADDITION, EACH FUND WILL SUSPEND
SALES TO THE PUBLIC OF CLASS 1 SHARES EXCEPT TO ACCOUNTS OF PREVIOUSLY
ESTABLISHED SHAREHOLDERS OR MEMBERS OF THEIR IMMEDIATE FAMILY AND CLASS 1
SHAREHOLDERS OF OTHER COMMON SENSE FUNDS EXCHANGING THEIR CLASS 1 SHARES OF THE
FUND.
Shares of beneficial interest in each Fund are available through PFS
Investments, an affiliate of Travelers. Initial investments in a Fund must be at
least $250 and subsequent investments must be at least $25. The Distributor may
waive the minimum amount for initial investment for shares involving periodic
investments. The Trust reserves the right to suspend the sale of any Fund's
shares to the public in response to conditions in the securities markets or for
other reasons and to refuse any order for the purchase of shares.
Shares may be purchased on any business day by completing the application
included in this Prospectus and forwarding the application through PFS
Investments to PFS Shareholder Services (the "Transfer Agent"), 3100
Breckinridge Blvd., Bldg. 200, Duluth, Georgia 30199-0062. Checks drawn on
foreign banks must be payable in U.S. dollars and have the routing number of the
U.S. bank encoded on the check.
Additionally, investments of $25,000 or more may be made by having your
bank wire federal funds (funds of the Federal Reserve System) to the Transfer
Agent's bank. Wire transfers will only be accepted on days your bank, the
Transfer Agent, the Trust, and Bank South of Atlanta ("Bank South") are open for
business. Your wired funds must be received by 4:00 p.m. Eastern time by Bank
South to be credited to your account that day. Otherwise, your wire purchase
will be processed the next business day. The wire purchase will not be
considered made until the wired amount is received and the purchase is accepted
by the Trust. If the wire purchase does not contain the information stated
below, the Trust may reject it. Any delays that may occur in wiring funds,
including delays in processing by the banks, are not the responsibility of the
Trust or Transfer Agent.
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You must pay any charge assessed by your bank for the wire service. If a
wire transfer is rejected, all money received by the Trust, less any costs
incurred by the Trust or Transfer Agent in rejecting it, will be returned
promptly.
To insure the proper handling of your investment, the following procedures
should be observed:
New Account Procedures -- If the wire transfer is for a new account,
you and your PFS Investments representative should call the Transfer
Agent's Customer Service Department at (800) 544-5445 and ask for the Wire
Purchase Desk. They will assist you in establishing your account and
processing your wire purchase.
Existing Account Procedures -- If the wire transfer is for an existing
account, the wire must be sent to Bank South, Routing Number 061000078,
Atlanta, Georgia. It should state the following:
"Credit PFS Account #6380344
For Further Credit to
CST Account # (your account number)
For (your name)"
Upon executing your wire transfer, you or your PFS Investments
representative should contact the Transfer Agent's Wire Purchase Desk to notify
them of your name, your Trust account number and the name of the bank
transmitting the federal funds.
Shares are offered at the next determined net asset value per share, with
or without a front-end or contingent deferred sales charge depending on the
method of purchasing shares chosen by the investor, as shown in tables herein.
Net asset value per share of each Fund is computed as of the close of trading on
the New York Stock Exchange ("Exchange") (currently 4:00 p.m. Eastern time) on
each day the Exchange is open for trading, except in the case of the Money
Market Fund, for which net asset value is computed as of 12:00 noon New York
time on each such day. Net asset value per share of each class of each Fund is
determined by dividing the value of all the portfolio securities held by such
Fund, cash, and other assets (including accrued interest) attributable to each
class less all liabilities (including accrued expenses) attributable to each
class by the total number of shares of the class outstanding of the Fund. The
Money Market Fund's assets are valued on the basis of amortized cost, which
involves valuing a portfolio security at its cost and, thereafter, assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the security. While
this method provides for certainty in valuation it may result in periods in
which value as determined by amortized cost is higher or lower than the price
the Fund would receive if it sold the security.
Shares of the Money Market Fund are offered at the next determined net
asset value after a purchase order becomes effective, which is when the check
payment is converted into federal funds. A check payment is normally converted
into federal funds on the second business day following receipt of payment by
the Transfer Agent. With respect to the other Funds, the price paid for shares
purchased is based on the net asset value next computed after an order is
received by the Transfer Agent. For a discussion of the methods used to value
the portfolio securities of each Fund, see the Statement of Additional
Information.
Generally, the net asset values per share of the Class A, Class B and Class
1 shares are expected to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class A, Class B and Class 1
shares may differ from one another, reflecting the daily expense accruals of the
distribution and incremental transfer agency fees, if any, applicable with
respect to the Class B shares and the differential in the dividends paid on the
classes of shares. The price paid for shares purchased is based on the next
calculation of net asset value after an order in proper form is received by the
Transfer Agent plus applicable Class A or Class 1 sales charges.
Each class of shares of each Fund represents an interest in the same
portfolio of investments of such Fund, has the same rights and is identical in
all respects, except that (i) Class B shares bear the expenses of the deferred
sales arrangement and any expenses (including the distribution fee and any
incremental transfer agency costs) resulting from such sales arrangement, (ii)
each class has exclusive voting rights with respect to approvals of the Rule
12b-1 distribution plan pursuant to which its distribution fee and/or service
fee is paid which relate to a specific class, and (iii) Class B shares are
subject to a conversion feature. Each class has different exchange privileges
and certain different shareholder service options available. See "Distribution
Plans" and "Shareholder Services -- Exchange Privilege." The net income
attributable to Class B shares and the dividends payable on Class B shares will
be reduced by the amount of the distribution fee and incremental expenses, if
any, associated with such distribution fee. Registered representatives of PFS
Investments distributing each Fund's shares may receive differing compensation
for selling Class A, Class B or Class 1 shares.
CLASS A SHARES
For each Fund other than the Money Market Fund the public offering price of
Class A shares is the next determined net asset value plus a sales charge, as
set forth herein. Class A shares of the Money Market Fund are offered at net
asset value without sales charge.
36
<PAGE> 39
SALES CHARGE TABLES
EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
AS % OF INVESTMENTS
NET AS % OF (AS A % OF
SIZE OF AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000............................................................... 5.82% 5.50% 4.75%
$50,000 but less than $100,000.................................................. 4.99% 4.75% 4.00%
$100,000 but less than $250,000................................................. 3.90% 3.75% 3.25%
$250,000 but less than $500,000................................................. 3.09% 3.00% 2.50%
$500,000 but less than $1,000,000............................................... 2.04% 2.00% 1.75%
$1,000,000 or more.............................................................. ** ** **
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
AS % OF INVESTMENTS
NET AS % OF (AS A % OF
SIZE OF AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.............................................................. 4.99% 4.75% 4.00%
$100,000 but less than $250,000................................................. 3.90% 3.75% 3.25%
$250,000 but less than $500,000................................................. 3.09% 3.00% 2.50%
$500,000 but less than $1,000,000............................................... 2.04% 2.00% 1.75%
$1,000,000 or more.............................................................. ** ** **
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
AS % OF INVESTMENTS
NET AS % OF (AS A % OF
SIZE OF AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.............................................................. 4.71% 4.50% 3.75%
$100,000 but less than $250,000................................................. 3.90% 3.75% 3.25%
$250,000 but less than $500,000................................................. 3.09% 3.00% 2.50%
$500,000 but less than $1,000,000............................................... 2.04% 2.00% 1.75%
$1,000,000 or more.............................................................. ** ** **
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Additionally, the Distributor will pay to PFS Investments a promotional fee
calculated as a percentage of the sales charge reallowed to PFS Investments.
The percentage used in the calculation is 3%.
**Purchases of Class A shares, which when combined with current holdings of
Class A shares offered with a sales charge, equal or exceed $1 million in the
aggregate, will be made at net asset value without any initial sales charge,
but will be subject to a contingent deferred sales charge of 1.00% on
redemptions made within 12 months of purchase. The contingent deferred sales
charge on Class A shares is payable to the Distributor, which in turn pays PFS
Investments to compensate its PFS Investment representatives whose clients
make purchases of $1 million or more. The contingent deferred sales charge is
waived in the same circumstances in which the contingent deferred sales charge
applicable to Class B shares is waived. See "Purchase of Shares -- Class B
Shares."
Class A shares of the Funds may be purchased at net asset value by the PFS
Primerica Corporation Savings and Retirement Plan (the "Primerica Plan") for its
participants, subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended. Class A shares so purchased are purchased for
investment purposes and may not be resold except by redemption or repurchase by
or on behalf of the Primerica Plan. Class A shares are also offered at net asset
value to accounts opened for shareholders by PFS Investments representatives
where the amounts invested represent the redemption proceeds from investment
companies distributed by an entity other than the Distributor, if such
redemption has occurred no more than 60 days prior to the purchase of shares of
the Trust, and the shareholder paid an initial sales charge and was not subject
to a deferred sales charge on the redeemed account. Class A shares are offered
at net asset value to such persons because of anticipated economies in sales
efforts and sales related expenses. The Trust may terminate, or amend the terms
of, offering shares of the Trust at net asset value to such persons at any time.
The Distributor may pay PFS Investments representatives through whom purchases
are made at net asset value an amount equal to 0.40% of the amount invested if
the purchase represents redemption proceeds from an investment company
distributed by an entity other than the Distributor. Contact the Transfer Agent
at (800) 544-5445 for further information and appropriate forms.
PFS Investments may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, the Distributor or its affiliates may
also pay for certain non-cash sales incentives provided to PFS Investments
representatives. Such incentives do not have any effect on the net amount
invested. In addition to the reallowances from the applicable public offering
price described above, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation to PFS Investments representatives that sell shares of the Trust.
Investors purchasing Class A shares may under certain circumstances be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described herein.
37
<PAGE> 40
Volume Discounts. The size of the investment shown in the preceding tables
applies to the total amount being invested by any person in shares of the
indicated Fund alone, or in any combination of shares of the Fund and shares of
other Common Sense Funds (except Common Sense Money Market Fund). A person
eligible for a volume discount includes an individual; members of a family unit
comprising husband, wife and minor children; a trustee or other fiduciary
purchasing for a single fiduciary account including pension, profit-sharing and
other employee benefit trusts qualified under Section 401(a) of the Code, or
multiple custodial accounts where more than one beneficiary is involved if
purchases are made by salary reduction and/or payroll deduction for qualified
and nonqualified accounts and transmitted by a common employer entity. Employer
entity for payroll deduction accounts may include trade and craft associations
and any other similar organizations.
Cumulative Purchase Discount. The size of investment shown in the preceding
tables may also be determined by combining the amount being invested in shares
of the indicated Fund plus the current offering price of all shares of other
Common Sense Funds (except Common Sense Money Market Fund) which have been
previously purchased and are still owned. Shares previously purchased are only
taken into account, however, if the Transfer Agent is notified by the
shareholder at the time an order is placed for a purchase which would qualify
for a reduced sales load on the basis of the current value of previous purchases
and if sufficient information is furnished to permit confirmation of such
purchases.
Letter of Intent. A Letter of Intent provides an opportunity for an
investor to obtain a reduced sales charge by aggregating all investments over a
13-month period to determine the sales load as outlined in the preceding tables.
Each investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal as if it were a single
investment. The size of investment shown in the preceding tables also includes
purchases of shares of any other Common Sense Fund (except Money Market Fund)
over a 13-month period, based on the total amount of intended purchases plus the
value of all shares at the offering price of such Funds previously purchased and
still owned. An investor may elect to compute the 13-month period starting up to
90 days before the date of execution of a Letter of Intent. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the investment goal. If the goal is not achieved within the period,
the investor must pay the difference between the charge applicable to the
aggregate purchases made and the sales charge previously paid. The initial
purchase must be for an amount equal to at least five percent of the minimum
total purchase amount of the level selected. If trades not initially made under
a Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provisions, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. Such adjustment in
sales charge will be used to purchase additional shares for the shareholder at
the applicable discount category. Additional information is contained in the
application form included in this Prospectus.
CLASS B SHARES
For each Fund other than the Money Market Fund Class B shares are offered
at the next determined net asset value. Class B shares which are redeemed within
five years of purchase are subject to a contingent deferred sales charge at the
rates set forth in the following tables charged as a percentage of the dollar
amount subject thereto. The charge is assessed on an amount equal to the lesser
of the then current market value or the cost of the shares being redeemed.
Accordingly, no sales charge is imposed on increases in net asset value above
the initial purchase price. In addition, no charge is assessed on shares derived
from reinvestment of dividends or capital gains distributions. With respect to
the Money Market Fund, Class B shares acquired in exchange for Class B shares of
another Common Sense Fund remain subject to the contingent deferred sales charge
of the original fund.
The amount of the contingent deferred sales charge, if any, varies
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares.
EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
First............................................................................................ 5%
Second........................................................................................... 4%
Third............................................................................................ 3%
Fourth........................................................................................... 2.5%
Fifth............................................................................................ 1.5%
Sixth............................................................................................ None
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GOVERNMENT FUND AND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
First............................................................................................ 4%
Second........................................................................................... 4%
Third............................................................................................ 3%
Fourth........................................................................................... 2.5%
Fifth............................................................................................ 1.5%
Sixth............................................................................................ None
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
In determining whether a contingent deferred sales charge is applicable to
a redemption, the calculation is determined in the manner that results in the
lowest possible rate being charged. Therefore, it is assumed that the redemption
is first of any shares acquired pursuant to reinvestment of dividends or
distributions, second, of shares held for over five years and third, of shares
held for less than five years. The charge is not applied to dollar amounts
representing an increase in the net asset value since the time of purchase.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired ten
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), ten shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4% of the purchase amount will be paid
to PFS Investments at the time of purchase. Additionally, the Distributor may,
from time to time, pay additional promotional incentives in the form of cash or
other compensation, to PFS Investments representatives that sell Class B shares
of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B
shares (i) following the death or disability (as defined in the Code) of a
shareholder, (ii) in connection with certain distributions from an IRA or other
retirement plan, (iii) pursuant to the Trust's systematic withdrawal plan but
limited to 12% annually of the initial value of the account, and (iv) effected
pursuant to the right of the Trust to liquidate a shareholder's account as
described herein under "Redemption of Shares." See the Statement of Additional
Information for further discussion of waiver provisions.
CLASS 1 SHARES
Class 1 shares are only offered to accounts of previously established
shareholders or their immediate family, and Class 1 shareholders of other Common
Sense Funds exchanging their Class 1 shares for Class 1 shares of the Fund.
Class 1 shares are offered to the limited group of investors described above at
the next determined net asset value plus a sales charge, as set forth herein.
SALES CHARGE TABLES
EMERGING GROWTH FUND, GROWTH FUND AND GROWTH AND INCOME FUND AND INTERNATIONAL
EQUITY FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $10,000.................................................................... 9.29% 8.50% 7.00%
$10,000 but less than $25,000........................................................ 8.40% 7.75% 6.25%
$25,000 but less than $50,000........................................................ 6.38% 6.00% 5.00%
$50,000 but less than $100,000....................................................... 4.71% 4.50% 3.75%
$100,000 but less than $250,000...................................................... 3.63% 3.50% 3.00%
$250,000 but less than $400,000...................................................... 2.56% 2.50% 2.00%
$400,000 but less than $600,000...................................................... 2.04% 2.00% 1.60%
$600,000 but less than $5,000,000.................................................... 1.01% 1.00% 0.75%
$5,000,000 or more................................................................... 0.25% 0.25% 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000.................................................................... 7.24% 6.75% 6.00%
$25,000 but less than $50,000........................................................ 6.10% 5.75% 5.00%
$50,000 but less than $100,000....................................................... 4.44% 4.25% 3.50%
$100,000 but less than $250,000...................................................... 3.63% 3.50% 2.75%
$250,000 but less than $500,000...................................................... 2.56% 2.50% 2.00%
$500,000 but less than $1,000,000.................................................... 2.04% 2.00% 1.60%
$1,000,000 but less than $2,500,000.................................................. 1.01% 1.00% 0.75%
$2,500,000 but less than $5,000,000.................................................. 0.50% 0.50% 0.40%
$5,000,000 or more................................................................... 0.25% 0.25% 0.20%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 42
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
REALLOWED
TO PFS
INVESTMENTS
AS % OF AS % OF (AS A % OF
SIZE OF NET AMOUNT OFFERING OFFERING
INVESTMENT INVESTED PRICE PRICE)*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000................................................................... 4.99% 4.75% 4.25%
$100,000 but less than $250,000...................................................... 3.90% 3.75% 3.25%
$250,000 but less than $500,000...................................................... 3.09% 3.00% 2.50%
$500,000 but less than $1,000,000.................................................... 2.04% 2.00% 1.60%
$1,000,000 but less than $2,500,000.................................................. 1.01% 1.00% .75%
$2,500,000 but less than $5,000,000.................................................. .50% .50% .40%
$5,000,000 or more................................................................... .25% .25% .20%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Additionally, the Distributor will pay to PFS Investments a promotional fee
calculated as a percentage of the sales charge reallowed to PFS Investments.
The percentage used in the calculation is 3%.
PFS Investments may be deemed to be an underwriter for purposes of the
Securities Act of 1933. From time to time, the Distributor or its affiliates may
also pay for certain non-cash sales incentives provided to PFS Investments
representatives. Such incentives do not have any effect on the net amount
invested. In addition to the reallowances from the applicable public offering
price described above, the Distributor may, from time to time, pay or allow
additional reallowances or promotional incentives, in the form of cash or other
compensation to PFS Investments representatives that sell shares of the Trust.
Class 1 Shares of the Trust may be purchased at net asset value by the
Primerica Plan for its participants, subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. Shares so purchased are
purchased for investment purposes and may not be resold except by redemption or
repurchase by or on behalf of the Primerica Plan. Class 1 Shares are also
offered at net asset value to accounts opened for shareholders by PFS
Investments representatives where the amounts invested represent the redemption
proceeds from investment companies distributed by an entity other than the
Distributor if such redemption has occurred no more than 60 days prior to the
purchase of shares of the Trust and the shareholder paid an initial sales charge
and was not subject to a deferred sales charge on the redeemed account. Shares
are offered at net asset value to such persons because of anticipated economies
in sales efforts and sales related expenses. The Trust may terminate, or amend
the terms of, offering shares of the Trust at net asset value to such persons at
any time. The Distributor may pay PFS Investment representatives through whom
purchases are made at net asset value an amount equal to 0.40% of the amount
invested if the purchase represents redemption proceeds from an investment
company distributed by an entity other than the Distributor. Contact the
Transfer Agent at (800) 544-5445 for further information and appropriate forms.
Investors purchasing Class 1 shares may under certain circumstances be
entitled to reduced sales charges. The circumstances under which such investors
may pay reduced sales charges are described herein under "Purchases of
Shares -- Class A Shares -- Volume Discounts, Cumulative Purchase Discount and
Letter of Intent."
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Rule 12b-1 adopted by the SEC under the 1940 Act permits an investment
company to directly or indirectly pay expenses associated with the distribution
of its shares ("distribution expenses") and servicing its shareholders in
accordance with a plan adopted by the investment company's board of directors
and approved by its shareholders. Pursuant to such Rule, the Trustees of the
Trust, and the shareholders of Class A and Class B of each Fund have adopted two
Distribution Plans hereinafter referred to as the "Class A Plan" and the "Class
B Plan." Each Distribution Plan is in compliance with the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. ("NASD Rules")
applicable to mutual fund sales charges. The NASD Rules limit the annual
distribution costs and service fees that a mutual fund may impose on a class of
shares. The NASD Rules also limit the aggregate amount which the Fund may pay
for such distribution costs. Under the Class A Plan, a Fund pays 0.25% per annum
of its average daily net assets attributable (0.10% for Money Market Fund) to
such class of shares to the Distributor as a service fee. The service fee is
intended to cover personal services provided to Class A shareholders of a Fund
by representatives of PFS Investments and the maintenance of their accounts.
Under the Class B Plan, Class B shares of each Fund other than the Money
Market Fund are subject to a combined annual distribution fee and service fee at
the rate of 1% of a Fund's aggregate average daily net assets attributable to
such class of shares. Payments of each Fund other than the Money Market Fund to
the Distributor under the Class B Plan applicable to Class B shares are used to
make service fee payments to PFS Investments of 0.25% per annum of average daily
net assets. With respect to the Money Market Fund, Class B shares are subject
only to an annual distribution fee at the rate of 0.75% of the Fund's aggregate
average daily net assets attributable to such class of shares. Each Fund pays
the Distributor 0.75% of the aggregate average daily net assets of Class B
shares, as compensation for providing sales and promotional activities and
services. Such activities and services relate to the sale, promotion and
marketing of the Class B shares. The expenditures of the Distributor may consist
of sales commissions to PFS Investments for selling Class B shares,
compensation, sales incentives and payments to sales and marketing personnel,
and the payment of expenses incurred in its sales and promotional activities,
including advertising expenditures related to the Class B shares of a Fund and
the costs of preparing and distributing promotional materials with respect to
such Class B shares.
40
<PAGE> 43
The Distributor receives the proceeds of the initial sales charge, if any,
paid upon the purchase of Class A shares and the contingent deferred sales
charge paid upon certain redemptions of Class B shares, and may use these
proceeds for any of the distribution and/or service expenses described above.
During the period they are in effect, the Class A Plan and the Class B Plan
obligate each Fund to pay service fees and distribution fees or, in the case of
the Class B Plan for Money Market Fund, distribution fees only, to the
Distributor as compensation for its service and distribution activities, not as
reimbursement for specific expenses incurred. Thus, even if the Distributor's
expenses exceed its service or distribution fees for any Fund, the Fund will not
be obligated to pay more than those fees and, if the Distributor's expenses are
less than such fees, it will retain its full fees and realize a profit. Each
Fund will pay the service fees and distribution fees to the Distributor until
either the applicable Plan is terminated or not renewed. In that event, the
Distributor's expenses in excess of service fees and distribution fees received
or accrued through the termination date will be the Distributor's sole
responsibility and not obligations of a Fund. In their annual consideration of
the continuation of each Fund's Plans, the Trustees will review each Plan and
the Distributor's corresponding expenses for each class separately.
In adopting the Class A Plan and the Class B Plan, the Trustees of the
Trust determined that there was a reasonable likelihood that such Plans would
benefit each Fund and its shareholders. Information with respect to distribution
and service revenues and expenses is presented to the Trustees each year for
their consideration in connection with their deliberations as to the continuance
of the Distribution Plans. In their review of the Distribution Plans, the
Trustees are asked to take into consideration expenses incurred in connection
with the distribution and servicing of each class of shares separately. The
sales charge and distribution fee, if any, of a particular class will not be
used to subsidize the sale of shares of the other classes.
Actual distribution expenditures paid by the Distributor with respect to
Class B shares for any given year are expected to exceed the fees received
pursuant to the Class B Plan and payments received pursuant to contingent
deferred sales charges. Such excess will be carried forward without interest
charges, unless permitted under SEC regulations, and may be reimbursed by the
Fund or its shareholders from payments received through contingent deferred
sales charges in future years and from payments under the Class B Plan so long
as such Plan is in effect. For example, if in a fiscal year the Distributor
incurred distribution expenses under the Class B Plan of $1 million, of which
$500,000 was recovered in the form of contingent deferred sales charges paid by
investors and $400,000 was reimbursed in the form of payments made by the Fund
to the Distributor under the Class B Plan, the balance of $100,000, would be
subject to recovery in future fiscal years from such sources. For the period
July 1, 1994 through June 30, 1995, the unreimbursed expenses incurred by the
Distributor under the Class B Plan and carried forward for the Growth Fund, the
Growth and Income Fund, the Government Fund, the Emerging Growth Fund and the
International Equity Fund were approximately $841,000 or 6.60%, $494,000 or
6.98%, $275,000 or 6.23%, $124,000 or 12% and $40,000 or 4.22%, respectively of
the Class B shares' average net assets.
If the Class B Plan was terminated or not continued, the Fund would not be
contractually obligated and has no liability to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through contingent
deferred sales charges.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Trust offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. A CST Shareholder Service Form should be completed
to effect a change or cancel any Common Sense Trust account option. The CST
Shareholder Service Form is provided in the CST New Account Welcome Package.
Additional CST Shareholder Service Forms may be obtained from the Transfer
Agent. Customer Service representatives are available from 9:00 a.m. to 8:00
p.m. Monday through Friday (Eastern time) to assist you. If you prefer a
Spanish-speaking representative, please call (800) 544-7278 (Monday through
Friday). TDD service is available for the hearing impaired at (800) 824-1721.
SHAREHOLDER SERVICES APPLICABLE TO ALL CLASSES
INVESTMENT ACCOUNT. Each shareholder of record has an investment account
under which shares are held by the Transfer Agent. The Trust recommends that
shares be left on deposit with the Transfer Agent. If a share certificate is
desired, it is issued only for full shares (preferably 100 shares or more) and
must be requested in writing from the Transfer Agent for each transaction.
Except as described below, after each share transaction in an account, the
shareholder will receive a report showing the activity in the account. A
quarterly report will be sent to shareholders utilizing the pre-authorized check
plan. Additions to an investment account may be made at any time by mailing a
check directly to the Transfer Agent.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of a
Fund. Such shares are acquired at net asset value (without a sales charge). This
reinvestment is automatic unless the shareholder instructs otherwise. The
investor may, on the CST Additional New Account Options Form found in the
Prospectus, instruct that dividends and/or capital gains distributions be paid
in cash or be credited to another account of a Fund described in this
Prospectus. If you are changing this option after your account has been
established, you should complete a CST Shareholder Service Form and mail it to
the Transfer Agent.
PRE-AUTHORIZED CHECK PLAN. A pre-authorized check plan is available under
which a shareholder can authorize the Transfer Agent to draw on a bank account
on a regular basis to invest pre-determined amounts in shares of a Fund. To
establish or change an existing pre-authorized check plan, a shareholder should
give the Transfer Agent ten days prior notice before drawing on such bank
account. You may choose to have your draft on any day of the month and the
Transfer Agent will submit the draft to your bank on that day. Additionally, the
Transfer Agent will purchase shares in your
41
<PAGE> 44
Common Sense Trust account on the day indicated for the amount of the draft. If
the draft is returned to the Transfer Agent from the depository bank, it may
attempt to redeposit the draft in an effort to collect the proceeds before
cancelling the shares bought with the draft. A shareholder may designate in the
application to increase the amount of the pre-authorized check on an automatic
basis. Additional information is contained in the application included in this
Prospectus. There is no charge for establishing a pre-authorized check plan.
Standard Pre-Authorized Check Plan minimum draft amount is $25. A charge of $25
will be imposed on a shareholder's account for any check returned for
insufficient funds.
RETIREMENT PLAN. Eligible investors may establish individual retirement
accounts ("IRAs"). PFS Investments, Inc., 3100 Breckinridge Blvd., Bldg. 200,
Duluth, Georgia 30199-0062 serves as custodian under IRA, SEP and 403(b)(7)
plans. There is an annual $20 maintenance fee. This fee is deducted from a
shareholder's account balance each December, unless prepaid. If a redemption is
requested during the year, the maintenance fee will be deducted from the
redemption proceeds. There will be no additional fees for the redemption of an
account or the establishment of new accounts. Details regarding fees, as well as
plan administration, and other details regarding this Retirement Plan is
available from PFS Investments' registered representatives.
EXCHANGE PRIVILEGE. Shares of any Fund may be exchanged for shares of the
same class of any of the other Funds described in this Prospectus upon payment
of the excess, if any, of the sales charge applicable to the Fund being acquired
over the sales charge paid on the purchase. Shares of the Money Market Fund may
be exchanged for shares of the other Funds upon payment of the sales charge
applicable to shares of the Fund being acquired unless a sales charge previously
has been paid.
Class B shareholders of a Fund have the ability to exchange their shares
("original shares") for the same class of shares of any other Fund described in
this Prospectus that offers such class of shares ("new shares") in an amount
equal to the aggregate net asset value of the original shares without the
payment of any contingent deferred sales charge otherwise due upon redemption of
the original shares. For purposes of computing the contingent deferred sales
charge payable upon a redemption of the new shares, the holding period for the
original shares is added to the holding period of the new shares. Class B
shareholders would remain subject to the contingent deferred sales charge
imposed by the original fund upon the redemption from the Common Sense family of
funds
Shares of the fund to be acquired must be registered for sale in the
investor's state. Exchanges of shares are sales and may result in a gain or loss
for federal income tax purposes, although if the shares exchanged have been held
for less than 91 days, the sales charge paid on such shares is not included in
the tax basis of the exchanged shares, but is carried over and included in the
tax basis of the shares acquired. A Fund reserves the right to reject any order
to acquire its shares through exchange, or otherwise modify, restrict or
terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment. See the Statement of
Additional Information.
A shareholder wishing to make an exchange may do so by completing a CST
Exchange Form and sending it to the Transfer Agent. A signature guarantee and
other documentary evidence may be required for certain registrations other than
individual accounts (e.g., corporation, trust, etc.). Exchanges are effected at
the net asset value next calculated after the request is received in good order.
See "Purchase of Shares" and "Redemption of Shares." If the exchanging
shareholder does not have an account in the Fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gain options as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan or a pre-authorized bank draft for the new account, however, an
exchanging shareholder must file a specific written request.
A shareholder may utilize the Transfer Agent's Facsimile Transaction Line
("FAX") to effect an exchange as long as a signature guarantee or other
documentary evidence is not required. Exchange requests should be properly
signed by all owners of the account and faxed to the Transfer Agent at (800)
554-2374. Facsimile exchanges may not be available if the shareholder cannot
reach the Transfer Agent by FAX, whether because all telephone lines are busy or
for any other reason; in such case, a shareholder would have to use the Fund's
regular exchange procedure described above. Facsimile exchanges received by the
Transfer Agent prior to 4:00 p.m. Eastern time on a regular business day will be
processed at the net asset value per share determined that day.
An investor considering an exchange should refer to the prospectus for
additional information regarding such fund prior to investing.
SYSTEMATIC EXCHANGE. A shareholder has the option to systematically
exchange a dollar or share amount on a monthly basis. You may automatically
exchange shares from one CST account for shares in another CST account on a
regular schedule (e.g., monthly or quarterly). The accounts must have identical
registrations and the originating account must have a minimum balance of $5,000.
The minimum exchange amount is $50. You may add this service to your account by
completing the CST Additional New Account Options Form found in the Prospectus,
and submitting it with your initial application. If you are selecting this
option after your account has been established, you should complete a CST
Shareholder Service Form and mail it to the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $5,000 or more at the offering price next computed after receipt of
instructions may establish a withdrawal plan. This plan provides for the orderly
use of the entire account, not only the income but also the capital, if
necessary. Each withdrawal constitutes a redemption of shares on which any
capital gain or loss will be recognized. The planholder may arrange for monthly,
quarterly, semiannual or annual checks in any amount not less than $50, in
multiples of $5, unless specifically authorized by the Distributor.
Class B shareholders who establish a withdrawal plan may redeem up to 12%
annually of the shareholder's Initial Account Balance without incurring a
contingent deferred sales charge. Initial Account Balance means the amount of
the shareholder's investment in a Fund at the time the
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<PAGE> 45
election to participate in the plan is made. See "Purchase of Shares -- Waiver
of Contingent Deferred Sales Charge" and the Statement of Additional
Information.
Under the plan, sufficient shares of a Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gain
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchase of additional shares ordinarily will
be disadvantageous to the shareholder because of the duplication of sales
charges. There is no charge for establishing a systematic withdrawal plan. You
may add this service to your account by completing the CST Additional New
Account Options Form found in the Prospectus and submitting it with your initial
application. If you are selecting this option after your account has been
established, you should complete a CST Shareholder Service Form and mail it to
the Transfer Agent.
DOLLAR COST AVERAGING. Special services are available that enable investors
to take advantage of dollar cost averaging through automatic monthly
investments. Dollar cost averaging involves the investment of a fixed dollar
amount in investment vehicles such as the Funds at pre-set intervals. This
practice will result in more shares being purchased when a Fund's net asset
value is relatively low, and fewer shares being purchased when a Fund's net
asset value is relatively high. Therefore, the investor's overall cost of shares
purchased is lower than it would be if the investor purchased a fixed number of
shares at pre-set intervals.
Investors may purchase shares of any of the Funds by using pre-authorized
checks drawn on the investor's bank account. See "Pre-Authorized Check Plan."
Further information on automatic investing and the advantages of dollar cost
averaging is set forth in the Statement of Additional Information.
ACCOUNT STATEMENTS/REPORTS. A client will receive several statements and
reports as a Common Sense Trust shareholder. Each time a financial transaction
occurs, a confirmation statement identifying the shares bought or sold will be
mailed. On an annual basis, each January, a year-end statement detailing the
previous year's transactions will be provided. Information required for
income-tax reporting will also be distributed to shareholders, usually in
January.
In addition to the above shareholder activity statements, a Semi-Annual and
Annual Financial Report will be distributed which includes a Statement of Net
Assets identifying each security the Fund is invested in.
Also available at the shareholder's request, is an Account Transcript
identifying every financial transaction in an account since it was opened. To
defray administrative expenses involved with providing multiple years worth of
information, there is a $10 charge for each Account Transcript requested.
Additional information regarding Common Sense Trust's services may be
obtained by contacting the Client Services Department at (800) 544-5445.
SHAREHOLDER SERVICES APPLICABLE TO CLASS A AND CLASS 1 SHAREHOLDERS ONLY
CHECK WRITING PRIVILEGE. A Class A or Class 1 shareholder holding shares of
the Government Fund, Money Market Fund and Municipal Bond Fund for which
certificates have not been issued may appoint the Fund's Transfer Agent as agent
and request, on the application form, special forms of drafts payable through
Fidelity National Bank ("Fidelity"). The Transfer Agent issues these drafts on
behalf of the Fund in books of ten drafts, for which there is a charge by the
Fund of $7.50 per book. These drafts may be made payable by the shareholder to
the order of any person in any amount of $250 or more. When a draft is presented
to Fidelity for payment, full and fractional shares required to cover the amount
of the draft will be redeemed from the shareholder's account by the Transfer
Agent at the next determined net asset value. Any gain or loss realized on the
sale of shares is a taxable event. See "Redemption of Shares." Drafts will not
be honored for redemption of shares held less than fifteen (15) days, or until
the Transfer Agent is presented with satisfactory evidence that the purchase
check has cleared. Any shares for which there are outstanding certificates may
not be redeemed by draft. If the amount of the draft is greater than the
proceeds of all uncertificated shares held in the shareholder's account, the
draft will be returned and the shareholder may be subject to additional charges
imposed by banks. A shareholder may not liquidate the entire account by means of
a draft. The check writing privilege may be terminated or suspended at any time
by the Fund or Fidelity. Retirement plans and accounts that are subject to
backup withholding are not eligible for the privilege. A "stop payment" system
is not available on Government Fund, Money Market Fund and Municipal Bond Fund
checks. Fidelity will only honor those drafts authorized by the Trust.
Generally, a properly completed Check Writing Card is all that is required for
the Check Writing Privilege. With certain registrations other than individual or
joint owners, however, other documents and signature guarantees may be
necessary.
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REDEMPTION OF SHARES
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Shareholders may redeem for cash some or all of their shares of any Fund at
any time by sending a written request in proper form directly to the Transfer
Agent at 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia 30199-0062. There
is no charge for a redemption. If you should have any questions concerning how
to redeem your account after reviewing the information below, please contact the
Transfer Agent at (800) 544-5445, Spanish-speaking representatives (800)
544-7278 or TDD Line for the Hearing Impaired (800) 824-1721.
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<PAGE> 46
As described herein under "Purchase of Shares," redemptions of Class B
shares are subject to a contingent deferred sales charge. In addition, a
contingent deferred sales charge of one percent may be imposed on certain
redemptions of Class A shares made within one year of purchase for investments
of $1 million or more. The contingent deferred sales charge incurred upon
redemption is paid to the Distributor in reimbursement for the
distribution-related expenses. See "Purchase of Shares." A custodian of a
retirement plan account may charge fees based on the custodian's fee schedule.
The request for redemption must be signed by all persons in whose names the
shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption exceed $50,000, or if the
proceeds are not to be paid to the record owner(s) at the record address, if the
shareholder(s) has had an address change in the past 45 days, or if the
shareholder(s) is a corporation, sole proprietor, partnership, trust or
fiduciary, signature(s) must be guaranteed by one of the following: a bank or
trust company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly completed CST Redemption Form with any required
signature guarantee is all that is required for a redemption. In some cases,
however, other documents may be necessary. For example, in the case of
shareholders holding certificates, the certificates for the shares being
redeemed must accompany the redemption request. Additional documentary evidence
of authority is also required by the Transfer Agent in the event redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator. Additionally, if a shareholder requests a redemption from a
Retirement Plan account (IRA or SEP), such request must state whether or not
federal income tax is to be withheld from the proceeds of the redemption check.
All 403(b)(7) distributions will have the 20% mandatory withholding deducted
unless the proceeds are payable to a new Custodian/Trustee as successor
Custodian/Trustee. A Letter of Acceptance from the successor Custodian/Trustee
is required and must accompany the distribution request.
A shareholder may utilize the Transfer Agent's FAX to redeem their account
as long as a signature guarantee or other documentary evidence is not required.
Redemption requests should be properly signed by all owners of the account and
faxed to the Transfer Agent at (800) 554-2374. Facsimile redemptions may not be
available if the shareholder cannot reach the Transfer Agent by FAX, whether
because all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's regular redemption procedure described
above. Facsimile redemptions received by the Transfer Agent prior to 4:00 p.m.
Eastern time on a regular business day will be processed at the net asset value
per share determined that day.
In all cases, the redemption price is the net asset value per share of the
Fund next determined after the request for redemption is received in proper form
by the Transfer Agent. Payment for shares redeemed will be made by check mailed
within seven days after acceptance by the Transfer Agent of the request and any
other necessary documents in proper order. Such payment may be postponed or the
right of redemption suspended as provided by the rules of the SEC. If the shares
to be redeemed have been recently purchased by check or draft, the Transfer
Agent may hold the payment of the proceeds until the purchase check or draft has
cleared, usually a period of up to 15 days. Any taxable gain or loss will be
recognized by the shareholder upon redemption of shares.
After following the above-stated redemption guidelines, a shareholder(s)
may elect to have the redemption proceeds wire-transferred directly to the
shareholder's bank account of record (defined as a currently established
pre-authorized draft on the shareholder's account with no changes within the
previous 45 days), as long as the bank account is registered in the same name(s)
as the account with the Fund. If the proceeds are not to be wired to the bank
account of record, or to the registered owner(s), a signature guarantee will be
required from all shareholder(s). A $25 service fee will be charged by the
Transfer Agent to help defray the administrative expense of executing a wire
redemption. Redemption proceeds will normally be wired to the designated bank
account on the next business day following the redemption, and should ordinarily
be credited to your bank account by your bank within 48 to 72 hours.
The Trust may redeem any shareholder account with a net asset value of less
than $200. Three months advance notice of any such involuntary redemption is
required and the shareholder may purchase prior to such redemption the required
value of additional shares in order to avoid such involuntary redemption. Any
involuntary redemption may only occur if the shareholder's account is less than
the required minimum due to shareholder redemptions or did not reach the
required minimum because the shareholder failed to meet the shareholder's
obligations under a periodic investment arrangement. Any taxable gain or loss
will be recognized by the shareholder upon redemption of shares.
REINSTATEMENT PRIVILEGE. A Class A or Class B shareholder who has redeemed
shares of a Fund may reinvest any portion or all of the proceeds of such
redemption in Class A shares of any Fund. A Class 1 shareholder who has redeemed
shares of a Fund may reinvest proceeds of such redemption in Class 1 shares of
any Fund. Such reinvestment is made at the net asset value (without sales
charge) next determined after the order is received, which must be within 60
days after the date of the redemption. This privilege can be exercised only
once.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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Unless the shareholder instructs otherwise, all dividends and capital gain
distributions of each Fund are automatically reinvested in additional shares of
the same class of such Fund. See "Shareholder Services -- Reinvestment Plan."
Dividends and distributions paid by a Fund have the effect of reducing the net
asset value per share on the record date by the amount of the dividend or
distribution. Therefore, a dividend or distribution paid shortly after a
purchase of shares by an investor would represent, in substance, a return of
capital to the shareholder (to the extent it is paid on the shares so
purchased), even though it would be subject to income taxes, as discussed below.
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The per share dividends on Class A and Class B shares will be lower than
the per share dividends on Class 1 shares as a result of the distribution fees
and any incremental transfer agency fees applicable to such class of shares.
DIVIDENDS AND DISTRIBUTIONS OF THE EMERGING GROWTH FUND, THE INTERNATIONAL
EQUITY FUND, THE GROWTH FUND, AND GROWTH INCOME FUND. Dividends from stocks and
interest earned from other investments are the main source of income for the
Emerging Growth Fund, the International Equity Fund, the Growth Fund and the
Growth and Income Fund. When a Fund sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Fund paid to purchase them. Net realized
capital gains represent the total profit from sales of securities minus total
losses from sales of securities including any losses carried forward from prior
years.
The Emerging Growth Fund, the International Equity Fund and the Growth Fund
distributes substantially all its net investment income, less expenses, and any
net realized capital gains annually, normally in December. The Growth and Income
Fund distributes substantially all its net investment income, less expenses
quarterly, normally in March, June, September and December, and it distributes
any net realized capital gains annually, normally in December. Net long-term
gains realized from both Funds' transactions in options, futures and related
options transactions may be paid out more frequently (with short-term gains) as
may be determined from time to time by the Trustees, but only after appropriate
regulatory approval is first obtained. There is no assurance that such
regulatory approval will be obtained.
DIVIDENDS AND DISTRIBUTIONS OF THE GOVERNMENT FUND. Income dividends are
declared each business day, and paid monthly. Any taxable net realized
short-term capital gains may be distributed quarterly and any net realized
long-term gains are distributed to shareholders annually, normally in December.
Net long-term gains realized from the Fund's transactions in options, futures
and related options transactions may be paid out more frequently (with
short-term gains) as may be determined from time to time by the Trustees, but
only after appropriate regulatory approval is first obtained. There is no
assurance that such regulatory approval will be obtained.
In computing interest income, the Fund does not amortize debt discount or
premiums resulting from the purchase of debt securities. Thus in the case of
U.S. Government securities purchased at a premium, interest income is greater
than it would be if the premium was amortized.
DIVIDENDS AND DISTRIBUTIONS OF THE MUNICIPAL BOND FUND. Income dividends
are declared each business day, and paid monthly. The daily dividend is a fixed
amount determined at least monthly which is not expected to exceed the net
income of the Fund for the month divided by the number of business days during
the month. The Fund intends to distribute after the end of a fiscal year the net
capital gains, if any, realized during the fiscal year, except to the extent
that such gains are offset by capital loss carryovers of the Fund.
Net long-term gains realized from transactions in futures and related
options transactions may be paid out more frequently (with short-term gains) as
may be determined from time to time by the Trustees, but only after appropriate
regulatory approval is first obtained. There is no assurance that such
regulatory approval will be obtained.
DIVIDENDS OF THE MONEY MARKET FUND. Income dividends are declared each
business day, and paid monthly. Dividends are paid to shareholders of record
immediately prior to the determination of net asset value for that day. Since
shares are issued and redeemed at the time net asset value is determined,
dividends commence on the day following the date shares are issued and are
received for the day shares are redeemed. Shareholders may elect to receive
monthly payments of dividends in cash by written instruction to the Transfer
Agent. Shares purchased as a result of the accrual of daily dividends are
liquidated at the net asset value on the last business day of the month and the
proceeds of such redemption mailed to the shareholder electing cash payment. A
redeeming shareholder receives all dividends accrued through the date of
redemption.
The Fund's net income for dividend purposes is calculated daily and
consists of interest accrued or discount earned, plus or minus any net realized
gains or losses on portfolio securities, less any amortization of premium and
the expenses of the Fund.
TAXES. Each Fund intends to qualify as a "regulated investment company"
under the Code. By so qualifying and by distributing all of its net investment
income and net realized capital gains within the time periods specified in the
Code, each Fund would not be required to pay any federal income tax. Dividends
from net investment income and distributions from any net realized short-term
capital gains are taxable to shareholders as ordinary income. All such dividends
are taxable to the shareholder whether or not reinvested in shares. However,
shareholders not subject to tax on their income will not be required to pay tax
on amounts distributed to them.
In addition, the Municipal Bond Fund intends to invest in sufficient
Municipal Bonds to permit payment of "exempt-interest dividends" (as defined in
the Code). Dividends paid by the Fund from the net tax-exempt interest earned
from Municipal Securities qualify as exempt-interest dividends if, at the close
of each quarter of the fiscal year, at least 50% of the value of the total
assets of the Fund consists of Municipal Bonds. See "Federal Tax Information" in
the Statement of Additional Information.
Exempt-interest dividends paid to shareholders are not includable in the
shareholder's gross income for federal income tax purposes. The percentage of
the total dividends paid by the Fund during any taxable year that qualify as
exempt-interest dividends will be the same for all shareholders of the Fund
receiving dividends during such year.
Dividends and interest received by the Emerging Growth Fund, the
International Equity Fund, the Growth Fund and the Growth and Income Fund may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Investors may be entitled to claim United States foreign
tax credits with respect to such taxes, subject to certain provisions and
limitations contained in the Code.
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<PAGE> 48
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the rate of foreign tax in
advance since the amount of a Fund's assets to be invested in various countries
is not known. Such foreign taxes would reduce the income of the Fund distributed
to shareholders.
If, at the end of the International Equity Fund's taxable year, more than
50% of the value of its total assets consists of stock or securities of foreign
corporations, the International Equity Fund may make an election pursuant to
which foreign income taxes paid by it will be treated as paid directly by its
shareholders. The International Equity Fund will make this election only if it
deems the election to be in the best interests of its shareholders, and will
notify shareholders in writing each year if it makes the election and the amount
of foreign taxes to be treated as paid by the shareholders. If the International
Equity Fund makes such an election, the amount of such foreign taxes would be
included in the income of shareholders, and a shareholder other than a foreign
corporation or non-resident alien individual could claim either a credit or,
provided the shareholder itemizes deductions, a deduction for U.S. federal
income tax purposes for such foreign taxes. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholders' U.S. tax (determined
without regard to the availability of the credit) attributed to their total
foreign source taxable income. For this purpose, the portion of dividends and
distributions paid by the International Equity Fund from its foreign source
income will be treated as foreign source income. The International Equity Fund's
gains and losses from the sale of securities and from certain foreign currency
gains and losses will generally be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the
International Equity Fund that qualifies as foreign source income. In addition,
the foreign tax credit is allowed to offset only 90% of the alternative minimum
tax imposed on corporations and individuals. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate share of the foreign income taxes paid by the International Equity
Fund.
The foregoing is a brief summary of some of the federal income tax
considerations affecting the Trust and its investors who are U.S. residents or
U.S. corporations. Investors should consult their tax advisors for more detailed
tax advice including state and local tax considerations. Foreign investors
should consult their own counsel for further information as to the U.S. and
their country of residence or citizenship tax consequences of receipt of
dividends and distributions from the Trust.
Shareholders are notified annually of the federal tax status of dividends
and capital gains distributions, including information as to the portion
(including short-term capital gains) taxable as ordinary income, and the portion
taxable as long-term capital gains. TO AVOID BEING SUBJECT TO A 31% FEDERAL
BACKUP WITHHOLDING ON DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS,
SHAREHOLDERS MUST FURNISH THE FUND WITH THEIR CORRECT TAXPAYER IDENTIFICATION
NUMBER. Shareholders are urged to consult their tax advisers with specific
reference to their own tax situation.
STATE AND LOCAL TAXES. The exemption of interest income for federal income
tax purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that shareholders consult their tax advisers for information in this
regard. The Municipal Bond Fund will report annually to its shareholders the
percentage and source, on a state-by-state basis, of interest income earned on
Municipal Bonds held by the Fund during the preceding year. Distributions paid
by the Fund from sources other than tax-exempt interest are generally subject to
taxation at the state and local levels.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS. Gains or losses on each
Fund's, other than the Money Market Fund, transactions in certain listed options
(except certain equity options) on securities or indices, futures or options on
futures generally are treated as 60% long-term and 40% short-term, and positions
held by a Fund at the end of its fiscal year generally are required to be marked
to market, with the result that unrealized gains and losses are treated as
though they were realized. Gains and losses realized by a Fund on transactions
in over-the-counter options generally are short-term capital gains or losses
unless the option is exercised in which case the character of the gain or loss
is determined by the holding period of the underlying security. The Code
contains certain "straddle" rules which require deferral of losses incurred in
certain transactions involving hedged positions to the extent a Fund has
unrealized gains in offsetting positions and generally terminates the holding
period of the subject position. Additional information is set forth in the
Statement of Additional Information.
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, each of the Funds, except for the Money Market Fund, may
advertise its total return for prior periods. Any such advertisement would
include at least average annual total return quotations for one year, five years
and for the life of each Fund. Other total return quotations, aggregate or
average, over other time periods may also be included.
The total return of a Fund for a particular period represents the increase
(or decrease) in the value of a hypothetical investment in the Fund from the
beginning to the end of the period. Total return is calculated by subtracting
the value of the initial investment from the ending value and showing the
difference as a percentage of the initial investment; the calculation assumes
the initial investment is made at the maximum public offering price for Class A
and Class 1 shares, if applicable; that all income dividends or capital gains
distributions during the period are reinvested in Fund shares at net asset
value; and that any applicable contingent deferred sales charge has been paid.
Total return will vary depending on market conditions, the securities comprising
a Fund's portfolio, a Fund's operating expenses and unrealized net capital gains
or losses during the period. Total return is based
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<PAGE> 49
on historical earnings and asset value fluctuations and is not intended to
indicate future performance. No adjustments are made to reflect any income taxes
payable by shareholders on dividends and distributions paid by the Fund.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
In addition to total return information, the Government Fund and the
Municipal Bond Fund may also advertise their current "yield." Yield figures are
based on historical earnings and are not intended to indicate future
performance. Yield is determined by analyzing the Fund's net income per share
for a 30-day (or one-month) period (which period will be stated in the
advertisement), and dividing by the maximum offering price per share on the last
day of the period. A "bond equivalent" annualization method is used to reflect a
semiannual compounding. The Municipal Bond Fund's "tax-equivalent yield" is
calculated by determining the rate of return that would have to be achieved on a
fully taxable investment to produce the after-tax equivalent of the Municipal
Bond Fund's yield, assuming certain tax brackets for a Fund shareholder.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by a Fund in accordance with generally accepted
accounting principles and from net income computed for federal income tax
reporting purposes. Thus the yield computed for a period may be greater or
lesser than a Fund's then current dividend rate.
A Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by a Fund, portfolio maturity and a Fund's
expenses.
Yield quotations should be considered relative to changes in the net asset
value of a Fund's shares, a Fund's investment policies, and the risks of
investing in shares of a Fund. The investment return and principal value of an
investment in a Fund will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
Yield and total return are calculated separately for each Fund's Class A,
Class B and Class 1 shares. Class A and Class 1 total return figures include the
maximum sales charge applicable; Class B total return figures include any
applicable contingent deferred sales charge. Because of the differences in sales
charges and distribution fees, the total return for each of the classes will
differ.
From time to time the Money Market Fund advertises its "yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The "yield" of the Fund refers to
the income generated by an investment in the Fund over a seven-day period (which
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The current and effective
yields for the seven-day period ending October 31, 1995 and a description of the
method by which the yield was calculated is contained in the Statement of
Additional Information.
To increase the yield of the Money Market Fund, the Adviser, for an
indefinite period has agreed to absorb a certain amount of the ordinary business
expenses. A yield quotation which reflects an expense reimbursement or
subsidization by the Adviser will be higher than a yield quotation without such
expense reimbursement or subsidization. The Adviser may stop absorbing these
expenses at any time without prior notice.
Since yield fluctuates, yield data cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.
In reports or other communications to shareholders or in advertising
material, a Fund may compare its performance with that of other mutual funds as
listed in the ratings or rankings prepared by Lipper Analytical Services, Inc.,
Donaghue's Money Market Report, CDA, Ibbotson Associates or similar independent
services which monitor the performance of mutual funds or with the Consumer
Price Index, Dow Jones Industrial Average, Salomon Brothers' various indices,
Standard & Poor's or NASDAQ or other appropriate indices of investment
securities or with investment or savings vehicles. The performance information
may also include evaluations of a Fund published by nationally recognized
ranking services and by financial publications that are nationally recognized,
such as Business Week, Forbes, Fortune, Financial World, Institutional Investor,
Investor's Business Daily, Kiplinger's Personal Finance Magazine, Money, Mutual
Fund Forecaster, New York Times, Pension World, Stanger's Investment Advisor,
U.S. News & World Report, USA Today and The Wall Street Journal. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Any such advertisement would also
include the standard performance information required by the SEC as described
above. For these purposes, the performance of a Fund, as well as the performance
of other mutual funds or indices, do not reflect sales charges, the inclusion of
which would reduce Fund performance.
The Funds, except for the Money Market Fund, may, from time to time,
illustrate the benefits of tax-deferral by comparing taxable investments to
investments made through tax-deferred retirement plans and the Funds may
illustrate in graph or chart form, or otherwise, the benefits of dollar cost
averaging by comparing investments made pursuant to a systematic investment plan
to investments made in a rising market.
47
<PAGE> 50
The Funds may, from time to time, in reports or other communications to
shareholders or in advertising material, illustrate the benefits of compounding
at various assumed rates of return. Such illustrations may be in the form of
charts or graphs and will not be based on historical returns experienced by the
Funds. The Funds may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the standard performance information required by the SEC as
described above.
The Funds may, from time to time, in communications to shareholders or in
advertising material illustrate in graph, chart or narrative form: a) the
importance of investment goals such as owning a home, funding a college
education, or saving money for retirement. These illustrations may depict the
rising costs of college and mortgage payments and the declining number of
workers supporting the Social Security system. Fund communications and
advertisements may also encourage investments in the Funds for purposes of
helping families to achieve their investment goals; b) the benefits and
popularity of purchasing term insurance as opposed to other, more expensive
types of insurance in addition to the possible benefits of investing the savings
in mutual funds; c) the growth of mutual fund assets as reported by industry
publications; and d) the theory of decreasing responsibility, i.e. as
individuals grow older and their assets increase, the need for life insurance
generally decreases.
The Municipal Bond Fund may, from time to time, illustrate the growth
advantage of tax-free income by comparing hypothetical taxable growth
compounding examples to hypothetical tax-free growth compounding examples.
The Trust's Annual Report contains additional performance information with
respect to each Fund discussed in this Prospectus. A copy of the Annual Report
may be obtained without charge by calling or writing the Trust at the telephone
number and address printed on the cover page of this Prospectus.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION OF THE TRUST. The Trust was organized under the laws of the
Commonwealth of Massachusetts and is a business entity commonly known as a
"Massachusetts business trust." It is a diversified, open-end management
investment company authorized to issue an unlimited number of Class A, Class B
and Class 1 shares of beneficial interest of $.01 par value, in the Funds.
Shares issued are fully paid, non-assessable and have no preemptive or
conversion rights. In the event of liquidation of any Fund, shareholders of such
Fund are entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Trustees (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. Each class of shares represents interest in the assets of each
Fund and has identical voting, dividend, liquidation and other rights on the
same terms and conditions, except that the distribution fees and/or service fees
and any incremental transfer agency fees related to each class of shares of each
Fund are borne solely by that class, and each class of shares of each Fund has
exclusive voting rights with respect to provisions of the Trust's Class A Plan
and Class B Plan which pertain to that class of each Fund. All shares have equal
voting rights, except that only shares of the respective Fund are entitled to
vote on matters concerning only that Fund. There will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Shareholders may, in
accordance with the Declaration of Trust, cause a meeting of shareholders to be
held for the purpose of voting on the removal of Trustees. Except as set forth
above, the Trustees shall continue to hold office and appoint successor
Trustees.
The Declaration of Trust establishing the Trust, dated January 29, 1987, a
copy of which together with all amendments thereto (the "Declaration"), is on
file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Common Sense Trust" refers to the Trustees under the
Declaration collectively as Trustees, not as individuals or personally; and no
Trustee, officer or shareholder of the Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or liability of any Fund but the assets of the
applicable Fund only shall be liable.
SHAREHOLDER INQUIRIES. Shareholder inquiries should be directed by writing
the Transfer Agent at 3100 Breckinridge Blvd., Bldg. 200, Duluth, Georgia
30199-0062 or calling (800) 544-5445.
TRANSFER AGENT. PFS Shareholder Services, an indirect subsidiary of
Travelers, serves as Transfer Agent for the Fund. See "The Trust and Its
Management."
LEGAL COUNSEL. Sullivan & Worcester LLP, 1025 Connecticut Avenue N.W.,
Washington, D.C. 20036, is legal counsel to the Trust.
INDEPENDENT AUDITORS. Ernst & Young LLP, 1221 McKinney, Suite 2400,
Houston, Texas 77010, are the independent auditors for the Trust.
48
<PAGE> 51
TAXPAYER IDENTIFICATION NUMBER INSTRUCTIONS
WHAT NUMBER TO GIVE
Please make sure that the social security number or taxpayer identification
number (TIN) which appears on the Application complies with the following
guidelines:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ACCOUNT GIVE SOCIAL SECURITY ACCOUNT GIVE EMPLOYER I.D.
TYPE NUMBER OF: TYPE NUMBER OF:
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
Joint Account Owner who will be personal TIN of fiduciary
paying tax
Unif. Gifts to Minors Minor
Legal Guardian Ward, Minor or Incompetent Corporation, Partnership Corporation, Partnership
Other Organization Other Organization
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
</TABLE>
OBTAINING A NUMBER
If you don't have a TIN or you don't know your number, obtain Form SS-5,
Application for Social Security Number Card, or Form SS-4, Application for
Employer Identification Number, at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number. Write
"applied for" in the space provided on the account application.
BACKUP WITHHOLDING
Dividends and other distributions and the proceeds of redemption or repurchase
of Fund shares paid to individuals and other non-exempt payees will be subject
to a 31% backup Federal withholding tax if the Fund is not provided with the
shareholder's taxpayer identification number (TIN) and certification that the
shareholder is not subject to backup withholding. A shareholder may furnish
the TIN and the required certification by completing, signing and sending to
the Fund either an Account Application or IRS Form W-9. IF THE REQUIRED
CERTIFICATION IS NOT RECEIVED WITH THE SUBMISSION OF THE APPLICATION, BACKUP
WITHHOLDING WILL COMMENCE.
IRS PENALTIES
If you do not supply us with your TIN, you will be subject to an IRS $50
penalty unless your failure is due to a reasonable cause and not willful
neglect. If you fail to report interest, dividend or patronage dividend income
on your federal income tax return, you will be treated as negligent and
subject to an IRS 5% penalty tax on any resulting underpayment of tax unless
there is clear and convincing evidence to the contrary. If you falsify
information on this form or make any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
you may be subject to an IRS $500 penalty and certain criminal penalties
including fines and/or imprisonment.
<PAGE> 52
INTERNAL REVENUE SERVICE Department of the Treasury
Washington, DC 20224
Person to Contact:
Mr. C. Thompson
PFS Investments Inc. Telephone Number:
3120 Breckinridge Boulevard (202) 622-7021
Duluth, GA 30199 Refer Reply to:
CP:E:EP:T:1
Date:
EIN Number: 58-1436188 September 28, 1995
Gentlemen:
In a letter dated March 17, 1995, and subsequent letters, your
authorized representative requested a written notice of approval that PFS
Investments Inc. may act as a nonbank custodian of plans qualified under section
401 of the Internal Revenue Code, accounts described in section 403(b)(7), and
of individual retirement arrangements (IRAs) established under section 408.
Section 401(f) of the Code provides that a custodial account shall be
treated as a qualified trust under this section if such custodial account would,
except for the fact it is not a trust, constitute a qualified trust under this
section and the custodian is a bank (as defined in section 408(n)) or other
person who demonstrates to the satisfaction of the Secretary that the manner in
which such other person will hold the assets will be consistent with the
requirements of section 401 of the Code. Section 401(f) also provides that in
the case of a custodial account treated as a qualified trust by reason of the
preceding sentence, the person holding the assets of such account shall be
treated as the trustee thereof.
Section 403(b)(7)(A) of the Code requires, in part, that for amounts
paid by an employer to a custodial account to be treated as amounts contributed
to an annuity contract for his employee, the custodial account must satisfy the
requirements of section 401(f)(2). This section also requires, in order for the
amounts paid by an employer to be treated as amounts contributed to an annuity
contract for his employee, that the amounts are to be invested in regulated
investment company stock to be held in that custodial account, and under the
custodial account no such amounts by be paid or made available to any
distributee before the employee dies, attains the age 59 1/2, separates from
service, becomes disabled (within the meaning of section 72(m)(7)), or in the
case of contibutions made pursuant to a salary reduction agreement (within the
meaning of section 3121(a)(1)(D)), encounters financial hardship.
Section 408(h) of the Code provides that a custodial account shall be
treated as a trust under this section if the assets of such account are held by
a bank (as defined in subsection(n)) or such other person who demonstrates to
the satisfaction of the Secretary that the manner in which such other person
will administer the account will be consistent with the requirements of this
section, and if the custodial account would, except for the fact that it is not
a trust, constitute an IRA described in subsection (a). Section 408(h) also
provides that, in the case of a custodial account treated as a trust by reason
of the preceding sentence, the custodian of such account shall be treated as the
trustee thereof.
The Income Tax Regulations at section 1.401-12(n) are used to determine
the ability of such person, for purposes of sections 401(f), 403(b)(7), and
408(h) of the Code, to act as a trustee or custodian. Section 1.401-12(n) of the
regulations provides that such person must file a written application with the
Commissioner demonstrating, as set forth in that section, its ability to act as
a trustee or custodian.
Based on all the information submitted to this office and all the
representations made in the application, we have concluded that PFS Investments
Inc. meets the requirements of section 1.401-12(n) of the regulations, and,
therefore, is approved to act as a nonbank custodian of plans qualified under
section 401 pc of the Internal Revenue Code, accounts described in section 403
(b)(7), and of IRAs established under section 408.
This letter authorizes PFS Investments Inc. to act only as a nonbank
custodian in a fashion similar to a passive nonbank trustee, within the meaning
of section 1.401-12(n)(7) of the regulations, that is, it is authorized only to
acquire and hold particular investments specified by the owner. It may not act
as custodian if under the written agreement it has discretion to direct
investments of the custodial funds.
This letter while authorizing PFS Investments Inc. to act as a custodian
does not authorize it to pool accounts in a common investment fund (other than a
mutual fund) within the meaning of section 1.401-12(n)(6)(viii)(C) of the
regulations. PFS Investments Inc. may not act as a custodian unless it
undertakes to act only under custodial agreements that contain a provision to
the effect that the owner is to substitute another trustee or custodian upon
notification by the Commissioner that such substitution is required because the
applicant has failed to comply with the requirements of section 1.401-12(n) of
the regulations or is not keeping such records, or making such returns or
rendering such statements as are required by forms or regulations.
PFS Investments Inc. is required to notify the Commissioner of Internal
Revenue, Attn: C:E:EP:T, Internal Revenue Service, Washington, D.C. 20224, in
writing, of any change which affects the continuing accuracy of any
representations made in its application. Further, the continued approval of its
application to act as a nonbank custodian of plans qualified under section 401
of the Code, accounts described in section 403(b)(7), and of IRAs established
under section 408 is contingent upon the continued satisfaction of the criteria
set forth in section 1.401-12(n) of the regulations.
This approval letter is not transferable to any other entity. An entity
that is a member of a controlled group of corporations, within the meaning of
section 1563 (a) of the Code, may not rely on an approval letter issued to
another member of the same controlled group. Further, any entity that goes
through a merger, consolidation or other type of reorganization may no longer
rely on the approval letter issued to such entity prior to the merger,
consolidation or other type of reorganization. Such entity will have to
apply for a new determination letter in accordance with section 1.401-12(n) of
the regulations.
This letter constitutes a determination that PFS Investments Inc. may
act as a nonbank custodian of plans qualified under section 401 of the Code,
accounts described in section 403(b)(7), and of IRAs established under section
408, and does not bear upon its capacity to act as a custodian under any other
applicable law.
In accordance with the power of attorney on file in this office, the
original of this letter is being sent to your authorized representative
and a copy is being sent to you.
Sincerely,
/s/ JOHN SWIECA
----------------------------
John Swieca
Chief, Employee Plans
Technical Branch 1
<PAGE> 53
<TABLE>
<S> <C> <C>
Form 5305-A INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT DO NOT File
(Rev. October 1992) (Under Section 408(a) of the Internal Revenue Code) with the
Department of the Treasury Internal
Internal Revenue Service Revenue Service
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This agreement is entered into on the date written on the accompanying Adoption Agreement by and between the Depositor whose
name and signature appear on the Adoption Agreement (the Depositor) and PFS Investments Inc. (the Custodian) having its
principal place of business at Duluth, Georgia.
The Depositor is establishing an Individual Retirement Account (under Section 408(a) of the Internal Revenue Code) to
provide for his or her retirement and for the support of his or her beneficiaries after death.
The Custodian has given to the Depositor a Disclosure Statement as required under Internal Revenue Regulation 1.408-6.
The Depositor has given to the Custodian the sum listed on the Adoption Agreement (in cash) and the Depositor and the
Custodian agree to the following:
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ARTICLE I
The Custodian may accept additional cash contributions on behalf of the Depositor for a tax year of the Depositor. The
total cash contributions are limited to $2,000 for the tax year unless the contribution is a rollover contribution described in
section 402(c) (but only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions before January 1, 1993, include rollovers described in
section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 403(d)(3), or an employer contribution to a simplified employee
pension plan as described in section 408(k).
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ARTICLE II
The Depositor's interest in the balance in the custodial account is nonforfeitable.
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ARTICLE III
1. No part of the custodial funds may be invested in life insurance contracts, nor may the assets of the custodial
account be commingled with other property except in a common trust fund or common investment fund (within the meaning of
section 408(a)(5)).
2. No part of the custodial funds may be invested in collectables (within the meaning of section 408(m)) except as
otherwise permitted by section 408(m)(3) which provides an exception for certain gold and silver coins and coins issued under the
laws of any state.
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ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the distribution of the Depositor's interest in
the custodial account shall be made in accordance with the following requirements and shall otherwise comply with section 408(a)(6)
and Proposed Regulations section 1.408-8, including the incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin the Depositor under paragraph 3, or to the
surviving spouse under paragraph 4, other than in the case of a life annuity, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Depositor and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin to be, distributed by the Depositor's
required beginning date, (April 1 following the calendar year end in which the Depositor reaches age 70 1/2 ). By that date, the
Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the life
of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint
and last survivor lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal payments over a specified period that may not be longer than the Depositor's life
expectancy.
(e) Equal or substantially equal annual payments over a specified period that may not be longer than the joint life and
last survivor expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him or her, the entire remaining interest
will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has begun, distribution must continue to be made
in accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has begun, the entire remaining interest will,
at the election of the Depositor or, if the Depositor has not so elected, at the election of the beneficiary or beneficiaries,
either
(i) Be distributed by the December 31 of the year containing the fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the life or life expectancy of the designated
beneficiary or beneficiaries starting by December 31 of the year following the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this distribution is not required to begin before December 31 of the year in
which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the requirements of section 408(b)(3) and its related
regulations has irrevocably commenced, distributions are treated as having begun on the Depositor's required beginning date,
even though payments may actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been distributed and if the beneficiary is other than the
surviving spouse, no additional cash contributions or rollover contributions may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially equal annual payments, to determine the
minimum annual payment for each year, divide the Depositor's entire interest in the Custodial account as of the close of business
on December 31 of the preceding year by the life expectancy of the Depositor (or the joint life and last survivor expectancy of the
Depositor and the Depositor's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies). In
the case of distributions under paragraph 3, determine the initial life expectancy (or joint life and last survivor expectancy)
using the attained ages of the Depositor and designated beneficiary as of their birthdays in the year the Depositor reaches age
70 1/2. In the case of a distribution in accordance with paragraph 4(b)(ii), determine life expectancy using the attained age of the
designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the "alternative method" described in Notice 88-38,
1988-1 C.B. 524, to satisfy the minimum distribution requirements described above. This method permits an individual to satisfy
these requirements by taking from one individual retirement account the amount required to satisfy the requirement for another.
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ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports
required under section 408(i) and Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor prescribed by the Internal
Revenue Service.
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ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through III and this
sentence will be controlling. Any additional articles that are not consistent with section 408(a) and the related regulations
will be invalid.
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ARTICLE VII
This agreement will be amended from time to time to comply with the provisions of the Code and related regulations. Other
amendments may be made with the consent of the persons whose signatures appear below.
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Copyright 1996 PFS Distributors, Inc. 2.96
16216
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
ARTICLE VIII
INDIVIDUAL RETIREMENT ACCOUNT
CUSTODIAL ACCOUNT AGREEMENT
1. The Depositor appoints PFS Investments Inc. (PFSI) as Custodian of the Account. After deduction of all applicable
fees and charges (if not paid separately in a timely manner), the balance of Depositor's contributions shall be invested as
hereafter provided.
2. The Depositor directs the Custodian to invest contributions and reinvest dividends and capital gains distributions in
shares of the Mutual Fund as directed on the Adoption Agreement or in any subsequent investment instructions. The designated fund(s)
may be any one or more of the Mutual Fund's portfolios.
3. The Custodian shall have no investment responsibility or discretion with respect to this Account and shall not vote
the shares held therein, except as directed by Depositor.
4. This document constitutes the entire agreement between Depositor and Custodian and no Field Representative of PFS
Investments Inc., PFS Distributors, Inc. nor any broker-dealer shall be deemed to be a representative of or acting on behalf of the
Custodian nor shall any Representative have any authority to make representations or to bind the Custodian beyond the terms of this
document.
5. The Depositor shall have the right, only by written notice to the Custodian, to designate or to change a beneficiary
to receive any benefit to which the Depositor may be entitled in the event of his death prior to the complete distribution of the
Account. Such written designation shall be on a form provided by the Custodian for such purpose, or in such other written format
which may be acceptable to the Custodian. The Custodian may rely upon the last written designation received at the Custodian's
office which shall supersede all prior designations. Unless specifically designated otherwise by the Depositor in a form acceptable
to the Custodian, death benefits shall be distributed equally among all surviving primary beneficiaries or all surviving contingent
beneficiaries (should all primary beneficiaries predecease the Depositor). If no such designation is in effect upon the Depositor's
death, or if the Custodian receives satisfactory proof that all such named beneficiaries have predeceased the Depositor, then the
Account shall be distributed to the Depositor's spouse, if married at the time of death followed by Depositor's estate.
6. Notwithstanding anything therein to the contrary, distributions shall not be made as described in paragraph 3(b) or 3(c)
of Article IV, but only as provided in paragraphs 3(a), (d) and (e) of Article IV. Further, not withstanding the provisions of
Article IV, paragraph 3, if the Depositor has not made an election by April 1 of the year following the year in which he attains age
70 1/2, then distribution will commence being made to the Depositor on such April 1 in equal or substantially equal annual payments
over a period based on the Depositor's life expectancy. Also, all required minimum distributions will be processed using the
non-recalculation (declining years) method.
7. Neither PFSI, as Custodian, nor PFS Distributors, Inc. as Sponsor, assumes any responsibility to make any distribution
unless and until Depositor specifies in writing on the form provided by the Custodian the occasion for such distribution and
the elected manner of distribution. Further, the Custodian and the Sponsor shall not be responsible to make minimum distributions
in accordance with Article IV or Section 6 or Article VIII above following the Depositor's attainment of age 70 1/2 other than upon
the Depositor's express instructions as herein provided.
8. The Custodial Account Agreement shall terminate upon the complete distribution of the Account to the Depositor or his
beneficiaries, to successor individual retirement account or annuities, or when no assets otherwise remain in the account.
9. The Custodian reserves the right to reject any "rollover contributions" received in kind (other than Fund shares).
10. The Sponsor may remove the Custodian and appoint a Successor Custodian at any time upon 30 days' written notice to the
Custodian and to the Depositor or any current beneficiary. The Custodian may resign at any time upon thirty (30) days' written
notice to the Depositor. Upon its resignation, the Custodian may, but shall not be required to appoint a Successor Custodian under
this Custodial Account Agreement. If a resigning Custodian does not appoint a Successor Custodian, the Depositor or current
beneficiary may appoint a Successor Custodian and if no Successor Custodian is appointed, this Custodial Account Agreement shall be
terminated by distribution of all assets held in the Account hereunder to the Depositor or current beneficiary. Any Successor
Custodian appointed hereunder shall satisfy the requirements of Section 408(a)(2) of the Code. Upon any such successor's acceptance
of appointment, the Custodian shall transfer the assets of the Account, together with copies of relevant books and records, to such
Successor Custodian; provided, however, that the Custodian is authorized to reserve such sum of money or property as it may deem
advisable for payment of any liabilities constituting a charge on or against the assets of the Account or of the Custodian and where
necessary may liquidate such assets.
11. The Custodian shall be entitled to compensation for its services hereunder in accordance with its Custodial Account
Fees Schedule as it may be published and amended from time to time. The Custodian shall also be entitled to reasonable
compensation for any extraordinary services rendered and to be reimbursed for any administrative expenses incurred in the
performance of its duties hereunder including fees for legal services rendered to the Custodian. All such fees and expenses of the
Custodian may be charged against the Custodial Account in such manner as the Custodian may determine, or at the Custodian's option,
may be paid directly by the Depositor. The Custodian may pay from the Custodial Account any other costs, fees or expenses associated
with the maintenance of management of the Account on the written authorization of the Depositor.
12. By execution of the Adoption Agreement, Depositor consents to the amendment of this Article VIII by the Sponsor to make
any changes herein which the Sponsor determines in its discretion are necessary or desirable, provided, however, that no such
amendment will be made which increases the duties of the Custodian without the Custodian's consent.
13. This Custodial Account Agreement shall be construed under the laws of the State of Georgia and shall become effective
upon acceptance by the Custodian as evidence by receipt of a confirmation statement from the Custodian.
14. The acceptance by the Depositor of this Custodial Account Agreement incorporating the IRA Disclosure Statement
is indicated by Depositor's signature in item 11. of the related Adoption Agreement incorporated by this reference herein.
15. Annual contributions may be made by or on behalf of the Depositor into a Simplified Employee Pension Plan -
Individual Retirement Account (SEP-IRA) under Section 408(k) of the Code. Contributions by the Depositor's employer(s) may not
exceed the lesser of 15% of the Depositor's compensation from each such employer or $30,000 (as adjusted annually) per Depositor.
Employer contributions shall be made, with respect to any year, on or before the due date for filing the employer's tax return for
such taxable year (including extensions thereof).
16. If otherwise eligible, in addition to any amount contributed by his employer(s) under a SEP Plan, the Depositor
may make a regular IRA contribution into this account which may not exceed 100% of his compensation or $2,000.
17. When a SEP contribution is made in or for any year in which the Depositor becomes 70 1/2 or thereafter, the minimum
distribution under Article IV of this Individual Retirement Account Agreement shall be computed in accordance with such Article
and the Regulations thereunder.
18. The Depositor shall deliver a written form to PFSI indicating that the contribution is eligible to be treated as
SEP-IRA contribution. PFSI may rely upon such statement and may treat the contribution as a SEP-IRA thereafter.
19. Although the termination of the Depositor's SEP-IRA Account may have an adverse affect on the SEP Plan in which the
Depositor participates, PFSI shall not have any liability to the Depositor and/or his employer(s) with respect to such termination
and shall not have an obligation to provide any notice thereof.
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
INTRODUCTION
The following information is being provided in accordance with the requirements of the Internal Revenue Service and is based on
the law as in effect on January 1, 1993, for the tax year 1993 and later. This disclosure statement should be read together with the
Custodial Account Agreement.
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REVOCATION
You may revoke this account at any time within seven calendar days after it is established by mailing or delivering a written
request for revocation to PFS Investments Inc., 3100 Breckinridge Blvd., Bldg. 200, Duluth, GA 30199-1025. Mailed notice will be
considered given on the date postmarked (or the date certified or registered if mailed by this method).
Upon proper written notification of revocation, you will receive a full return of your initial contribution, including sales
commissions and/or administrative fees. If you have any questions, please phone 1-800-544-5445.
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continued on next page
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<S> <C>
GENERAL INFORMATION
Any eligible person may establish an Individual Retirement Account (IRA) and contribute as much as 100% of his
compensation in cash or cash equivalent to such program up to a maximum of $2,000 each year. Contributions made to an IRA may be
income tax deductible. Under certain conditions an individual and his or her spouse may open an IRA and contribute up to $2,250 (not
to exceed $2,000 in any one account). Rollover contributions in excess of $2,000 may also be made.
Contributions may only be made for years prior to the year in which the Depositor attains age 70 1/2 (or the year in which
the spouse attains age 70 1/2 for Spousal Accounts). This rule does not apply to Rollover contributions or to employer contributions
made under a SEP.
Under a Simplified Employee Pension Plan (SEP) the employer of an eligible person may under certain circumstances make
contributions to an employee's IRA. If an employer does make contributions to an employee's IRA, the employee may also contribute to
the IRA up to $2,000 for the taxable year. It is your and your employer's responsibility to see that contributions in excess of
normal IRA limits are made under a valid SEP and are, therefore proper.
Your IRA is a custodial account created for your exclusive benefit. Your interest in the IRA is at all times
nonforfeitable.
Contributions to your IRA, and any dividends or capital gain distributions thereon, will be invested in the Mutual Fund's
Portfolio (and otherwise authorized by it for use hereunder) as directed by you on your IRA Adoption Agreement or in any
subsequent instructions. As required by applicable law, no part of your IRA may be invested in life insurance contracts or in
"collectables" (as defined in section 408(m) of the Code, as amended), nor may the assets of your IRA be commingled with other
property except in a common trust fund or common investment fund.
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ELIGIBILIY
You are eligible to make regular contributions into an IRA for a year if you have received compensation during that year
from the performance of personal services. Compensation includes such items as salaries, bonuses, commissions, and in the
case of a self-employed individual, net earnings from self-employment. All taxable alimony and separate maintenance payments
received by an individual under a decree of divorce or a separate maintenance agreement are also treated as compensation. However,
the deductibility of contributions based on your compensation is subject to special limitations.
The deductibility of the contributions will depend upon whether or not you are an "active participant." Generally, you are
considered an "active participant" for a year if at any time during the year, you are covered by a defined benefit plan under which
money is added to your account or you are eligible to earn retirement credits, regardless of your vested status. The phrase
"retirement plans" includes for these purposes profit sharing plans, government plans (other than a section 457 plan), salary
reduction arrangements (such as a tax sheltered annuity arrangement, SARSEP, or a 401(k) plan), simplified employee pension plans
(SEP) or a plan which promises you a retirement benefit which is based upon the number of years of service you have with the
employer. Your Form W-2 for the year should indicate your participation status. We suggest that you obtain assistance from your
employer or tax advisor to determine whether you are an active participant.
Also, if you make required contributions or voluntary employee contributions to a retirement plan, you are an active
participant. In certain plans you may be an active participant even if you were with the employer for only part of the year.
If you are unmarried and you are not an active participant, you may deduct the full amount which you are allowed to
contribute. Beginning in 1988, you will be treated as unmarried if you and your spouse lived apart at all times during the taxable
year and you filed separate returns.
If you or your spouse is an active participant, you must look at your Adjusted Gross Income (AGI) for the year to determine
whether you can deduct your IRA contribution. Your tax return will show you how to calculate your AGI for this purpose. If you are
at or below a certain AGI level, called the "Threshold Level" you are treated as if you were not an active participant and may
deduct the full amount of your contribution under the same rules as a person who is not an active participant.
If you are single, your Threshold Level is $25,000. The Threshold Level if you are married and file a joint tax return is
$40,000, and if you are married but file a separate tax return, the Threshold Level is $0.
If your AGI is less than $10,000 above your Threshold Level, you will still be able to deduct a portion of your
contribution but it will be limited in amount. The formula for calculating your Maximum Allowable Deduction is a two-step process:
STEP ONE: Compute (A) = .20 x (AGI - Threshold Level).
STEP TWO: Subtract (A) above from the lesser of $2,000 or 100% of your compensation and round this amount up to the next $10 level
to calculate your deduction limit. If the amount is between $0 and $200, you may deduct $200. If contributions are also being made
under the spousal account rules, substitute $2,250 and .225 in the formulas above.
Examples: A. An unmarried person, active participant, AGI = $34,425
STEP ONE: .20 x ($34,425 - 25,000) = $1,885
STEP TWO: $2,000 - 1,885 = $115, rounded up to $120. Since this is less than $200 this person may deduct up
to $200.
B. Married couple: at least one person is an active participant; joint return is filed; joint AGI = $40,366;
both persons have compensation greater than $2,000.
STEP ONE: .20 x ($40,366 - 40,000) = $73.20.
STEP TWO: $2,000 - 73.20 =$1,926.80, rounded up to $1,930. Each person may deduct $1,930.
C. Married couple, one spouse either has no earned income or elects to be treated as having no earned
income; joint AGI = $42,742, active participant.
STEP ONE: .20 ($50,000 - $42,742) = $1,452, rounded up to $1,460
STEP TWO: .225 ($50,000 - $42,742) = $1,633, rounded to $1,640 Therefore, in this example, the
married couple's combined spousal IRA deduction would be $1,640; however, the deductible limit must be
divided between their separate IRAs in any manner; so long as no more than the single deductible limit of
$1,460 (calculated above) is designated in either IRA.
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SPOUSAL IRA
For married persons who file a joint return, contribution may be made to a separate IRA (spousal IRA) for a spouse who
either (1) has no compensation or (2) elects to be treated as having received no compensation for the taxable year. Aggregate
contributions for the working spouse's account and the Spousal IRA may not exceed the lesser of $2,250 or 100% of compensation, and
no more than $2,000 may be contributed to any one account.
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NON-DEDUCTIBLE CONTRIBUTIONS TO IRAS
Even if you are an active participant with AGI above the applicable dollar limit and thus may not make a deductible
contribution of $2,000 ($2,250 for a Spousal IRA), you may still contribute up to the lesser of 100% of compensation or $2,000 to
an IRA ($2,250 for a Spousal IRA). The amount of your contribution which is not deductible will be a non-deductible contribution to
the IRA. You may also choose to make a contribution non-deductible even if you could have deducted part or all of the contribution.
Interest or other earnings on your IRA contribution, whether from deductible or non-deductible contributions, will not be taxed
until taken out of your IRA and distributed to you.
If you make a non-deductible contribution to an IRA, you must report the amount of the non-deductible contribution to the
IRS on Form 8606 which is filed with your tax return. Failure to report non-deductible contributions properly may subject you to
a penalty for each failure.
You may make a $2,000 contribution at any time during the year, if your compensation for the year will be at least $2,000,
even if you have not yet determined how much will be deductible. When you fill out our tax return you may then calculate how much is
deductible.
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EXCESS CONTRIBUTIONS
Generally, any contributions (other than rollover contributions described below) exceeding the maximum contribution
limitation are excess contributions which are subject to a non-deductible 6% excise tax. The amount of the tax for any year cannot
exceed 6% of the value of your IRA at the close of that tax year.
A contribution made with respect to any year (whether or not such contribution is an excess contribution) may be withdrawn
without being a taxable distribution if such contribution and the earnings thereon are withdrawn from your IRA prior to the due date
for filing your Federal income tax return for that year. The earnings will be taxable in the year in which the contribution
was made and may be subject to the 10% additional tax on premature distributions.
Besides being subject to the excise tax, excess contributions withdrawn after the due date for filing your Federal income
tax return for the year will be taxed as ordinary income if you made contributions in excess of $2,250 for such tax year and may be
subject to the premature distribution penalty. Excess contributions made in a prior year may nevertheless be applied as
deductible and non-deductible contributions in the current year if less than the maximum permissible contribution is made for the
current year and if the amount of the excess contributions was not allowed as a deduction in a prior year. -
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ROLLOVER FROM ANOTHER IRA
You may rollover part or all of a distribution you receive from another IRA into your Mutual Fund IRA. You must
rollover your distribution no later than the 60th day after you receive it. You are allowed only one IRA to IRA rollover during a
twelve-month period beginning with the date you receive the IRA distribution that you rollover. You must rollover the same property
you received as a distribution from your other IRA. You must irrevocably designate a contribution as a rollover at the time you make
the contribution. Only a spouse beneficiary has the option to rollover a death distribution. If you have a SEP plan, it will follow
the IRA rollover rules because SEP contributions are made directly into an IRA. You should obtain competent tax advice before
attempting a rollover.
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ROLLOVER FROM A QUALIFIED RETIREMENT PLAN
If you are entitled to receive a distribution from a retirement plan, part or all of it may be an "eligible rollover
distribution" which can be rolled over into your Mutual Fund IRA. Your employer can tell you what part of your distribution
will be an eligible rollover distribution.
If the eligible rollover distribution is paid to you , it is subject to mandatory withholding of 20%, so that you will
receive only 80% of your distribution amount. You may rollover this distribution into your Mutual Fund IRA in the same way you
would rollover a distribution from another IRA, but in order to avoid current tax, you will have to replace from other sources the
20% that was withheld. Otherwise, you will be deemed to have received the 20% and be taxed on it.
You may also instruct your retirement plan to make a "Direct Rollover" of your eligible rollover distribution to your Mutual
Fund IRA. Your retirement plan will pay the distribution directly to your IRA (or give you a check payable to PFS Investments Inc.
as Custodian or your IRA). A direct rollover is not subject to withholding, so the entire amount will be included in the direct
rollover.
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CONDUIT IRA.
A conduit IRA is an IRA which contains only a rollover distribution from a tax-qualified retirement plan. The IRA is then
used as a holding account until you subsequently roll that IRA back into another retirement plan. To take advantage of this conduit
treatment, you must establish a separate IRA plan into which the eligible rollover distribution will be placed.
</TABLE>
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<TABLE>
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DISTRIBUTIONS
HOW TO DISTRIBUTE: Contact your account representative or mail request to PFS Investments Inc., 3100 Breckinridge
Blvd., Bldg. 200, Duluth, GA 30199-0025, Telephone 1-800-544-5445. Request must include information as to whether or not taxes
are to be withheld.
WHEN TO DISTRIBUTE. Generally, the minimum age at which a distribution from an IRA may be made without incurring a
premature distribution tax liability is age 59 1/2. However, you are required to take minimum distributions after attainment of age
70 1/2.
MINIMUM DISTRIBUTIONS. No later than April 1 following the calendar year in which you attain age 70 1/2 you are required to
either take distribution of the entire interest in your IRA or to begin taking distributions from your IRA payable over your life
(or the lives of you and your beneficiary) or over a period certain not exceeding your life expectancy (or the life expectancies of
you and your beneficiary). You will be subject to a 50% excise tax on any required distribution amount that is not distributed in a
particular year. If you wait to make your withdrawal for the 70 1/2 year until April 1 of the following year, your total withdrawal
in that year must equal the minimum distribution for the 70 1/2 year and a second withdrawal by December 31 that is equal to the
minimum distribution for that year. In each year thereafter, you must withdraw the minimum distribution for the year by December 31.
If you have more than one IRA, you can satisfy the minimum distribution rules by withdrawing from one IRA the amount
required to satisfy the minimum distribution requirement for all of your IRAs.
If someone other than or in addition to your spouse is your named beneficiary, the minimum distribution required is the
greater of the amount determined under the regular 70 1/2 rules and the amount determined under the minimum distribution incidental
benefit rules. The minimum distribution incidental benefit rules is the amount determined by taking the balance in your IRA
account and dividing it by the life expectancy of you and a beneficiary who is assumed to be 10 years younger than you.
BENEFICIARIES. If you die after your required beginning date, the remaining balance must be distributed to your beneficiary
at least as rapidly as under the method of distribution in effect prior to your death. If you die prior to your required
beginning date, your beneficiary must elect by December 31 of the year following your death to receive their entire interest in your
account either (1) by December 31 of the year containing the fifth anniversary of your death or (2) in equal or substantially equal
payments over their own life or life expectancy commencing by December 31 of the year containing the first anniversary of your death
if no election is made within the prescribed time and the beneficiary is:
(A) anyone other than the surviving spouse, if the spouse is named, distributions are required to be made in accordance
with option (1) above or
(B) the surviving spouse alone, distributions are required to be made in accordance with option (2) above, except the
surviving spouse is not required to commence such distributions until the year in which you would have attained age 70 1/2.
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TAXATION OF DISTRIBUTIONS
Generally, distributions from an IRA are taxed as ordinary income when received regardless of their source. Distributions
are not eligible for capital gains treatment or the special 5-or-10-year averaging rules that may apply to lump sum distributions
from retirement plans.
NON-TAXABLE PORTION OF DISTRIBUTION. Because non-deductible IRA contributions are made using income which has already
been taxed (that is, they are not deductible contributions) the portion of the IRA distributions consisting of non-deductible
contributions will not be taxed again when received by you. The non-taxable portion of an IRA distribution, if any, will be a
percentage based on the ratio of your previously unrecovered non-taxable contributions to year end values in all of your IRA
accounts as of the close of the calendar year in which your taxable year begins, plus any distributions taken from the account
during the year. All of your IRAs will be included in this calculation, including regular IRAs, Simplified Employee Pension Plans
(SEP) IRAs and Rollover IRAs.
ESTATE TAX. A distribution to the beneficiary of your IRA will be included in your gross estate for Federal estate tax
purposes.
GIFT TAX. Designation of a beneficiary which causes payment to be made to such beneficiary on or after the owner's death
will not be considered a transfer for Federal gift tax purposes.
FEDERAL INCOME TAX WITHOLDING. The taxable portion of distributions from your IRA is subject to Federal income tax
withholding unless you elect not to have withholding apply. If you elect not to have withholding apply to taxable distributions
from your IRA, or if insufficient Federal income tax is withheld from any distribution, you may be responsible for payment of
estimated taxes, as well as for penalties under the estimated tax rules, if withholding and estimated tax payments were not
sufficient. You have the right to change your withholding election at any time prior to distribution by informing the Custodian in
writing. Additional information regarding withholding and the necessary election forms will be provided to you no later than at the
time a distribution is requested.
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PREMATURE DISTRIBUTIONS
A distribution from your IRA prior to your attaining age 59 1/2 will be considered a premature distribution unless such
distribution is on account of your death, becoming disabled, or the distribution is made as part of a series of substantially
equal periodic payments (not less frequently than annually) made for your life (or life expectancy) or the joint lives (or joint
life expectancies) of yourself and your beneficiary.
If you receive a premature distribution, the amount received is included in your gross income in the taxable year of
receipt. In addition, your income tax liability for that year is increased by an amount equal to 10% of the amount of the
premature distribution which is includable in your gross income, unless a rollover contribution is made with the distributed funds.
If distributions are being made under the periodic distribution option, such distributions must continue for at least five
years and may not be changed to a method which does not qualify for the exception prior to age 59 1/2. If these conditions are not
met, the tax will be imposed in the first taxable year in which the modification or discontinuance is made and will be equal to the
tax that would have been imposed had the exception not applied, plus interest.
Amounts deemed distributed to you because either the account was used as collateral for a loan or because of a prohibited
transaction will likewise be subject to the 10% additional tax if you had not attained age 59 1/2.
Special rules apply where the amount distributed constitutes the return of a prior contribution to the IRA. If the
contribution, together with any income earned thereon, is returned to you prior to the due date for filing your tax return for the
year for which the contribution was made, and if no deduction was claimed for the contribution, then distribution of the
contribution itself will neither be included in income nor subject to the additional 10% tax. Any earnings on the contribution will
nevertheless be includable in income for the year in which the contribution was made and will be subject to the additional 10% tax.
If the time for filing the return has passed, a withdrawal of excess contributions will neither be taxable nor subject to
the additional 10% tax on premature distributions provided the total amount contributed for the year did not exceed $2,250
and no deduction was allowed for the contribution. The $2,250 limitation does not apply to certain excess rollover contributions.
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EXCESS DISTRIBUTIONS
If the aggregate of your distributions from qualified retirement plans and individual accounts exceed a certain limit for
any calendar year, a 15% excise tax will be imposed on such excess distributions. Generally, the limit is the greater of $150,000 or
$112,500 as adjusted for cost-of-living increases since 1987. For any such excess distributions prior to your attainment of age
59 1/2, the 15% excise tax will be offset by the 10% additional income tax on premature distributions.
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PROHIBITED TRANSACTIONS
If you or your beneficiary were to engage in any prohibited transactions as defined in Section 4975 of the Code, as amended,
(such as any sale, exchange or leasing of any property between you and your IRA, the lending of money or other extensions of credit
between you and your IRA, and/or the furnishings of goods, services or facilities between you and your IRA) then the IRA would lose
its exemption from tax and be treated as having been distributed to you. The value of the entire IRA would be includable in your
gross income, and if you were under age 59 1/2, you would also be subject to the additional 10% tax for a premature distribution.
If you pledge part or all of your IRA as security for a loan, the portion so pledged will be treated as if it had been
distributed to you in the year in which you make such a pledge. Such amount will be taxable to you as ordinary income and, if you
had not yet reached age 59 1/2, will be subject to the 10% additional income tax on premature distributions.
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FINANCIAL DISCLOSURE
Because the assets held in your IRA are invested at your direction and will be subject to market fluctuation, the value of
your IRA can neither be guaranteed nor projected. However, you will be provided with periodic statements of your IRA, including
current market values of investments.
Information about the shares of each mutual fund that you choose for investment through your Individual Retirement Account
must be furnished to you in the form of a prospectus governed by the rules of the Securities and Exchange Commission. Please refer
to the prospectus for detailed information concerning the fund objectives, the sales charges and the income and expenses of your
mutual funds.
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MISCELLANEOUS
You must file an appropriate form (currently Form 5329) with the Internal Revenue Service to report the tax on excess
contributions, premature distributions and excess accumulations (insufficient distributions after age 70 1\2).
The proceeds from your IRA may be used as a rollover contribution to another individual retirement account or individual
retirement annuity.
The form of your IRA has been approved by the Internal Revenue Service. Such approval is a determination only as to the form
of the IRA and does not represent a determination of the merits of the IRA.
This Retirement Plan Trust is exempt from taxation under Section 408(c) IRC.
Further information regarding your IRA is available in the Internal Revenue Service Publication 590. You may obtain this
publication from any district office of the Internal Revenue Service or by calling the Internal Revenue Service Forms Request
toll-free number 1-800-TAX FORM.
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COMMON SENSE(R)
INDIVIDUAL RETIREMENT ACCOUNT ADOPTION AGREEMENT
CLIENT SERVICES 1-800-544-5445
Please print clearly. Mail completed application to: PFS Investments Inc.,
Custodian, 3100 Breckinridge Blvd., Bldg 200, Duluth, GA 30199-0025.
The owner named below hereby establishes an Individual Retirement Account
("IRA") by executing this Adoption Agreement and herein agrees to the
provisions of the Custodial Account Agreement (make check payable to PFS
Shareholder Services).
<TABLE>
<CAPTION>
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1. TYPE OF ACCOUNT REGISTRATION
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<S> <C> <C> <C> <C>
Please check the appropriate box indicating how you would like the account
registered.
/ / CONTRIBUTORY / / NON-CONTRIBUTORY / / SEP / / SAR/SEP / / MINOR IRA
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Name Social Security Number Birth Date
If client is a minor, please print parent or guardian name: / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
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2. ADDRESS
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________________________________________________________ ____________________________________ (________)____________________
Street or P.O. Box City, State, Zip Daytime Telephone Number
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3. ANNUAL CUSTODIAN FEE PAYMENT
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The custodian fee is an annual fee to maintain your retirement plan account. Your annual custodian fee will be directly deducted
from your account at the end of each year. If you prefer to prepay this year's fee, please check the box below and include
the fee amount in the "Total Amount Enclosed" area in Section 4. There is only one fee assessed per person.
/ / PRE-PAY FIRST YEAR $20.00 ANNUAL FEE
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4. INVESTMENT SECTION
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Tell us how much you want to invest...and in what Fund(s).
</TABLE>
<TABLE>
<CAPTION>
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COMMON SENSE ORIGINAL SERIES COMMON SENSE II SERIES
OFFERED AT FULL LOAD OFFERED AT A AND B PRICING
CLASS OF SHARE
MUST SELECT ONLY ONE
<S> <C> <C> <C>
/ / A SHARES / / B SHARES
(front end sales (contingent
(charge) deferred sales
charge)
CONTRIBUTION TYPE FUND NAME AND NUMBER FUND NAME AND NUMBER
- ---------------------------- ------------------------------- ------------------------------------------------------------
Growth/ Government Money Emerging International Growth/ Government
Growth Income Securities Market Growth Equity Growth Income Securities
(010) (020) (030) (040) (180) (190) (110) (120) (130)
PRIOR YEAR IRA
JAN 1-APRIL 15 (14) $________ $________ $________ $________ $________ $________ $________ $________ $________
CURRENT YEAR IRA (03) $________ $________ $________ $________ $________ $________ $________ $________ $________
60-DAY ROLLOVER (11) $________ $________ $________ $________ $________ $________ $________ $________ $________
SALARY REDUCTION
(SAR/SEP ONLY)(35) $________ $________ $________ $_______ $________ $________ $________ $________ $________
PRIOR YEAR EMPLOYER
CONTRIBUTION (SEP
ONLY) (31) $________ $________ $________ $________ $________ $________ $________ $________ $________
CURRENT YEAR EMPLOYER
CONTRIBUTION (SEP
ONLY)(30) $________ $________ $________ $________ $________ $________ $________ $________ $_______
PAC AMOUNT $________ $________ $________ $________ $________ $________ $________ $________ $______
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TOTAL AMOUNT ENCLOSED: $_________ TOTAL PAC AMOUNT: $_________ PLEASE INDICATE PAC START DATE: MONTH_____ DAY______ YEAR______
(MINIMUM $25 PER PAC) (1-28)
To establish a PAC, you must attach a voided check in the space provided on the reverse side of this application. This check must
be from the bank account that you wish us to draft. When selecting the PAC Option, your IRA contributions will be coded as current
year purchases. Additionally, if you are establishing a SEP account, your PAC contributions will be coded as current year employer
purchases. When executing a transfer of assets into Common Sense Trust, attach a completed Transfer Form. If your transfer
represents the initial investment into this account, please do not complete Section 4.
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5. PAC AUTOMATIC INCREASE OPTION
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If you would like to increase your PAC on a regular basis, please indicate the dollar amount or percentage and the interval that
you would like between increases.
NOTE: Maximum monthly amount for a contributory IRA is $166.66 and $1,875.00 for employer contribution to a SEP.
PAC: / / Quarterly / / Semi-Annually / / Annually Beginning on: Month __________ Day ___________ Year ___________
(1-28)
PLEASE CHECK ONLY 1 BOX BELOW:
AMOUNT OF INCREASE PERCENTAGE OF INCREASE
/ / $10.00 / / $25.00 / / $50.00 / / Other $_________ / / 10% / / 25% / / 50% / / Other %________
</TABLE>
<PAGE> 58
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6. PRIMERICA LIFE DIRECTED INVESTMENT
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If you have elected a Primerica Life/National Benefit Life T-2000 or Eagle 15
Insurance Policy and wish to have PFS Shareholder Services begin drafting the
amount of your premium reduction in the 13th month from your bank account,
please indicate below your policy number (if known), or the social security
number of the policyholder and the month/year you submitted the application. You
may designate only one Fund to receive your premium reduction. Please ensure you
have designated only one Fund in section 4.
/ / T-2000 / / Eagle-15
Primerica Life/National Benefit Life
Policy Number_____________________________________________
(Policy Number/Social Security Number)
Policy Submitted___________________________________________
(month/year)
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7. RELATED ACCOUNT INFORMATION
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Do you have other CST accounts?
/ / Yes / / No
If so, please indicate the account number(s) or social security number of the
primary owner.
Acct #_____________________ Acct #___________________
Acct #_____________________ Acct #___________________
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8. LETTER OF INTENT/REDUCED SALES CHARGE
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If this purchase qualifies for a reduced sales charge due to the accumulated
value in any related account(s) for any CST Fund except the CST Money Market
Fund, or if you would like to establish a Letter of Intent to qualify for a
lower sales load, please indicate your expected breakpoint amount. Group Plan
Purchases (i.e., Payroll Deduction Plans (PDP), 403(b)(7), SEP, SAR/SEP) are
linked for reduced sales charges.
/ / New Letter of Intent
/ / Existing Letter of Intent
/ / Cumulative Purchases
/ / Group Plan Purchases (403(b)(7), SEP, SAR/SEP, PDP)
/ / $10,000* / / $25,000* / / $50,000 / / $100,000 / / $250,000
/ / $400,000* / / $500,000 / / $600,000 / / $1,000,000 / / $2,500,000
Applicable to Class A Shares only.
*Applicable to Common Sense Original Series only.
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9. REPRESENTATIVE INFORMATION
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/ / / / / /
Representative Code #
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Representative Name (Please Print)
Representative Daytime Phone # (____________)_______________________
State of Sale__________________________________________________________________
(must complete only if different from client's resident state.)
- -------------------------------------------------------------------------------
10. BENEFICIARY INFORMATION
- -------------------------------------------------------------------------------
In the event no Beneficiary is designated, then the Depositor's Beneficiary
shall be the spouse, followed by Depositor's estate.
If you desire to designate a different Beneficiary, please complete the
section below:
Beneficiary _________________________________________________________
Relationship ________________________________________________________
Social Security Number ______________________________________________
Birth Date __________________________________________________________
- -------------------------------------------------------------------------------
11. SIGNATURE
- -------------------------------------------------------------------------------
The Undersigned certifies that he/she has full authority and is of legal age to
purchase shares of the fund selected, has received and read a current
prospectus, the Custodial Account Agreement (IRS form 5305-A and any
attachments) and the IRA Disclosure Statement and agrees to all their terms
and accompanying custodial fees incorporated in this brochure. If the account
will have the PAC or Primerica Life/National Benefit Life Directed Investment
Option, that I agree to the terms of the PAC Indemnification Agreement below.
This plan shall be deemed to have been accepted by the Custodian upon receipt of
the first transaction statement. I ALSO ACKNOWLEDGE THAT I DETERMINE THE
DEDUCTIBILITY OF ANY CONTRIBUTION.
I authorize PFS Shareholder Services (hereafter called "company") to initiate
debit entries, electronically, by means of check, draft or by any other
commercially acceptable method, to my checking account indicated by the
attached check, for deposit to my Common Sense(R) Trust account(s) and I
authorize the depository named on the attached check (hereafter called
"depository") to debit the same to such account. This authority is to remain in
full force and effect until company and depository have each received written
notification from me of its termination in such time and in such manner as to
afford company and depository a reasonable opportunity to act on it. I further
agree that if any such debit be dishonored, whether with or without cause and
whether intentionally or inadvertently, depository shall be under no liability
whatsoever, regardless of the consequences of such action.
X
- ------------------------------------------------------------------------------
SIGNATURE -- OWNER (PARENT/GUARDIAN IF OWNER IS A MINOR) DATE
Don't forget to sign this application
PLEASE ATTACH YOUR VOIDED CHECK HERE IF YOU HAVE SELECTED THE PAC OPTION.
<PAGE> 59
- --------------------------------------------------------------------------------
COMMON SENSE(R) IRA TO IRA TRANSFER FORM
MUST BE ACCOMPANIED BY A CST IRA ADOPTION AGREEMENT
CLIENT SERVICES: 1-800-544-5445
- --------------------------------------------------------------------------------
Complete this form with the IRA Adoption Agreement to transfer your IRA into a
Common Sense Trust IRA and return to PFS Investments Inc., Custodian, 3100
Breckinridge Blvd., Bldg. 200, Duluth, GA 30199-0025. Your present custodian
may require the completion of the following documents prior to executing your
CST IRA to IRA Transfer: Cash Surrender Form, Original Contract, and/or
Signature Guarantee. Please contact your present custodian for specific
transfer procedures.
- -------------------------------------------------------------------------------
1. PRINT YOUR NAME AND ADDRESS HERE
- -------------------------------------------------------------------------------
_____________________________________________________
Name
_____________________________________________________
Address
_____________________________________________________
City State Zip
( )
_____________________________________________________
Your Social Security Number Your Daytime Phone
- -------------------------------------------------------------------------------
2. PLEASE TELL US ABUT YOUR PRESENT IRA
- -------------------------------------------------------------------------------
Transfer from: (please complete entirely)
- -----------------------------------------------------
Name of Resigning Trustee or Custodian
( )
_____________________________________________________
Attention Telephone Number
_____________________________________________________
Address of Resigning Trustee or Custodian
_____________________________________________________
City State Zip
POLICY/ACCOUNT NUMBER ________________________________
- -------------------------------------------------------------------------------
3. PLEASE TELL US HOW TO INVEST YOUR TRANSFER OF ASSETS
- -------------------------------------------------------------------------------
/ / NEW ACCOUNT - PLEASE ATTACH A CST IRA ADOPTION AGREEMENT AND A PFSI NEW
ACCOUNT APPLICATION. Please indicate the share class, your social security
number and percentage allocated to each fund. If all transfer proceeds are
deposited into the same fund, the fund allocation percentage should be
100%.
/ / EXISTING ACCOUNTS - Indicate existing account number and percentage
allocated to each account. If all transfer proceeds are to be deposited
into the same account, the fund allocation percent should be 100%.
<TABLE>
<S> <C> <C>
FUND SOCIAL SECURITY #/ PERCENTAGE
NAME EXISTING FUND ACCOUNT # ALLOCATED
COMMON SENSE:
Growth (010) __________________________________ ___________
Growth &Income (020) __________________________________ ___________
Government (030) __________________________________ ___________
Money Market (040) __________________________________ ___________
COMMON SENSE II:
SHARE CLASS (MUST INDICATE)
SELECT ONLY ONE
Emerging Growth (180) / / A / / B __________________________________ ___________
International Equity (190) / / A / / B __________________________________ ___________
Growth (110) / / A / / B __________________________________ ___________
Growth & Inc. (120) / / A / / B __________________________________ ___________
Government (130) / / A / / B __________________________________ ___________
Total 100%
----
</TABLE>
- -------------------------------------------------------------------------------
4. PLEASE AUTHORIZE YOUR CURRENT TRUSTEE OR CUSTODIAN TO TRANSFER YOUR
IRA TO A COMMON SENSE TRUST IRA
- -------------------------------------------------------------------------------
To Resigning Trustee or Custodian:
Please liquidate / / all, or / / part ($___________) of the account listed in
Section 2 and transfer the proceeds of liquidation to my Common Sense Trust IRA.
The estimated value is:
$______________________.
/ / immediately / / at maturity* ____________________.
maturity date
* Please send us this transfer form at least two weeks prior to maturity date
but no earlier than four weeks.
- -------------------------------------------------------------------------------
5. SIGNATURE OF CLIENT
- -------------------------------------------------------------------------------
I understand that my former Trustee or Custodian may have a surrender charge or
liquidation penalty when redeeming my account. If I am over 70 1/2, I attest
that none of the amount to be transferred will include the required minimum
distribution for the current year pursuant to section 401(a)(9) of the Internal
Revenue Code.
_______________________________________________________________________________
Client Signature Date
AN IMPORTANT NOTE: Your Resigning Trustee or Custodian may require your
signature to be guaranteed. Please call them for requirements.
_______________________________________________________________________________
Name of Bank or Firm
_______________________________________________________________________________
Signature of Officer and Title
- -------------------------------------------------------------------------------
6. ACCEPTANCE BY SUCCESSOR CUSTODIAN
- -------------------------------------------------------------------------------
Please liquidate and transfer account as instructed in Section 4. Make check
payable and send to address shown above. This account is accepted by PFS
Investments Inc., as Custodian upon placement of authorized signatures in the
space below. Should you have any questions, please contact our Client Services
Department at 1-800-544-5445.
- -------------------------------------------------------------------------------
(Acceptance Signatures)
- -------------------------------------------------------------------------------
____________________________________________
Account Number (must provide on check)
16216 2.96
<PAGE> 60
- -------------------------------------------------------------------------------
COMMON SENSE (R) QUALIFIED PLAN OR 403(B)/
403(B)(7) PLAN TO AN IRA "DIRECT ROLLOVER" FORM
MUST BE ACCOMPANIED BY A CST IRA ADOPTION AGREEMENT
CLIENT SERVICES: 1-800-544-5445
- -------------------------------------------------------------------------------
Complete this form with the IRA Adoption Agreement to complete a Direct
Rollover from your Qualified Plan or 403(b)/403(b)(7) Plan to a Common Sense
Trust IRA and return to PFS Investments Inc., Custodian, 3100 Breckinridge
Blvd., Bldg. 200, Duluth, GA 30199-0025.
Important Notes: Contact the Plan Administrator, Trustee, or Custodian of the
current plan to determine if: (a) The employer/employee is eligible to
receive their monies. (b) What requirements do the Plan Administrator, Trustee
or Custodian have in order to process a Direct Rollover to Common Sense Trust.
Remember, 403(b)/403(b)(7) distributions may not be placed in an IRA unless the
employee has separated from service. Your present custodian may require the
completion of the following documents prior to executing your CST Direct
Rollover: Cash Surrender Form, Original Contract, and/or Signature Guarantee.
Please contact your present custodian for specific Direct Rollover procedures.
- -------------------------------------------------------------------------------
1. PRINT YOUR NAME AND ADDRESS HERE
- -------------------------------------------------------------------------------
_____________________________________________________
Name
_____________________________________________________
Address
_____________________________________________________
City State Zip
( )
_____________________________________________________
Your Social Security Number Your Daytime Phone
- -------------------------------------------------------------------------------
2. PLEASE TELL US ABOUT YOUR PRESENT
QUALIFIED RETIREMENT PLAN OR 403(b)(7)
- -------------------------------------------------------------------------------
Transfer from: (please complete entirely)
_____________________________________________________
Name of Resigning Plan Administrator, Trustee or
Custodian
( )
_____________________________________________________
Attention Telephone Number
_____________________________________________________
Address of Resigning Trustee or Custodian
_____________________________________________________
City State Zip
_____________________________________________________
POLICY/ACCOUNT NUMBER
- -------------------------------------------------------------------------------
3. PLEASE TELL US HOW TO INVEST YOUR DIRECT ROLLOVER
- -------------------------------------------------------------------------------
/ / NEW ACCOUNT - PLEASE ATTACH A CST IRA ADOPTION AGREEMENT AND A PFSI NEW
ACCOUNT APPLICATION. Please indicate the share class, your social security
number and percentage allocated to each fund. If all transfer proceeds are
deposited into the same fund, the fund allocation percentage should be
100%.
/ / EXISTING ACCOUNTS - Indicate existing account number and percentage
allocated to each account. If all transfer proceeds are to be deposited
into the same account, the fund allocation percent should be 100%.
<TABLE>
<S> <C> <C>
FUND SOCIAL SECURITY #/ PERCENTAGE
NAME EXISTING FUND ACCOUNT # ALLOCATED
COMMON SENSE:
Growth (010) __________________________________ ___________
Growth & Income (020) __________________________________ ___________
Government (030) __________________________________ ___________
Money Market (040) __________________________________ ___________
COMMON SENSE II:
SHARE CLASS (MUST INDICATE)
SELECT ONLY ONE
Emerging Growth (180) / / A / / B __________________________________ ___________
International Equity (190) / / A / / B __________________________________ ___________
Growth (110) / / A / / B __________________________________ ___________
Growth & Inc. (120) / / A / / B __________________________________ ___________
Government (130) / / A / / B __________________________________ ___________
Total 100%
----
</TABLE>
- -------------------------------------------------------------------------------
4. PLEASE AUTHORIZE YOUR CURRENT TRUSTEE OR CUSTODIAN TO COMPLETE A DIRECT
ROLLOVER FROM YOUR QUALIFIED PLAN OR 403(b)/403(b)(7) PLAN TO A COMMON SENSE
TRUST IRA
- -------------------------------------------------------------------------------
To Resigning Plan Administrator, Trustee or Custodian:
Please liquidate / / all, or / / part ($___________) of the account listed in
Section 2 and transfer the proceeds of liquidation to my Common Sense Trust
IRA. The estimated value is:
$______________________.
/ / immediately / / at maturity* ____________________.
maturity date
* Please send us this transfer form at least two weeks prior to maturity date
but no earlier than four weeks.
- -------------------------------------------------------------------------------
5. SIGNATURE OF CLIENT
- -------------------------------------------------------------------------------
I understand that my former Trustee or Custodian may have a surrender charge or
liquidation penalty when redeeming my account. If I am over 701/2, I attest
that none of the amount to be transferred will include the required minimum
distribution for the current year pursuant to section 401(a)(9) of the Internal
Revenue Code.
_______________________________________________________________________________
Client Signature Date
AN IMPORTANT NOTE: Your Resigning Plan Administrator, Trustee, or
Custodian may require your signature to be guaranteed. Please call them for
requirements.
_______________________________________________________________________________
Name of Bank or Firm
_______________________________________________________________________________
Signature of Officer and Title
- -------------------------------------------------------------------------------
6. ACCEPTANCE BY SUCCESSOR CUSTODIAN
- -------------------------------------------------------------------------------
Please liquidate and send monies as instructed in Section 4. Make check payable
and send to address shown above. This account is accepted by PFS Investments
Inc., as Custodian upon placement of Authorized Signatures in the space below.
Should you have any questions, please contact our Client Services Department at
1-800-544-5445.
- -------------------------------------------------------------------------------
(Acceptance Signatures)
- -------------------------------------------------------------------------------
_______________________________________________
Account Number (must provide on check)
16216 2.96
<PAGE> 61
- -------------------------------------------------------------------------------
COMMON SENSE(R)
VOLUNTARY ACCOUNT APPLICATION
CLIENT SERVICES 1-800-544-5445
- -------------------------------------------------------------------------------
Please print clearly, mail completed applications and make checks payable to:
PFS Shareholder Services, 3100 Breckinridge Blvd., Bldg 200, Duluth, GA
30199-0062
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
- -------------------------------------------------------------------------------
Please complete this Section.
Please check the appropriate box indicating how you would like the account
registered.
/ / INDIVIDUAL OR / / JOINT* ACCOUNT
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Name (First, Middle Initial, Last)
/ / / / / / / / / / / / / / / / / / / / /
Social Security Number Birth Date
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Joint Owner's Name
/ / / / / / / / / / / /
Social Security Number Birth Date
* JOINT TENANTS WITH RIGHT OF SURVIVORSHIP UNLESS YOU SPECIFY OTHERWISE
( ) Joint Tenants in Common
/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Custodian's Name (First, Middle Initial, Last)
/ / / / / / / / / / / / / / / / / / / / /
Custodian's Social Security Number Birth Date
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Minor's Name (First, Middle Initial, Last)
/ / / / / / / / / / / / / / / / / / / / /
Minor's Social Security Number Birth Date
/ / TRUST
_______________________________________________________________
Trustee's Name
_______________________________________________________________
Name of Trust Agreement
__________________________________ ____________________
Taxpayer Identification Number Date of Trust
/ / OTHER REGISTRATION
(i.e. corporation, non-profit, partnership, sole proprietorship, etc.)
_______________________________________________________________
Registration
_______________________________________________________________
Registration
______________________________ ____________________
Taxpayer Identification Number Type of Organization
- -------------------------------------------------------------------------------
2. ADDRESS AND CITIZENSHIP
- -------------------------------------------------------------------------------
We'll need to know this info!
_______________________________________________________________
Street or P.O. Box
_______________________________________________________________
City, State, Zip
(_____________)________________________________________________
Daytime Telephone Number
/ / U.S. Citizen / / Non-Resident Alien__________________________________
Specify Country
/ / Resident Alien
- -------------------------------------------------------------------------------
3. INVESTMENT SECTION
- -------------------------------------------------------------------------------
Tell us how much you want to invest, in what share class . . . . and in what
fund(s).
<TABLE>
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON SENSE ORIGINAL SERIES OFFERED AT FULL LOAD
PAC DRAFT AMOUNT
AMOUNT ENCLOSED ($25 MIN PER PAC)
Fund Name and Number:
Growth (010) __________________________________ _________________
Growth & Income (020) __________________________________ _________________
Government (030) __________________________________ _________________
Money Market (040) __________________________________ _________________
- ---------------------------------------------------------------------------------------------------------------------
COMMON SENSE II SERIES OFFERED AT A AND B SHARE PRICING
/ / A Share / / B Share
(front-end sales charge) (contingent deferred
sales charge)
PAC DRAFT AMOUNT
AMOUNT ENCLOSED $25 MIN PER PAC)
Fund Name and Number:
Emerging Growth (180) / / A / / B __________________________________ _______________
International Equity (190) / / A / / B __________________________________ _______________
Growth (110) / / A / / B __________________________________ _______________
Growth & Inc. (120) / / A / / B __________________________________ _______________
Government (130) / / A / / B __________________________________ _______________
</TABLE>
- --------------------------------------------------------------------------------
Total Amount Enclosed $_______________________
Total PAC Amount $________________________________________
Please indicate PAC start date: Month_____________ Day________ Year_________
(1-28)
To establish a PAC, you must attach a voided check from the bank account that
you wish us to draft in the space provided on the reverse side of this
application. All Dividends and Capital Gains will be reinvested unless
otherwise indicated on the "Additional New Account Options" form contained in
the prospectus.
- --------------------------------------------------------------------------------
4. PAC AUTOMATIC INCREASE OPTION
- --------------------------------------------------------------------------------
If you would like to increase your PAC on a regular basis, please indicate the
dollar amount or percentage and the interval that you would like between
increases.
Please increase my PAC: / / Quarterly / / Semi-Annually / / Annually
Beginning on: Month _____________ Day ____________ Year _____________
(1-28)
PLEASE CHECK ONLY 1 BOX BELOW:
AMOUNT OF INCREASE
/ / $10.00 / / $25.00 / / $50.00 / / Other $___________
PERCENTAGE OF INCREASE
/ / 10% / / 25% / / 50% / / Other %__________
- --------------------------------------------------------------------------------
5. PRIMERICA LIFE DIRECTED INVESTMENT
- --------------------------------------------------------------------------------
If you have elected a Primerica Life/National Benefit Life T-2000 or Eagle 15
Insurance Policy and wish to have PFS Shareholder Services begin drafting the
amount of your premium reduction in the 13th month from your bank account,
please indicate below your policy number (if known) or the social security
number of the policyholder and the month/year you submitted your insurance
application.
You may designate only one Fund to receive your premium reduction. Please ensure
you have designated only one Fund in Section 3.
/ / T-2000 / / Eagle 15
Primerica Life/National Benefit Life
Policy Number _____________________________________________
Policy Number/Social Security Number
Policy Submitted___________________________________________
Month/Year
16216 2.96
<PAGE> 62
- -------------------------------------------------------------------------------
6. RELATED ACCOUNT INFORMATION
- -------------------------------------------------------------------------------
Do you have other CST Accounts?
/ / Yes / / No
If so, please indicate the account number(s) or social security number of the
primary owner.
Acct #_____________________ Acct #___________________
Acct #_____________________ Acct #___________________
- -------------------------------------------------------------------------------
7. LETTER OF INTENT/REDUCED SALES CHARGE
- -------------------------------------------------------------------------------
If this purchase qualifies for a reduced sales charge due to the accumulated
value in any related account(s) for any CST Fund except the CS Money Market
Fund, or if you would like to establish a Letter of Intent to qualify for a
lower sales load, please check the appropriate box and indicate your expected
breakpoint amount. Group Plan Purchases (i.e., Payroll Deduction Plans, PDP)
are linked for reduced sales charge.
/ / New Letter of Intent / / Cumulative Purchases
/ / Existing Letter of Intent / / Group Plan Purchases (PDP)
/ / $10,000* / / $25,000* / / $50,000 / / $100,000 / / $250,000
/ / $400,000* / / $500,000 / / $600,000* / / $1,000,000 / / $2,500,000
Applicable to Class A Shares only.
*Applicable to Common Sense Original Series only.
- -------------------------------------------------------------------------------
8. REPRESENTATIVE INFORMATION
- -------------------------------------------------------------------------------
/ / / / / /
Representative Code #
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
Representative Name (First, Middle Initial, Last)
Representative Daytime Phone # (________)_______________________________________
State of Sale___________________________________________________________________
(Must complete only if different from client's resident state.)
- -------------------------------------------------------------------------------
9. CHECK WRITING OPTIONS
- -------------------------------------------------------------------------------
Please check the box below if you would like to have check writing capability
on the Funds listed below. Please be sure to enclose the signature card found
on the "Additional New Account Options" form contained in the prospectus.
ORIGINAL SERIES COMMON SENSE II
(A Shares Only)
/ / Government Securities (030) / / Government Securities (130)
/ / Municipal Bond (050)
/ / Money Market Fund (040)
OTHER INFORMATION ABOUT THE CHECK WRITING OPTION
1. Checks must be written for at least $250.
2. Each book of 10 checks costs $7.50 which will be deducted from your
account balance.
3. Please complete and attach the signature card found on the Additional New
Account Option form so we can process your request.
4. You should receive your checkbook two or three weeks after we receive your
application and completed signature card.
- -------------------------------------------------------------------------------
10. SIGNATURE AND PAC AUTHORIZATION
- -------------------------------------------------------------------------------
By my signature below, I/we certify, under penalties of perjury, that the
social security or taxpayer identification number provided in Section 1 is
correct, that I am not subject to nor has the IRS notified me that I am subject
to backup withholding, that I have been given a current prospectus, and if the
account will have the PAC or Primerica Life/National Benefit Life Directed
Investment Option, that I agree to the terms of the PAC Indemnification
Agreement below.
I/we authorize PFS Shareholder Services (hereafter called "company") to initiate
debit entries, electronically, by means of check, draft or by any other
commercially acceptable method, to my (our) checking account indicated by the
attached check, for deposit to my Common Sense(R) Trust account(s) and I
authorize the depository named on the attached check (hereafter called
"depository") to debit the same to such account. This authority is to remain in
full force and effect until company and depository have each received written
notification from me (or either of us) of its termination in such time and in
such manner as to afford company and depository a reasonable opportunity to act
on it. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, depository shall be
under no liability whatsoever, regardless of the consequences of such action.
Don't forget to sign this application!
X
- -------------------------------------------------------------------------------
SIGNATURE - OWNER OR CUSTODIAN DATE
X
- -------------------------------------------------------------------------------
SIGNATURE - JOINT OWNER DATE
PLEASE ATTACH YOUR VOIDED CHECK HERE IF YOU HAVE SELECTED THE PAC OPTION.
<PAGE> 63
- --------------------------------------------------------------------------------
COMMON SENSE(R) ADDITIONAL NEW ACCOUNT OPTIONS
THIS FORM MUST BE ACCOMPANIED BY A NEW ACCOUNT APPLICATION
CLIENT SERVICES 1-800-544-5445
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
Owner(s) name: _____________________________ Owner(s) Social Security Number:_________________
_____________________________
- -----------------------------------------------------------------------------------------------------------------------------------
2. SYSTEMATIC EXCHANGE
- -----------------------------------------------------------------------------------------------------------------------------------
You may automatically exchange shares from one CST Fund for shares in another CST Fund of the same series on a regular schedule. The
accounts must have identical registrations. The originating account must have a minimum balance of $5,000 and each exchange must be
for a minimum of $50. If the account is being exchanged into a new Money Market account, a $15 set-up fee will be charged. You may
incur an additional sales charge when moving shares from a fund with a lower charge to a fund with a higher charge. Please see the
prospectus for details on possible tax consequences.
Frequency (select one): / / Monthly / / Quarterly
Beginning on Month __________ Day __________ Year __________ Exchange into the:_______________________________
(1-28) (Name of fund)
Amount to be exchanged each period: / / $___________ or / /Shares__________ Account No.: ____________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
3. DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS OPTION
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend and capital gain distributions are always reinvested at net asset value (no sales charge) unless otherwise indicated below.
Dividend and capital gain distributions for retirement plan accounts must be reinvested.
________________________________________________
I/We wish to designate my/our distribution option as checked below: (Name)
/ / Invest dividends and capital gains into (same series) ________________________________________________
CST Account Number:_______________________________________ (Name)
Pay cash for: ________________________________________________
/ / Dividends / / Capital gains / / Dividend and capital gain distributions (Address)
Mail check:
/ / To me (us for joint accounts) as identified on my/our account registration. ________________________________________________
/ / To the payee and address indicated to the right. City) (State) (Zip)
- -----------------------------------------------------------------------------------------------------------------------------------
4. SYSTEMATIC WITHDRAWAL PLAN (SWP)
- -----------------------------------------------------------------------------------------------------------------------------------
You may automatically sell shares at net asset value from your CST account on a regular basis. You may designate either a set dollar
amount or a set number of shares. To establish this service, your account must have a minimum value of $5,000. You may establish a
SWP Distribution on a retirement plan account only if you have obtained the age of 59 1/2 and indicated whether you elected to have
10% Federal Income Tax withheld from your SWP Distributions. Please call Client Services at the above toll-free number for further
information. Should you need assistance in calculating your payment, please contact one of our Retirement Plan Specialists at the
above toll-free number. Your SWP Distribution will start on the day indicated below. You may choose any day between 1-28. Your check
will usually be mailed within two business days from the date your distribution is processed, but in no event later than seven
days.
Payment Method - Mail SWP check:
/ / To me (us for joint accounts) as identified on my/our account
Frequency (select one): / / Monthly / / Quarterly registration.
/ / Semi-Annually / / Annually / / To the following payee and address:
Amount to be redeemed: _________________________________________________________________
(Name)
/ / $ ___________________ or / / shares___________________ _________________________________________________________________
(Name)
_________________________________________________________________
(Address)
Begin SWP Distribution on:_____________/__________/____________ _________________________________________________________________
(Month) (Day 1-28) (Year) (City) (State) (Zip)
- -----------------------------------------------------------------------------------------------------------------------------------
5. CHECK WRITING PROVILEGE Complete only if electing Check Writing Privilege. Please be sure to sign below!
- -----------------------------------------------------------------------------------------------------------------------------------
This option is available for non-retirement plan accounts in the Common Sense Government Fund, Municipal Bond Fund, Money Market
Fund, and Common Sense II Government Fund (A Shares only).
The payment of funds on the conditions set forth below is authorized by the signature(s) appearing below. If two (2) signatures
appear, either signature authorizes payment of funds and each signatory guarantees the genuineness of the other's signature.
The Fund is hereby appointed agent by the person(s) signing this card ("Depositors") and as such agent is directed to request
redemption of shares of the Fund registered in the name of such person(s) upon receipt of and to the amount of checks drawn upon
this account and to deposit the proceeds of such redemptions in this account. In so acting the bank shall be liable only for its
own negligence. Depositors will be subject to the Fund's rules and regulations governing such accounts including the right of the
Fund not to honor checks in amounts exceeding the value of the depositor's shareholder account with the Fund at the time the
check is presented for payment. Additionally, deposits made into your account cannot be withdrawn until they have cleared the
Fund's 15 calendar day escrow period. Please see the Prospectus for further details on the CST Check Writing Privilege.
Name (please print):______________________________________ Fund:_____________________________________________________
Name (please print):______________________________________ Account Number:___________________________________________
By signing this signature card the undersigned agree(s) to be subject to: 1) the conditions stated above, and 2) the current
rules and regulations of the Common Sense Government Fund, Municipal Bond Fund, Money Market Fund and/or Common Sense II Government
Fund and any amendments thereto.
_____________________________________ ______________ _________________________________________ ___________
(Signature) (Date) (Signature) (Date)
16216 2.96
</TABLE>
<PAGE> 64
CS-1
16216 2.96
<PAGE> 65
STATEMENT OF ADDITIONAL INFORMATION
COMMON SENSE TRUST
2800 POST OAK BLVD.
HOUSTON, TEXAS 77056
MAY 20, 1996
Common Sense Trust (the "Trust") is a diversified, open-end management
investment company with a number of separate Funds, seven of which are discussed
herein: the Common Sense Emerging Growth Fund (the "Emerging Growth Fund"), the
Common Sense International Equity Fund (the "International Equity Fund"), Common
Sense Growth Fund (the "Growth Fund"), the Common Sense Growth and Income Fund
(the "Growth and Income Fund"), the Common Sense Government Fund (the
"Government Fund"), the Common Sense Municipal Bond Fund (the "Municipal Bond
Fund") and the Common Sense Money Market Fund (the "Money Market Fund"). Each
Fund is in effect a separate fund issuing its own shares.
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus bearing the same date and should be read in conjunction with the
Prospectus. A Prospectus may be obtained without charge by writing PFS
Distributors, Inc. at 3100 Breckinridge Boulevard, Bldg. 200, Duluth, Georgia
30199-0001.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION........................................................................ 2
GOALS AND INVESTMENT POLICIES.............................................................. 3
REPURCHASE AGREEMENTS.................................................................... 7
REVERSE REPURCHASE AGREEMENTS............................................................ 8
COMMERCIAL BANK OBLIGATIONS.............................................................. 8
COMMERCIAL PAPER......................................................................... 8
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS........................................... 9
FORWARD COMMITMENTS...................................................................... 15
FORWARD CURRENCY CONTRACTS AND OPTIONS ON CURRENCY....................................... 15
INTEREST RATE TRANSACTIONS............................................................... 16
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS............................................. 17
LOANS OF PORTFOLIO SECURITIES............................................................ 18
INVESTMENT RESTRICTIONS.................................................................... 18
TRUSTEES AND EXECUTIVE OFFICERS............................................................ 23
INVESTMENT ADVISORY AGREEMENTS............................................................. 29
DISTRIBUTOR................................................................................ 32
PORTFOLIO TURNOVER......................................................................... 32
DISTRIBUTION PLANS......................................................................... 33
PORTFOLIO TRANSACTIONS AND BROKERAGE....................................................... 34
DETERMINATION OF NET ASSET VALUE........................................................... 38
PURCHASE AND REDEMPTION OF SHARES.......................................................... 40
EXCHANGE PRIVILEGE......................................................................... 42
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................................... 43
OTHER INFORMATION.......................................................................... 46
FINANCIAL STATEMENTS....................................................................... 50
APPENDIX 1................................................................................. 52
APPENDIX 2................................................................................. 54
</TABLE>
<PAGE> 66
GENERAL INFORMATION
Van Kampen American Capital Asset Management, Inc. (the "Adviser") is a
subsidiary of Van Kampen American Capital, Inc. ("VKAC") which is a wholly-owned
subsidiary of VK/AC Holding, Inc. ("VK/AC Holding"). VK/AC Holding is
controlled, through the ownership of a substantial majority of its common stock,
by the Clayton & Dubilier Private Equity Fund IV Limited Partnership (the "C&D
L.P."), a Connecticut limited partnership. C&D L.P. is managed by Clayton,
Dubilier & Rice, Inc., a New York private investment firm. The general partner
of C&D L.P. is Clayton & Dubilier Associates IV Limited Partnership ("C&D
Associates L.P."). The general partners of C&D Associates L.P. are Joseph L.
Rice, III, B. Charles Ames, William A. Barbe, Alberto Cribiore, Donald J. Gogel,
Leon J. Hendrix, Jr., Hubbard C. Howe and Andrall E. Pearson, each of whom is a
principal of Clayton, Dubilier & Rice, Inc. In addition, certain officers,
directors and employees of VKAC own, in the aggregate, not more than seven
percent of the common stock of VK/AC Holding and have the right to acquire, upon
the exercise of options, approximately an additional 13% of the common stock of
VK/AC Holding. The Adviser, together with its predecessors, has been in the
investment advisory business since 1926.
Smith Barney Mutual Funds Management Inc. (the "Subadviser") provides
investment advisory services to the Adviser in connection with the International
Equity Fund. The Subadviser was incorporated on March 12, 1968 and renders
investment management advice to investment companies with aggregate assets under
management in excess of $65 billion as of December 31, 1995. The Subadviser is
an affiliate of Smith Barney Inc. and a wholly-owned subsidiary of Smith Barney
Holdings Inc. which in turn is a wholly-owned subsidiary of Travelers Group Inc.
("Travelers"). Travelers is engaged primarily in investment services, consumer
finance services and insurance services.
PFS Distributors, Inc. (the "Distributor") is an indirect wholly-owned
subsidiary of Travelers. PFS Shareholder Services (the "Transfer Agent"), is a
subsidiary of PFS Services, Inc., an affiliate of Primerica Financial Services,
Inc. ("Primerica Financial"). PFS Investments, Inc. ("PFS Investments") is an
indirect wholly-owned subsidiary of Travelers.
As of February 29, 1996, no person was known to own beneficially or of
record as much as five percent of the outstanding shares of any Fund of the
Trust except as discussed herein. PFS Investments holds of record as Custodian
for certain employee benefit plans and individual retirement accounts the
following percentages of the outstanding shares of the listed portfolios:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF CLASS OF PERCENTAGE
OF HOLDER FUND OWNERSHIP SHARES OWNERSHIP
- ----------------------------------- --------------------- ---------- -------- ---------
<S> <C> <C> <C> <C>
PFS Investments Emerging Growth 955,158 A 60.5%
3100 Breckinridge Blvd. Emerging Growth 768,861 B 62.5%
Bldg. 200 International Equity 241,488 A 59.3%
Duluth, Georgia 30199-0001 International Equity 188,448 B 60.4%
Growth 1,120,036 A 55.0%
Growth 116,669,959 1 67.6%
Growth 1,921,713 B 57.6%
Growth & Income 31,308,125 1 58.2%
Growth & Income 654,898 A 51.1%
Growth & Income 1,171,740 B 52.5%
Government 13,660,731 1 45.2%
Government 256,547 A 36.3%
Government 440,688 B 43.3%
Money Market 11,433,320 1 18.5%
</TABLE>
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<PAGE> 67
GOALS AND INVESTMENT POLICIES
The following disclosures supplement disclosures set forth under an
identical caption in the Prospectus and do not, standing alone, present a
complete and accurate explanation of the matters disclosed. Readers must refer
also to this caption in the Prospectus for a complete presentation of the
matters disclosed below.
EMERGING GROWTH FUND
The Fund seeks capital appreciation by investing in a portfolio of
securities consisting principally of common stocks of small and medium sized
companies considered by the Adviser to be emerging growth companies.
INTERNATIONAL EQUITY FUND
The Fund seeks total return on its assets from growth of capital and
income. The Fund seeks to achieve its goal by investing at least 65% of its
assets in a diversified portfolio of equity securities of established non-United
States issuers.
GROWTH FUND
The Fund seeks capital appreciation through investments in common stocks
and options on common stocks. The Fund may also engage in transactions involving
stock index futures contracts and options on such contracts. Any income realized
on its investments will be purely incidental to the goal of capital
appreciation.
GROWTH AND INCOME FUND
The Fund seeks reasonable growth and income through investments in equity
securities that provide dividend and interest income, including common and
preferred stocks and securities convertible into common and preferred stocks.
In general, the Fund intends to invest in securities that have yielded a
dividend or interest return to security holders within the past twelve months,
however, it may invest in non-income producing investments held for anticipated
increase in value. The Fund may also engage in transactions in options, futures
contracts, and options on futures.
GOVERNMENT FUND
The Fund seeks high current return consistent with preservation of capital
by investing in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund may also purchase and sell options and
engage in transactions in interest rate futures contracts and options on such
contracts in order to hedge against changes in interest rates.
The Fund seeks high current return consistent with preservation of capital.
The Fund intends to invest at least 80% of its assets in debt securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Repurchase agreements may be entered into with domestic banks or broker-dealers
deemed creditworthy by the Advisers solely for purposes of investing the Fund's
cash reserves or when the Fund is in a temporary defensive posture. The Fund may
write covered or fully collateralized call options on U.S. Government securities
and enter into closing or offsetting purchase transactions with respect to
certain of such options. The Fund may also write secured put options and enter
into closing or offsetting purchase transactions with respect to such options.
The Fund may write both listed and over-the-counter options as described in the
Prospectus.
The Fund seeks to obtain a high current return from the following sources:
- interest paid on the Fund's portfolio securities;
- premiums earned upon the expiration of options written;
- net profits from closing transactions; and
- net gains from the sale of portfolio securities on the exercise of
options or otherwise.
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<PAGE> 68
The Fund is not designed for investors seeking long-term capital
appreciation. Moreover, varying economic and market conditions may affect the
value of and yields on U.S. Government securities. Accordingly, there is no
assurance that the Fund's investment objective will be achieved.
MORTGAGE RELATED SECURITIES. The Government Fund may invest in
mortgage-related securities, including those representing an undivided ownership
interest in a pool of mortgage loans, e.g., GNMA, FNMA, FHLMC Certificates.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. The Government National Mortgage
Association ("GNMA") is a wholly owned corporate instrumentality of the United
States within the U.S. Department of Housing and Urban Development. GNMA's
principal programs involve its guarantees of privately issued securities backed
by pools of mortgages.
GNMA CERTIFICATES. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities, which evidence
an undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that principal is paid back monthly by the borrower over the term of
the loan rather than returned in a lump sum at maturity. GNMA Certificates that
the Fund purchases are the "modified pass-through" type. "Modified pass-through"
GNMA Certificates entitle the holder to receive a share of all interest and
principal payments paid and owned on the mortgage pool net of fees paid to the
"issuer" and GNMA, regardless of whether or not the mortgagor actually makes the
payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or the Farmers'
Home Administration ("FMHA"), or guaranteed by the Veterans Administration
("VA"). Once a pool of such mortgages is assembled and approved by GNMA, the
GNMA guarantee is backed by the full faith and credit of the U.S. Government.
GNMA is also empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely
to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before maturity of the mortgages in the pool. The Fund normally
will not distribute principal payments (whether regular or prepaid) to its
shareholders. Rather, it will invest such payments in additional mortgage-
related securities of the types described above or other U.S. Government
securities. Interest received by the Fund will, however, be distributed to
shareholders. Foreclosures impose no risk to principal investment because of the
GNMA guarantee.
As prepayment rates of the individual mortgage pools vary widely, it is not
possible to predict accurately the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of single-family dwelling mortgages with 25- to 30-year maturities, the
type of mortgages backing the vast majority of GNMA Certificates, is
approximately 12 years. Therefore, it is customary to treat GNMA Certificates as
30-year mortgage-backed securities which prepay fully in the twelfth year.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06 of one percent of the outstanding principal for providing its
guarantee, and the GNMA Certificate issuer is paid an annual servicing fee of
0.44 of one percent for assembling the mortgage pool and for passing through
monthly payments of interest and principal to Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the GNMA Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather
than at par.
2. After issuance, Certificates usually trade in the secondary market
at a premium or discount.
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<PAGE> 69
3. Interest is paid monthly rather than semi-annually as is the case
for traditional bonds. Monthly compounding has the effect of raising the
effective yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate. If
mortgagors prepay their mortgages, the principal returned to Certificate
holders may be reinvested at higher or lower rates.
In quoting yields for GNMA Certificates, the customary practice is to
assume that the Certificates will have a 12 year life. Compared on this basis,
GNMA Certificates have historically yielded roughly 1/4 of 1% more than high
grade corporate bonds and 1/2 of one percent more than U.S. Government and U.S.
Government agency bonds. As the life of individual pools may vary widely,
however, the actual yield earned on any issue of GNMA Certificates may differ
significantly from the yield estimated on the assumption of a twelve-year life.
MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation ("FHLMC") was
created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through securities, mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. Like GNMA Certificates, PCs are assumed to
be prepaid fully in their twelfth year. FHLMC guarantees timely monthly payment
of interest of PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semiannually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately 10 years.
FNMA SECURITIES. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages insured by the
FHA. FNMA issues guarantee mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. Like GNMA Certificates,
FNMA Certificates are assumed to be prepaid fully in their twelfth year.
Risk of foreclosure of the underlying mortgages is greater with FHLMC and
FNMA securities because, unlike GNMA securities, FHLMC and FNMA securities are
not guaranteed by the full faith and credit of the U.S. Government.
MUNICIPAL BOND FUND
The Fund seeks as high a level of current interest income exempt from
federal income tax as is consistent with the preservation of capital.
MUNICIPAL BONDS. "Municipal Bonds" include debt obligations issued to
obtain funds for various public purposes, including construction of a wide range
of public facilities, refunding of outstanding obligations and obtaining funds
for general operating expenses and loans to other public institutions and
facilities. In addition, certain types of industrial development obligations are
issued by or on behalf of public authorities to finance various
privately-operated facilities. Such obligations are included within the term
Municipal Bonds if the interest paid thereon is exempt from federal income tax.
Municipal Bonds also include short-term tax-exempt municipal obligations such as
tax anticipation notes, bond anticipation notes, revenue anticipation notes, and
variable rate demand notes.
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<PAGE> 70
The two principal classifications of Municipal Bonds are "general
obligations" and "revenue" or "special obligations." General obligations are
secured by the issuer's pledge of full faith, credit, and taxing power for the
payment of principal and interest. Revenue or special obligations are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or from other
specific revenue sources such as the user of the facility being financed.
Industrial development bonds, including pollution control bonds, are revenue
bonds and do not constitute the pledge of the credit or taxing power of the
issuer of such bonds. The payment of the principal and interest on such
industrial revenue bonds depends solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. The Fund's portfolio may also include "moral obligation" bonds which
are normally issued by special purpose public authorities. If an issuer of moral
obligation bonds is unable to meet its obligations, the repayment of such bonds
becomes a moral commitment but not a legal obligation of the state or
municipality which is the issuer of the bonds.
When the Fund engages in when-issued and delayed delivery transactions, the
Fund relies on the buyer or seller, as the case may be, to consummate the trade.
Failure of the buyer or seller to do so may result in the Fund missing the
opportunity of obtaining a price considered to be advantageous.
On a temporary basis, due to market conditions, the Fund may invest in
Municipal Notes which include demand notes and short-term municipal obligations
(such as tax anticipation notes, revenue anticipation notes, construction loan
notes and short-term discount notes) and tax-exempt commercial paper, provided
that such obligations have the ratings described in the Prospectus. Demand notes
are obligations which normally have a stated maturity in excess of one year, but
permit any holder to demand payment of principal plus accrued interest upon a
specified number of days' notice. Frequently, such obligations are secured by
letters of credit or other credit support arrangement provided by banks. The
issuer of such notes normally has a corresponding right, after a given period,
to prepay at its discretion the outstanding principal of the note plus accrued
interest upon a specified number of days' notice to the noteholders. The
interest rate on a demand note may be based on a known lending rate, such as a
bank's prime rate, and may be adjusted when such rate changes, or the interest
rate on a demand note may be a market rate that is adjusted at specified
intervals. Participation interests in variable rate demand notes will be
purchased only if, in the opinion of counsel, interest income on such interest
will be tax-exempt when distributed as dividends to shareholders.
Yields on Municipal Bonds are dependent on a variety of factors, including
the general condition of the money market and of the municipal bond market, the
size of a particular offering, the maturity of the obligation, and the rating of
the issue. The ability of the Fund to achieve its investment objective is also
dependent on the continuing ability of the issuers of the Municipal Bonds in
which the Fund invests to meet their obligations for the payment of interest and
principal when due. There are variations in the risks involved in holding
Municipal Bonds, both within a particular classification and among
classifications, depending on numerous factors. Furthermore, the rights of
holders of Municipal Bonds and the obligations of the issuers of such Municipal
Bonds may be subject to applicable bankruptcy, insolvency and similar laws and
court decisions affecting the rights of creditors generally, and such laws, if
any, which may be enacted by Congress or state legislatures imposing a
moratorium on the payment of principal and interest or imposing other
constraints or conditions on the payments of principal and interest on Municipal
Bonds.
TEMPORARY INVESTMENTS. The taxable securities in which the Municipal Bond
Fund may invest as temporary investments include U.S. Government securities,
domestic bank certificates of deposit and repurchase agreements.
U.S. Government securities include obligations issued or guaranteed as to
principal and interest by the U.S. Government, its agencies and
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government, (b) the right of the issuer to borrow
an amount limited to a specific line or credit from the U.S. Government, (c)
discretionary authority of the U.S. Government agency or instrumentality, or (d)
the credit of the instrumentality. Such agencies or instrumentalities include,
but are not limited to, the Federal National Mortgage Association, the
Government National Mortgage Association, Federal Land Banks, and the Farmer's
Home Administration. The Fund may not invest in a certificate of
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<PAGE> 71
deposit issued by a commercial bank unless the bank is organized and operating
in the United States and has total assets of at least $500 million and is a
member of the Federal Deposit Insurance Corporation.
MONEY MARKET FUND
The Fund seeks protection of capital and a high level of current income
through investments in money market securities.
The Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing the Fund's securities pursuant to Rule 2a-7 under the Investment Company
Act of 1940 (the "1940 Act"), certain requirements of which are summarized
below.
In accordance with Rule 2a-7, the Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Trustees to present minimal credit risks and which are rated
in one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Trustees. The nationally recognized statistical rating
organizations currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Standard & Poor's Corporation, Fitch Investors
Services, Inc., Duff and Phelps, Inc. and IBCA Limited and IBCA Inc. See
Appendix hereto.
In addition, the Fund will not invest more than 5% of its total assets in
the securities (including the securities collateralizing a repurchase agreement)
of, or subject to puts issued by, a single issuer, except that (i) the Fund may
invest more than 5% of its total assets in a single issuer for a period of up to
three business days in certain limited circumstances, (ii) the Fund may invest
in obligations issued or guaranteed by the U.S. Government without any such
limitation, and (iii) the limitation with respect to puts does not apply to
unconditional puts if no more than 10% of the Fund's total assets is invested in
securities issued or guaranteed by the issuer of the unconditional put.
Investments in rated securities not rated in the highest category by at least
two rating organizations (or one rating organization if the instrument was rated
by only one such organization), and unrated securities not determined by the
Trustees to be comparable to those rated in the highest category, will be
limited to 5% of the Fund's total assets, with the investment in any one such
issuer being limited to no more than the greater of 1% of the Fund's total
assets or $1,000,000. As to each security, these percentages are measured at the
time the Fund purchases the security. There can be no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with broker-dealers or
domestic banks. The Trustees will review on a continuing basis those
institutions which enter into a repurchase agreement with the Fund. A repurchase
agreement is a short-term investment in which the purchaser (i.e., the Fund)
acquires ownership of a debt security and the seller agrees to repurchase the
obligation at a future time and set price, usually not more than seven days from
the date of purchase, thereby determining the yield during the purchaser's
holding period. Repurchase agreements are collateralized by the underlying debt
securities and may be considered to be loans under the 1940 Act. The Fund will
make payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of a custodian or bank acting as agent. The seller
under a repurchase agreement is required to maintain the value of the underlying
securities marked to market daily at not less than the repurchase price. The
underlying securities (normally securities of the U.S. Government, or its
agencies and instrumentalities), may have maturity dates exceeding one year. The
Fund does not bear the risk of a decline in value of the underlying security
unless the seller defaults under its repurchase obligation. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights.
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<PAGE> 72
REVERSE REPURCHASE AGREEMENTS
The International Equity Fund may invest in reverse repurchase agreements.
The International Equity Fund does not currently intend to commit more than 5%
of its net assets to reverse repurchase agreements. The Fund may enter into
reverse repurchase agreements with broker/dealers and other financial
institutions. Such agreements involve the sale of portfolio securities with an
agreement to repurchase the securities at an agreed-upon price, date and
interest payment and are considered to be borrowings by the International Equity
Fund and are subject to the borrowing limitations set forth under "Investment
Restrictions." Since the proceeds of reverse repurchase agreements are invested,
this would introduce the speculative factor known as "leverage." The securities
purchased with the funds obtained from the agreement and securities
collateralizing the agreement will have maturity dates no later than the
repayment date. Generally, the effect of such a transaction is that the
International Equity Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep some of the interest
income associated with those securities. Such transactions are only advantageous
if the Fund has an opportunity to earn a greater rate of interest on the cash
derived from the transaction than the interest cost of obtaining that cash.
Opportunities to realize earnings from the use of the proceeds equal to or
greater than the interest required to be paid may not always be available, and
the Fund intends to use the reverse repurchase technique only when the
Subadviser believes it will be advantageous to the International Equity Fund.
The use of reverse repurchase agreements may exaggerate any interim increase or
decrease in the value of the Fund's assets. The Fund's custodian bank will
maintain a separate account for the Fund with securities having a value equal to
or greater than such commitments.
COMMERCIAL BANK OBLIGATIONS
For the purposes of the International Equity Fund's investment policies
with respect to bank obligations, obligations of foreign branches of U.S. banks
and of foreign banks may be general obligations of the parent bank in addition
to the issuing bank, or may be limited by the terms of a specific obligation and
by government regulation. As with investment in foreign securities in general,
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject the International Equity Fund to investment risks that are
different in some respects from those of investments in obligations of domestic
issuers. Although the Fund will typically acquire obligations issued and
supported by the credit of U.S. or foreign banks having total assets at the time
of purchase in excess of U.S. $1 billion (or the equivalent thereof), this U.S.
$1 billion figure is not a fundamental investment policy or restriction of the
International Equity Fund. For calculation purposes with respect to the U.S. $1
billion figure, the assets of a bank will be deemed to include the assets of its
U.S. and non-U.S. branches.
COMMERCIAL PAPER
Commercial paper consists of short-term (usually 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations. A variable amount master demand note (which is a type of commercial
paper) represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a commercial
paper issuer and an institutional lender, such as one of the Funds pursuant to
which the lender may determine to invest varying amounts. Transfer of such notes
is usually restricted by the issuer, and there is no secondary trading market
for such notes. Each Fund therefore, may not invest in a master demand note, if
as a result more than 5% (15% in the case of the Emerging Growth Fund and the
International Equity Fund) of the value of the Fund's total assets would be
invested in such notes and other illiquid securities.
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<PAGE> 73
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
(ALL FUNDS EXCEPT MONEY MARKET FUND)
SELLING CALL AND PUT OPTIONS (EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND,
GROWTH AND INCOME FUND, GROWTH FUND AND GOVERNMENT FUND)
PURPOSE. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund's current return can be expected to
fluctuate because premiums earned from writing options and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Writing options on portfolio securities also results in a higher
portfolio turnover.
SELLING OPTIONS. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Emerging Growth Fund,
International Equity Fund, Growth and Income Fund and the Growth Fund sell call
options only on a covered basis. The Government Fund sells call options either
on a covered basis, or for cross-hedging purposes. A call option is covered if
the Fund owns or has the right to acquire the underlying securities subject to
the call option at all times during the option period. Thus, the Government Fund
may sell options on U.S. Government securities or forward commitments of such
securities. An option is for cross-hedging purposes (relative to Government Fund
only) to hedge against a security which the Fund owns or has the right to
acquire. In such circumstances, the Government Fund maintains in a segregated
account with the Fund's Custodian, cash or U.S. Government securities in an
amount not less than the market value of the underlying security, marked to
market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. A Fund sells put options only on a
secured basis, which means that, at all times during the option period, the Fund
would maintain in a segregated account with its Custodian cash, cash equivalents
or U.S. Government securities in an amount of not less than the exercise price
of the option, or will hold a put on the same underlying security at an equal or
greater exercise price. A Fund generally sells put options when the Adviser
wishes to purchase the underlying security for the Fund's portfolio at a price
lower than the current market price of the security.
CLOSING PURCHASE TRANSACTIONS AND OFFSETTING TRANSACTIONS. In order to
terminate its position as writer of a call or put option, a Fund may enter into
a "closing purchase transaction," which is the purchase of a call (put) on the
same underlying security and having the same exercise price and expiration date
as the call (put) previously sold by the Fund. The Fund will realize a gain
(loss) if the premium plus commission paid in the closing purchase transaction
is less (greater) than the premium it received on the sale of the option. A Fund
would also realize a gain if an option it has sold lapses unexercised.
A Fund may sell options that are listed on an exchange as well as options
that are traded over-the-counter. A Fund may close out its position as writer of
an option only if a liquid secondary market exists for options of that series,
but there is no assurance that such a market will exist, particularly in the
case of over-the-counter options, since they can be closed out only with the
other party to the transaction. Alternatively, a Fund may purchase an offsetting
option, which does not close out its position as a writer, but provides an asset
of equal value to its obligation under the option sold. If a Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the put until a
closing purchase transaction can be entered into (or the option is exercised or
expires), even though it might not be advantageous to do so.
RISKS OF SELLING OPTIONS. By selling a call option, a Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.
Each of the United States exchanges has established limitations governing
the maximum number of call or put options on the same underlying security
(whether or not covered) that may be written by a single investor, whether
acting alone or in concert with others, regardless of whether such options are
written on one or more accounts or through one or more brokers. An exchange may
order the liquidation of positions found to
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be in violation of those limits, and it may impose other sanctions or
restrictions. These position limits may restrict the number of options the Fund
may be able to write.
PURCHASING CALL AND PUT OPTIONS (EMERGING GROWTH FUND, INTERNATIONAL EQUITY
FUND, GROWTH AND INCOME FUND, GROWTH FUND AND GOVERNMENT FUND)
A Fund may purchase call options to protect (e.g., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options may be purchased for their leverage potential. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, a Fund can benefit from any significant
increase in the price of the underlying security to a greater extent than had it
invested the same amount in the security directly. However, because of the very
high volatility of option premiums, a Fund could bear a significant risk of
losing the entire premium if the price of the underlying security did not rise
sufficiently, or if it did not do so before the option expired.
Conversely, put options may be purchased to protect (e.g., hedge) against
anticipated declines in the market value of either specific portfolio securities
or of a Fund's assets generally. Alternatively, put options may be purchased for
capital appreciation in anticipation of a price decline in the underlying
security and a corresponding increase in the value of the put option. The
purchase of put options for capital appreciation involves the same significant
risk of loss as described above for call options. In any case, the purchase of
options for capital appreciation would increase the Fund's volatility by
increasing the impact of changes in the market price of the underlying
securities on the Fund's net asset value.
The Funds may purchase either listed or over-the-counter options.
OPTIONS ON STOCK INDEXES (EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND,
GROWTH AND INCOME FUND AND GROWTH FUND)
Options on stock indices are similar to options on stock, but the delivery
requirements are different. Instead of giving the right to take or make delivery
of stock at a specified price, an option on a stock index gives the holder the
right to receive an amount of cash upon exercise of the option. Receipt of this
cash amount will depend upon the closing level of the stock index upon which the
option is based being greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash received
will be the difference between the closing price of the index and the exercise
price of the option, multiplied by a specified dollar multiple. The writer of
the option is obligated, in return for the premium received, to make delivery of
this amount.
Some stock index options are based on a broad market index such as the
Standard & Poor's 500 or the New York Stock Exchange Composite Index, or a
narrower index such as the Standard & Poor's 100. Indexes are also based on an
industry or market segment such as the AMEX Oil and Gas Index or the Computer
and Business Equipment Index. Options are currently traded on The Chicago Board
Options Exchange, the New York Stock Exchange, the American Stock Exchange and
other exchanges.
Gain or loss to a Fund on transactions in stock index options will depend
on price movements in the stock market generally (or in a particular industry or
segment of the market) rather than price movements of individual securities. As
with stock options, the Fund may offset its position in stock index options
prior to expiration by entering into a closing transaction on an Exchange, or it
may let the option expire unexercised.
FOREIGN CURRENCY OPTIONS (INTERNATIONAL EQUITY FUND)
The Fund may purchase put and call options on foreign currencies to reduce
the risk of currency exchange fluctuation. Premiums paid for such put and call
options will be limited to no more than 5% of the Fund's net assets at any given
time. Options on foreign currencies operate similarly to options on securities,
and are traded primarily in the over-the-counter market, although options on
foreign currencies are traded on United States and foreign exchanges.
Exchange-traded options are expected to be purchased by the Fund
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from time to time and over-the-counter options may also be purchased, but only
when the Subadviser believes that a liquid secondary market exists for such
options, although there can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence foreign exchange
rates and investment generally. See "Investment Practices and Risks -- Options,
Futures Contracts and Related Options" in the Prospectus.
The value of a foreign currency option is dependent upon the value of the
underlying foreign currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both
currencies and has no relationship to the investment merits of a foreign
security. Because foreign currency transactions occurring in the interbank
market (conducted directly between currency traders, usually large commercial
banks, and their customers) involve substantially larger amounts than those that
may be involved in the use of foreign currency options, investors may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (i.e., less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the options markets.
FUTURES CONTRACTS (ALL FUNDS EXCEPT MONEY MARKET FUND)
The Trust may engage in transactions involving futures contracts and
related options in accordance with rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Trust and its Funds is
exempt from registration as a "commodity pool".
TYPES OF CONTRACTS. An interest rate futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of a
specific type of debt security at a specified future time and at a specified
price. Although interest rate futures contracts call for delivery of specified
securities, in most cases the contracts are closed out (by an offsetting
purchase or sale) prior to actual delivery, with the difference between the
contract price and the offsetting price paid in cash.
A municipal bond futures contract is an agreement pursuant to which two
parties agree to take and make delivery of an amount of cash equal to a
specified dollar amount times the differences between The Bond Buyer Municipal
Bond Index value at the close of the last trading day of the contract and the
price at which the futures contract is originally struck.
A stock index futures contract is a bilateral agreement pursuant to which
two parties agree to take or make delivery of cash equal to a specified dollar
amount times the difference between the stock index value at a specified time
and the price at which the futures contract is originally struck. A stock index
fluctuates with changes in the market values of the stocks included. No physical
delivery of the underlying stocks in the index is made.
Currently, stock index futures contracts can be purchased with respect to
the Standard & Poor's 500 Stock Index on the Chicago Mercantile Exchange
("CME"), the New York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Stock Index on the Kansas City Board of Trade.
Differences in the stocks included in the indexes may result in differences in
correlation of the futures contracts with movements in the value of the
securities being hedged.
Foreign stock index futures traded outside the United States include the
Nikkei Index of 225 Japanese stocks traded on the Singapore International
Monetary Exchange ("Nikkei Index"), Osaka Index of 50 Japanese stocks traded on
the Osaka Exchange, Financial Times Stock Exchange Index of the 100 largest
stocks on the London Stock Exchange, the All Ordinaries Share Price Index of 307
stocks on the Sydney,
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Melbourne Exchanges, Hang Seng Index of 33 stocks on the Hong Kong Stock
Exchange, Barclays Share Price Index of 40 stocks on the New Zealand Stock
Exchange and Toronto Index of 35 stocks on the Toronto Stock Exchange. Futures
and futures options on the Nikkei Index are traded on the CME and United States
commodity exchanges may develop futures and futures options on other indices of
foreign securities. Futures and options on United States devised index of
foreign stocks are also being developed. Investments in securities of foreign
entities and securities denominated in foreign currencies involve risks not
typically involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and the
possible imposition of exchange controls or other foreign or United States
governmental laws or restrictions applicable to such investments.
The International Equity Fund may enter into futures contracts for
non-hedging purposes, subject to applicable law.
INITIAL AND VARIATION MARGIN. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, a Fund is required to deposit with its Custodian in an
account in the broker's name an amount of cash, cash equivalents or liquid high
grade debt securities equal to a percentage (which will normally range between
two and ten percent) of the contract amount. This amount is known as initial
margin. The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transaction.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract, which is returned to the Fund upon termination of the
futures contract and satisfaction of its contractual obligations. Subsequent
payments to and from the broker, called variation margin, are made on a daily
basis as the price of the underlying securities or index fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as marking to market.
For example, when a Fund purchases a futures contract and the price of the
underlying security or index rises, that position increases in value, and the
Fund receives from the broker a variation margin payment equal to that increase
in value. Conversely, where the Fund purchases a futures contract and the value
of the underlying security or index declines, the position is less valuable, and
the Fund is required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
FUTURES STRATEGIES. When a Fund anticipates a significant market or market
sector advance, the purchase of a futures contract affords a hedge against not
participating in the advance at a time when the Fund is not fully invested
("anticipatory hedge"). Such purchase of a futures contract serves as a
temporary substitute for the purchase of individual securities, which may be
purchased in an orderly fashion once the market has stabilized. As individual
securities are purchased, an equivalent amount of futures contracts could be
terminated by offsetting sales. A Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
substantially reduces the risk to the Fund of a market decline and, by so doing,
provides an alternative to the liquidation of securities positions in the Fund
with attendant transaction costs.
For example, if the Government Fund holds long-term U.S. Government
securities, and a rise in long-term interest rates is anticipated, it could, in
lieu of selling its portfolio securities, sell futures contracts for similar
long-term securities. If interest rates increased and the value of the Fund's
securities declined during the period the contracts were outstanding, the value
of the Fund's futures contracts should increase, thereby protecting the Fund by
preventing net asset value from declining as much as it otherwise would have.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in listed options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker.
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Similarly, in the event of the bankruptcy of the writer of an over-the-counter
option purchased by the Government Fund, the Fund could experience a loss of all
or part of the value of the option. Transactions are entered into by a Fund only
with brokers or financial institutions deemed creditworthy by the Adviser.
Persons who trade in futures contracts may be broadly classified as
"hedgers" and "speculators." Hedgers, whose business activity involves
investment or other commitment in securities or other obligations, use the
futures market to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities and obligations held or committed to
be acquired by them or fluctuations in the value of the currency in which the
securities or obligations are denominated. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates or currency exchange rates.
Each Fund's futures transactions will be entered into for traditional
hedging purposes; that is, futures contracts will be sold to protect against a
decline in the price of securities or currencies that the Fund owns, or futures
contracts will be purchased to protect a Fund against an increase in the price
of securities of currencies it has committed to purchase or expects to purchase.
The International Equity Fund may also enter into futures transactions for
non-hedging purposes, subject to applicable law.
SPECIAL RISKS ASSOCIATED WITH FUTURES TRANSACTIONS. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the portfolio of
securities being hedged diverges from the securities upon which the futures
contract is based. If the price of the futures contract moves less than the
price of the securities being hedged, the hedge will not be fully effective, but
if the price of the securities being hedged moves in an unfavorable direction,
the Fund would be in a better position than if it had not tried to hedge.
However, if the price of the security being hedged moves in a favorable
direction, the hedge will partially offset this advantage. To compensate for the
imperfect correlation of movements of prices of a futures contract and the
securities being hedged, a Fund may buy or sell futures contracts in a greater
dollar amount than the dollar amount of the securities being hedged if the
historical volatility of the securities being hedged has been greater than the
historical volatility of the securities underlying the futures contract, or may
buy or sell fewer futures contracts if the historical volatility of the
securities being hedged is less than the historical volatility of the securities
underlying the futures contract. Nevertheless, the price of the futures contract
may move less than the price of the securities which are the subject of the
hedge (or the value of futures contracts and securities held by a Fund may
decline simultaneously), resulting in the hedge not being fully effective.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities underlying the futures
contract due to certain market distortions. First, all participants in the
futures market are subject to initial margin depository and maintenance
requirements. Rather than meet additional margin deposit requirements, investors
may close futures contracts through offsetting transactions, which could distort
the normal relationship between the futures market and the securities underlying
the futures contract. Second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions. Due to the possibility of
price distortion in the futures markets and because of the imperfect correlation
between movements in futures contracts and movements in the securities
underlying them, a correct forecast of general market trends by the Adviser may
still not result in a successful hedging transaction judged over a very short
time frame.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an Exchange or Board of Trade that
provides a market for such futures contracts. Although a Fund intends to
purchase or sell futures only on Exchanges and Boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular
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contract or at any particular time. In the event of such illiquidity, it might
not be possible to close a futures position and, in the event of adverse price
movement, a Fund would continue to be required to make daily payments of
variation margin. Since the securities being hedged will not be sold until the
related futures contract is sold, an increase, if any, in the price of the
securities may to some extent offset losses on the related futures contract. In
such event, the Fund would lose the benefit of the appreciation in value of the
securities.
Successful use of futures is also subject to the Adviser's ability
correctly to predict the direction of movements in the market. For example, if
the Fund hedges against a decline in the market, and market prices instead
advance, the Fund will lose part or all of the benefit of the increase in value
of its securities holdings because it will have offsetting losses in futures
contracts. In such cases, if the Fund has insufficient cash, it may have to sell
portfolio securities at a time when it is disadvantageous to do so in order to
meet the daily variation margin.
CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that a Fund not enter into
futures and related options for which the aggregate initial margin and premiums
exceed 5% of the fair market value of a Fund's assets. The International Equity
Fund may enter into transactions in futures contracts and options on futures
contracts only (i) for bona fide hedging purposes (as defined in CFTC
regulations), or (ii) for non-hedging purposes provided the aggregate initial
margin and premiums on such non-hedging positions does not exceed 5% of the
liquidation value of the Fund's assets. Relative to the purchase or sale of
futures contracts by a Fund, an amount of cash, cash equivalents or U.S.
Government securities equal to the market value of the obligation under the
futures contracts (less any related margin deposits) will be maintained in a
segregated account with the Custodian.
ADDITIONAL RISKS TO OPTIONS AND FUTURES TRANSACTIONS. Each of the Exchanges
has established limitations governing the maximum number of call or put options
on the same underlying security or futures contract (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different Exchanges or are held or written on one or more accounts or through
one or more brokers). Option positions of all investment companies advised by
the Adviser are combined for purposes of these limits. An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may sell.
Although a Fund intends to enter into futures contracts only if there is an
active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, a Fund would be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may partially or completely offset losses
on the futures contract. However, there is no guarantee that the price of the
securities being hedged will, in fact, correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.
A Fund pays commissions on futures contracts and options transactions.
OPTIONS ON FUTURES CONTRACTS (ALL FUNDS EXCEPT MONEY MARKET FUND)
A Fund may also purchase and sell options on futures contracts which are
traded on an Exchange. An option on a futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put), at a specified exercise price at any time during the option
period. As a seller of an option on a futures contract, a Fund is subject to
initial margin and maintenance requirements similar to those applicable to
futures contracts. In addition, net option premiums received by a Fund are
required to be included as initial margin
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deposits. When an option on a futures contract is exercised, delivery of the
futures position is accompanied by cash representing the difference between the
current market price of the futures contract and the exercise price of the
option. A Fund may purchase put options on futures contracts in lieu of, and for
the same purposes as, the sale of a futures contract. The purchase of call
options on futures contracts in intended to serve the same purpose as the actual
purchase of the futures contract.
RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEX FUTURES. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on stock index futures. The Advisers will not
purchase options on stock index futures on any Exchange unless and until, in the
Adviser's opinion, the market for such options has developed sufficiently that
the risks in connection with options on futures transactions are no greater than
the risks in connection with stock index futures transactions. Compared to the
use of stock index futures, the purchase of options on stock index futures
involves less potential risk to the Growth Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However there
may be circumstances, such as when there is no movement in the level of the
index, when the use of an option on a stock index future would result in a loss
to the Fund when the use of a stock index future would not.
FORWARD COMMITMENTS (GOVERNMENT FUND ONLY)
Relative to a Forward Commitment purchase, the Fund maintains a segregated
account (which is marked to market daily) of cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to purchase continues. Since the
market value of both the securities subject to the Forward Commitment and the
securities held in the segregated account may fluctuate, the use of the Forward
Commitments may magnify the impact of interest rate changes on the Fund's net
asset value.
A Forward Commitment sale is covered if the Fund owns or has the right to
acquire the underlying securities subject to the Forward Commitment. A Forward
Commitment sale is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in value of a security which the
Fund owns or has the right to acquire. In either circumstance, the Fund
maintains in a segregated account (which is marked to market daily) either the
security covered by the Forward Commitment or cash or U.S. Government securities
(which may have maturities which are longer than the term of the Forward
Commitment) with the Fund's custodian in an aggregate amount equal to the amount
of its commitment as long as the obligation to sell continues. By entering into
a Forward Commitment sale transaction, the Fund forgoes or reduces the potential
for both gain and loss in the security which is being hedged by the Forward
Commitment sale.
FORWARD CURRENCY CONTRACTS AND OPTIONS ON CURRENCY
(INTERNATIONAL EQUITY FUND)
A forward currency contract is an obligation to purchase or sell a currency
against another currency at a future date and price as agreed upon by the
parties. The Fund may either accept or make delivery of the currency at the
maturity of the forward contract or, prior to maturity, enter into a closing
transaction involving the purchase or sale or an offsetting contract. The Fund
engages in forward currency transactions in anticipation of, or to protect
itself against fluctuations in exchange rates. The Fund might sell a particular
foreign currency forward, for example, when it holds bonds denominated in that
currency but anticipates, and seeks to be protected against, decline in the
currency against the U.S. dollar. Similarly, the Fund might sell the U.S. dollar
forward when it holds bonds denominated in U.S. dollars but anticipates, and
seeks to be protected against, a decline in the U.S. dollar relative to other
currencies. Further, the Fund might purchase a currency forward to "lock in" the
price of securities denominated in that currency which it anticipates
purchasing.
The matching of the increase in value of a forward contract and the decline
in the U.S. dollar equivalent value of the foreign currency denominated asset,
that is the subject of the hedge, generally will not be precise. In addition,
the Fund may not always be able to enter into foreign currency forward contracts
at attractive
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prices and this will limit the Fund's ability to use such contract to hedge or
cross-hedge its assets. Also, with regard to the Fund's use of cross-hedges,
there can be no assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. dollar will continue. Thus, at
any time poor correlation may exist between movements in the exchange rates of
the foreign currencies underlying the Fund's cross-hedges and the movements in
the exchange rates of foreign currencies in which the Fund's assets that are the
subject of such cross-hedges are denominated.
Forward contracts are traded in an interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement and is consummated without
payment of any commission. The Fund, however, may enter into forward contracts
with deposit requirements or commissions.
A put option on currency gives the Fund, as purchaser, the right (but not
the obligation) to sell a specified amount of currency at the exercise price
until the expiration of the option. A call option gives the Fund, as purchaser,
the right (but not the obligation) to purchase a specified amount of currency at
the exercise price until its expiration. The Fund might purchase a currency put
option, for example, to protect itself during the contract period against a
decline in the value of a currency in which it holds or anticipates holding
securities. If the currency's value should decline, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.
If the value of the currency instead should rise, any gain to the Fund would be
reduced by the premium it had paid for the put option. A currency call option
might be purchased, for example, in anticipation of, or to protect against, a
rise in the value of a currency in which the Fund anticipates purchasing
securities.
The Fund's ability to establish and close out positions in foreign currency
options is subject to the existence of a liquid market. There can be no
assurance that a liquid market will exist for a particular option at any
specific time. In addition, options on foreign currencies are affected by all of
those factors that influence foreign exchange rates and investment generally.
A position in an exchange-listed option may be closed out only on an
exchange that provides a secondary market for identical options. Exchange
markets for options on foreign currencies exist but are relatively new, and the
ability to establish and close out positions on the exchanges is subject to
maintenance of a liquid secondary market. Closing transactions may be effected
with respect to options traded in the over-the-counter ("OTC") markets
(currently the primary markets for options on foreign currencies) only by
negotiating directly with the other party to the option contract or in a
secondary market for the option if such market exists. Although the Fund intends
to purchase only those options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market will exist for any
particular option at any specific time. In such event, it may not be possible to
effect closing transactions with respect to certain options, with the result
that the Fund would have to exercise those options which it has purchased in
order to realize any profit. The staff of the Securities and Exchange Commission
("SEC") has taken the position that, in general, purchased OTC options and the
underlying securities used to cover written OTC options are illiquid securities.
However, the Fund may treat as liquid the underlying securities used to cover
written OTC options, provided it has arrangements with certain qualified dealers
who agree that the Portfolio may repurchase any option it writes for a maximum
price to be calculated by a predetermined formula. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
INTEREST RATE TRANSACTIONS (INTERNATIONAL EQUITY FUND)
Among the hedging transactions into which the Fund may enter are interest
rate swaps and the purchase or sale of interest rate caps and floors. The Fund
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as a hedge and not
as a speculative investment. The Fund will not sell interest rate caps or floors
that it does not own. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments.
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The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor.
The Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or its liabilities, and will usually enter into interest rate swaps on a
net basis, i.e., the two payment streams are netted but, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. Inasmuch
as these hedging transactions are entered into for good faith hedging purposes,
the investment adviser and the Fund believe such obligations do not constitute
senior securities and, accordingly will not treat them as being subject to its
borrowing restrictions. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by a custodian that satisfies the
requirements of the 1940 Act. The Fund will not enter into any interest rate
swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in the highest rating
category of at least one nationally recognized rating organization at the time
of entering into such transaction. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing swap documentation. As a result, the
swap market has become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been developed and,
accordingly, they are less liquid than swaps.
New options and futures contracts and various combinations thereof continue
to be developed and the Fund may invest in any such options and contracts as may
be developed to the extent consistent with its investment objective and
regulatory requirements applicable to investment companies.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS (INTERNATIONAL EQUITY FUND)
Use of many hedging and other strategic transactions including currency and
market index transactions by the Fund will require, among other things, that the
Fund segregate cash, liquid high grade debt obligations or other assets with its
custodian, or a designated sub-custodian, to the extent the Fund's obligations
are not otherwise "covered" through ownership of the underlying security,
financial instrument or currency. In general, either the full amount of any
obligation by the Fund to pay or deliver securities or assets must be covered at
all times by the securities, instruments or currency required to be delivered,
or, subject to any regulatory restrictions, an amount of cash or liquid high
grade debt obligations at least equal to the current amount of the obligation
must be segregated with the custodian or sub-custodian. The segregated assets
cannot be sold or transferred unless equivalent assets are substituted in their
place or it is no longer necessary to segregate them. A call option on
securities written by the Fund, for example, will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high grade
debt obligations sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by the Fund on an index will require the Fund
to own portfolio securities that correlate with the index or to segregate liquid
high grade debt obligations equal to the excess of the index value over the
exercise price on a current basis. A put option on securities written by the
Fund will require the Fund to segregate liquid high grade debt obligations equal
to the exercise price. Except when the Fund enters into a forward contract in
connection with the purchase or sale of a security denominated in a foreign
currency or for other non-speculative purposes, which requires no segregation, a
currency contract that obligates the Fund to buy or sell a foreign currency will
generally require the Fund to hold an amount of that currency, liquid securities
denominated in that currency equal to the Fund's obligations or to segregate
liquid high grade debt obligations equal to the amount of the Fund's
obligations.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices, and OCC-issued and exchange-listed
index options will generally provide for cash settlement,
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although the Fund will not be required to do so. As a result, when the Fund
sells these instruments it will segregate an amount of assets equal to its
obligations under the options. OCC-issued and exchange-listed options sold by
the Fund other than those described above generally settle with physical
delivery, and the Fund will segregate an amount of assets equal to the full
value of the option. OTC options settling with physical delivery or with an
election of either physical delivery or cash settlement will be treated the same
as other options settling with physical delivery.
In the case of a futures contract or an option on a futures contract, the
Fund must deposit initial margin and, in some instances, daily variation margin
in addition to segregating assets sufficient to meet its obligations to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. These assets may consist of cash, cash
equivalents, liquid high grade debt or equity securities or other acceptable
assets. The Fund will accrue the net amount of the excess, if any, of its
obligations relating to swaps over its entitlements with respect to each swap on
a daily basis and will segregate with its custodian, or designated
sub-custodian, an amount of cash or liquid high grade debt obligations having an
aggregate value equal to at least the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligation,
if any.
Hedging and other strategic transactions may be covered by means other than
those described above when consistent with applicable regulatory policies. The
Fund may also enter into offsetting transactions so that its combined position,
coupled with any segregated assets, equals its net outstanding obligation in
related options and hedging and other strategic transactions. The Fund could
purchase a put option, for example, if the strike price of that option is the
same or higher than the strike price of a put option sold by the Fund. Moreover,
instead of segregating assets if it holds a futures contract or forward
contract, the Fund could purchase a put option on the same futures contract or
forward contract with a strike price as high or higher than the price of the
contract held. Other hedging and other strategic transactions may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction, no segregation is required, but if it terminates
prior to that time, assets equal to any remaining obligation would need to be
segregated.
LOANS OF PORTFOLIO SECURITIES
Each of the Funds may lend portfolio securities to unaffiliated brokers,
dealers and financial institutions provided that cash equal to 100% of the
market value of the securities loaned is deposited by the borrower with the
particular Fund and is marked to market daily. While such securities are on
loan, the borrower is required to pay the Fund any income accruing thereon.
Furthermore, the Fund may invest the cash collateral in portfolio securities
thereby increasing the return to the Fund as well as increasing the market risk
to the Fund. A Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are
qualified for sale. However, should the Fund believe that lending securities is
in the best interests of the Fund's shareholders, it would consider withdrawing
its shares from sale in any such state.
Loans would be made for short-term purposes and subject to termination by
the Fund in the normal settlement time, currently five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Fund and its shareholders, but any gain can be realized only if the borrower
does not default. Each Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following restrictions which, may not be changed
with respect to any Fund without the approval of the holders of a majority of
the outstanding shares of such Fund. Such majority (as defined by the 1940 Act)
is the lesser of (i) 67% or more of the voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities of the Fund
are present or represented by proxy;
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or (ii) more than 50% of the Fund's outstanding voting securities. The
percentage limitations need only be met at the time the investment is made or
after relevant action is taken.
THE FOLLOWING RESTRICTIONS APPLY TO ALL FUNDS:
A Fund shall not:
1. Lend money except by the purchase of bonds or other debt
obligations of types commonly offered publicly or privately and purchased
by financial institutions, including investments in repurchase agreements.
A Fund will not invest in repurchase agreements maturing in more than seven
days (unless subject to a demand feature) if any such investment, together
with any illiquid securities (including securities which are subject to
legal or contractual restrictions on resale) held by the Fund, exceeds 10%
of the market or other fair value of its total net assets (15% in the case
of the Emerging Growth Fund and the International Equity Fund); provided,
however, that with respect to the Emerging Growth Fund, the International
Equity Fund, the Growth Fund and the Growth and Income Fund, illiquid
securities shall exclude shares of other open-end investment companies
owned by the Fund but include the Fund's pro rata portion of the securities
and other assets owned by any such company. See "Repurchase Agreements";
2. Underwrite securities of other companies, except insofar as a Fund
might be deemed to be an underwriter for purposes of the Securities Act of
1933 in the resale of any securities owned by the Fund;
3. Lend its portfolio securities in excess of 10% (15% in the case of
the Emerging Growth Fund and the International Equity Fund) of its total
assets, both taken at market value, provided that any loans shall be in
accordance with the guidelines established for such loans by the Trustees
as described under "Loans of Portfolio Securities," including the
maintenance of collateral from the borrower equal at all times to the
current market value of the securities loaned;
4. With respect to 75% of its assets, invest more than 5% of its
assets in the securities of any one issuer (except obligations of the U.S.
Government, its agencies or instrumentalities and repurchase agreements
secured thereby) or purchase more than 10% of the outstanding voting
securities of any one issuer. Neither limitation shall apply to the
acquisition of shares of other open-end investment companies by the
Emerging Growth Fund, the International Equity Fund, the Growth Fund and
the Growth and Income Fund, to the extent permitted by rule or order of the
SEC exempting them from the limitations imposed by Section 12(d)(1) of the
1940 Act;
5. Invest more than 25% of the value of its total assets in securities
of issuers in any particular industry; provided, however, that with respect
to the Emerging Growth Fund, the International Equity Fund, the Growth Fund
and the Growth and Income Fund, this limitation shall exclude shares of
other open-end investment companies owned by the Fund but include the
Fund's pro rata portion of the securities and other assets owned by any
such company. (This does not restrict any of the Funds from investing in
obligations of the U.S. Government and repurchase agreements secured
thereby); and
6. With respect to all Funds other than the Emerging Growth Fund and
the International Equity Fund, borrow in excess of 10% of the market or
other fair value of its total assets, or pledge its assets to an extent
greater than 5% of the market or other fair value of its total assets,
provided that so long as any borrowing exceeds 5% of the value of the
Fund's total assets, the Fund shall not purchase portfolio securities. Any
such borrowings shall be from banks and shall be undertaken only as a
temporary measure for extraordinary or emergency purposes. With respect to
the Emerging Growth Fund, borrow money except temporarily from banks to
facilitate payment of redemption requests and then only in amounts not
exceeding 33 1/3% of its net assets, or pledge more than 10% of its net
assets in connection with permissible borrowings or purchase additional
securities when money borrowed exceeds 5% of its net assets. With respects
to the International Equity Fund, borrow money from banks on a secured or
unsecured basis, in excess of 25% of the value of its total assets.
Deposits in escrow in connection with the writing of covered call or
secured put options, or in connection with the purchase or sale of forward
contracts, futures contracts, foreign currency futures and related options,
are not deemed to be a pledge or other
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encumbrance. This restriction shall not prevent the International Equity
Fund from entering into reverse repurchase agreements, provided that
reverse repurchase agreements and any transactions constituting borrowing
by the Fund may not exceed 33 1/3% of the Fund's net assets. The
International Equity Fund may not mortgage or pledge its assets except to
secure borrowings permitted under this restriction; and
THE FOLLOWING RESTRICTIONS APPLY TO THE GROWTH FUND, THE GROWTH AND INCOME FUND,
THE GOVERNMENT FUND, THE MONEY MARKET FUND AND THE MUNICIPAL BOND FUND:
A Fund shall not:
1. Make any investment in real estate, commodities or commodities
contracts, or warrants except that the Growth and Income Fund, the Growth
Fund, the Government Fund and the Municipal Bond Fund may engage in
transactions in futures and related options, the Government Fund may
purchase or sell securities which are secured by real estate, and the
Growth Fund may acquire warrants or other rights to subscribe to securities
of companies issuing such warrants or rights, or of parents or subsidiaries
of such companies, although the Growth Fund may not invest more than 5% of
its net assets in such securities valued at the lower of cost or market,
nor more than 2% of its net assets in such securities (valued on such
basis) which are not listed on the New York or American Stock Exchanges
(warrants and rights represent options, usually for a specified period of
time, to purchase a particular security at a specified price from the
issuer). Warrants or rights acquired in units or attached to other
securities are not subject to the foregoing limitations;
2. Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities. The deposit or payment by a Fund of an initial or
variation margin in connection with futures contracts or related option
transactions is not considered the purchase of a security on margin;
3. Invest in securities of any company if any officer or trustee of
the Trust or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more than 5%
of the outstanding securities of such issuer;
4. Invest in oil or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Growth Fund, and
the Growth and Income Fund, may invest in the securities of companies which
invest in or sponsor such programs;
5. Invest in companies for the purpose of acquiring control or
management thereof;
6. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except through
purchase in the open market in a transaction involving no commission or
profit to a sponsor or dealer (other than the customary brokers commission)
or as part of a merger, consolidation or other acquisition, except that the
Growth Fund and the Growth and Income Fund may acquire shares of other
open-end investment companies to the extent permitted by rule or order of
the SEC exempting them from the limitations imposed by Section 12(d)(1) of
the 1940 Act;
7. Purchase a restricted security or a security for which market
quotations are not readily available if as a result of such purchase more
than 5% of the Fund's assets would be invested in such securities;
provided, however, that with respect to the Growth Fund and the Growth and
Income Fund, this limitation shall exclude shares of other open-end
investment companies owned by the Fund but include the Fund's pro rata
portion of the securities and other assets owned by any such company.
Illiquid securities include securities subject to legal or contractual
restrictions on resale, which include repurchase agreements which have a
maturity of longer than seven days. This policy does not apply to
restricted securities eligible for resale pursuant to Rule 144A under the
1933 Act which the Trustees or the Adviser under Board approved guidelines
may determine are liquid nor does it apply to other securities for which,
notwithstanding legal or contractual restrictions on resale, a liquid
market exists;
8. Invest more than 5% of its assets in companies having a record
together with predecessors, of less than three years' continuous operation,
except that the Growth Fund and the Growth and Income Fund,
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may acquire shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;
9. Engage in option writing for speculative purposes or purchase call
or put options on securities if, as a result, more than 5% of its net
assets of the Fund would be invested in premiums on such options; and
10. Purchase any security issued by any company deriving more than 25%
of its gross revenues from the manufacture of alcohol or tobacco.
In addition to the fundamental policies which may only be changed by
shareholders, the Trust has made an undertaking with one state that the Growth
Fund shall not invest more than 5% of its total assets in special situations.
For purposes of this limitation, the Trust will consider a "special situation"
to include companies coming out of bankruptcy, companies in the process of
merger or reorganization or companies which in the opinion of management for
other reasons are in a severe state of flux. The Trust has made an undertaking
with another state that a Fund shall not acquire the securities of a closed-end
investment company if immediately following such acquisition the aggregate value
of all securities issued by closed-end investment companies owned by all Funds
shall exceed 10% of the value of the total assets of the acquiring Fund. When a
Fund invests in other investment companies, such investments may result in a
duplication of management and distribution fees and other operating expenses.
The Trust has also made an undertaking with that state that the Growth Fund,
Growth and Income Fund and Government Fund shall not invest in real estate
partnerships. The Trust has made an undertaking with certain states that at
least 30 days prior to any change by a Fund in its investment objective the Fund
will provide written notice to shareholders of such change and will waive any
fee if the shareholder redeems or exchanges the account. The Trust has
undertaken with a certain state that the Growth Fund and the Growth and Income
Fund limit its investments in restricted securities, unseasoned issuers and not
readily marketable securities to 15% of its total assets, provided, however,
that its investment in restricted securities will be limited to a maximum of 10%
of total assets.
THE TRUST HAS ADOPTED ADDITIONAL INVESTMENT RESTRICTIONS, WITH RESPECT TO
THE ABOVE REFERENCED FUNDS, WHICH MAY BE CHANGED BY THE TRUSTEES WITHOUT A VOTE
OF SHAREHOLDERS, AS FOLLOWS:
The Trust shall not make short sales of securities unless at the time of
sale a Fund owns or has the right to acquire at no additional cost securities
identical to those sold short; provided that this prohibition does not apply to
the writing of options or the sale of forward contracts, futures, foreign
currency futures or related options.
FOREIGN INVESTMENTS. The Growth Fund and the Growth and Income Fund may not
invest in the securities of a foreign issuer if, at the time of acquisition,
more than 20% of the value of the Fund's total assets would be invested in such
securities.
FUTURES CONTRACTS AND OPTIONS. In addition, the Growth Fund and the Growth
and Income Fund may not write, purchase or sell puts, calls or combinations
thereof, except that each Fund may (a) write covered call options with respect
to any part or all of its portfolio securities, write secured put options, or
enter into closing purchase transactions with respect to such options, (b)
purchase and sell put options to the extent that the premiums paid for all such
options do not exceed 10% of its total assets and only if the Fund owns the
securities covered by the put option at the time of purchase, and (c) engage in
futures contracts and related options transactions as described herein. The
Growth Fund and the Growth and Income Fund may purchase put and call options
which are purchased on an exchange in other markets, or currencies and, as
developed from time to time, various futures contracts on market indices and
other instruments. Purchasing options may increase investment flexibility and
improve total return, but also risks loss of the option premium if an asset the
Fund has the option to buy declines in value.
The Government Fund may not write, purchase or sell puts, calls or
combinations thereof, except that the Fund may (a) write covered or fully
collateralized call options, write secured put options, and enter into closing
or offsetting purchase transactions with respect to such options, (b) purchase
and sell options to the
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extent that the premiums paid for all such options owned at any time do not
exceed 10% of its total assets, and (c) engage in futures contracts and related
options transactions as described herein.
The Municipal Bond Fund may engage in futures contracts and related options
as described herein.
THE FOLLOWING RESTRICTIONS APPLY TO THE EMERGING GROWTH FUND AND THE
INTERNATIONAL EQUITY FUND:
A Fund shall not:
1. Make any investment in real estate, commodities or commodities
contracts, except that each Fund may engage in transactions in forward
commitments, futures contracts, foreign currency futures and related
options and may purchase or sell securities which are secured by real
estate or interests therein; or issued by companies; including real estate
investment trusts, which invest in real estate or interests therein; and
the International Equity II Fund may engage in currency transactions; and
2. Issue senior securities, as defined in the 1940 Act, except that
this restriction shall not be deemed to prohibit a Fund from (i) making and
collateralizing any permitted borrowings, (ii) making any permitted loans
of its portfolio securities, or (iii) entering into repurchase agreements,
utilizing options, futures contracts and foreign currency futures and
options thereon, forward contracts, forward commitments and other
investment strategies and instruments that would be considered "senior
securities" but for the maintenance by the Fund of a segregated account
with its custodian or some other form of "cover."
THE TRUST HAS ADOPTED ADDITIONAL INVESTMENT RESTRICTIONS WITH RESPECT TO
THE EMERGING GROWTH FUND AND THE INTERNATIONAL EQUITY FUND, WHICH MAY BE CHANGED
BY THE TRUSTEES WITHOUT A VOTE OF SHAREHOLDERS. THESE RESTRICTIONS PROVIDE THAT
A FUND SHALL NOT:
1. Purchase securities on margin, except that a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities. The deposit or payment by a Fund of an initial or
variation margin in connection with forward contracts, futures contracts,
foreign currency futures or related option transactions is not considered
the purchase of a security on margin;
2. Invest in securities of any company if any officer or trustee of
the Trust or of the Adviser owns more than 1/2 of 1% of the outstanding
securities of such company, and such officers and trustees own more than 5%
of the outstanding securities of such issuer;
3. Invest in oil or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the International
Equity Fund and the Emerging Growth Fund may invest in the securities of
companies which invest in or sponsor such programs;
4. Invest in companies for the purpose of acquiring control or
management thereof;
5. Invest in the securities of other open-end investment companies, or
invest in the securities of closed-end investment companies except through
purchase in the open market in a transaction involving no commission or
profit to a sponsor or dealer (other than the customary brokers commission)
or as part of a merger, consolidation or other acquisition, except that the
International Equity Fund and the Emerging Growth Fund, may acquire shares
of other open-end investment companies to the extent permitted by rule or
order of the SEC exempting them from the limitations imposed by Section
12(d)(1) of the 1940 Act;
6. Purchase an illiquid security if, as a result of such purchase,
more than 15% of the Fund's net assets would be invested in such
securities; provided, however, that with respect to the International
Equity Fund and the Emerging Growth Fund, this limitation shall exclude
shares of other open-end investment companies owned by the Fund but include
the Fund's pro rata portion of the securities and other assets owned by any
such company. Illiquid securities include securities subject to legal or
contractual restrictions on resale, which include repurchase agreements
which have a maturity of longer than seven days. This policy does not apply
to restricted securities eligible for resale pursuant to Rule 144A under
the 1933 Act which the Trustees or the Adviser under Board-approved
guidelines, may
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determine are liquid nor does it apply to other securities for which,
notwithstanding legal or contractual restrictions on resale, a liquid
market exists;
7. Invest more than 5% of its assets in companies having a record
together with predecessors, of less than three years' continuous operation,
except that the International Equity Fund and the Emerging Growth Fund, may
acquire shares of other open-end investment companies to the extent
permitted by rule or order of the SEC exempting them from the limitations
imposed by Section 12(d)(1) of the 1940 Act;
8. Except for the International Equity Fund, purchase any security
issued by any company deriving more than 25% of its gross revenues from the
manufacture of alcohol or tobacco;
9. Make short sales of securities, unless at the time of sale a Fund
owns or has the right to acquire at no additional cost securities identical
to those sold short; provided that this prohibition does not apply to the
writing of options or the sale of forward contracts, futures, foreign
currency futures or related options; and
10. Invest more than 5% of its net assets in warrants or rights valued
at the lower of cost or market, nor more than 2% of its net assets in
warrants or rights (valued on such basis) which are not listed on the New
York or American Stock Exchanges. Warrants or rights acquired in units or
attached to other securities are not subject to the foregoing limitations.
FOREIGN INVESTMENTS FOR FUNDS OTHER THAN THE INTERNATIONAL EQUITY FUND. The
Emerging Growth Fund may not invest in the securities of a foreign issuer if, at
the time of acquisition, more than 20% of the value of the Fund's total assets
would be invested in such securities.
FUTURES CONTRACTS AND OPTIONS. In addition, the Emerging Growth Fund and
the International Equity Fund may purchase put and call options which are
purchased on an exchange in other markets, or currencies and, as developed from
time to time, various futures contracts on market indices and other instruments.
Purchasing options may increase investment flexibility and improve total return,
but also risks loss of the option premium if an asset the Fund has the option to
buy declines in value.
The Trust has made an undertaking with certain states that at least 30 days
prior to any change by a Fund in its goal, the Fund will provide written notice
to shareholders of such change and will waive any fee if the shareholder redeems
or exchanges the account. The Trust has made an undertaking with a certain state
that with respect to each Fund, Rule 144A securities will be included as an
illiquid security to meet the 10% limitation on investing in illiquid
securities. The Trust has undertaken with a certain state that each Fund limit
its investments in restricted securities, unseasoned issuers and not readily
marketable securities to 15% of its total assets; provided, however that its
investments in restricted securities will be limited to a maximum of 10% of
total assets. Each Fund has undertaken with a certain state to limit its
investments in the securities of one or more real estate investment trusts to
10% of its total assets.
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees and executive officers and their principal occupations for the
past five years are listed below.
For purposes hereof, the "Van Kampen American Capital Funds" refer to each
of the open-end investment companies advised by the Adviser, excluding the Trust
and Van Kampen American Capital Exchange Fund, and each of the investment
companies advised by Van Kampen American Capital Investment Advisory Corp. (the
"VK Adviser"), excluding the Explorer Institutional Trust.
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TRUSTEES
DONALD M. CARLTON, Trustee. Radian Corporation, 8501 N. Mopac Blvd.,
Building No. 6, Austin, Texas 78759. Chief Executive Officer of Radian
Corporation (research and development); Director of The Hartford Steam Boiler
Inspection and Insurance Company (insurance/engineering services), National
Instruments Corp. and Central and Southwest Corporation(1)
Age: 58
A. BENTON COCANOUGHER, Trustee. Texas A & M University, 601 Blocker Bldg.,
College Station, Texas 77843-4113. Dean of College of Business Administration
and Graduate School of Business of Texas A & M University; Director of Randall's
Food Markets, Inc.; Director of First American Bank; and Director of First
American Savings Bank.(1)
Age: 57
STEPHEN RANDOLPH GROSS, Trustee. 2625 Cumberland Parkway, Suite 400,
Atlanta, Georgia 30339. Managing Partner of Gross, Collins & Cress, P.C.
(accounting firm); Director of Charter Bank & Trust.(1)
Age: 48
JEFFREY B. LANE,* Trustee. 1345 Avenue of the Americas, New York, New York
10105. Vice Chairman of Travelers Group; Chairman and Director of The Travelers
Investment Management Company; Director of the Long Island Jewish Medical
Center, ICI Mutual Insurance Group and Woodmere Academy; formerly, President and
Director of Primerica Holdings, Inc.; formerly, Director of Smith Barney Inc.;
formerly President, Director and Member of the Executive Committee of Smith
Barney International Inc.
Age: 53
ALAN G. MERTEN, Trustee. Johnson Graduate School of Management, 303 Malott
Hall, Cornell University, Ithaca, New York 14853. The Anne and Elmer Lindseth
Dean of Johnson Graduate School of Management of Cornell University; Director of
Comshare, Inc. (information technology), and Tompkins County Trust Company,
Ithaca, New York.(1)
Age: 54
STEVEN MULLER,* Trustee. 1619 Massachusetts Avenue, N.W., Suite 711,
Washington, DC 20036. Chairman of The 21st Century Foundation (public affairs);
President Emeritus of The Johns Hopkins University; Director of Alex. Brown &
Sons, Inc., Beneficial Corp. (bank holding company), and Millipore Corp.
(bio-technology)(1)
Age: 68
F. ROBERT PAULSEN, Trustee. 2801 N. Indian Ruins, Tucson, Arizona 85715.
Dean Emeritus and Professor Emeritus of Higher Education of The University of
Arizona, Tucson, Arizona; Director of American General Series Portfolio Co.
(mutual fund). (1)(2)
Age: 73
R. RICHARDSON PETTIT, Trustee. Department of Finance, College of Business,
University of Houston, 4800 Calhoun, Houston, Texas 77204-6283. Duncan Professor
of Finance of the University of Houston; formerly Hanson Distinguished Professor
of Business of the University of Washington.(1)
Age: 53
DON G. POWELL,* Chairman of the Board, Trustee and President. 2800 Post Oak
Blvd., Houston, Texas 77056. President, Chief Executive Officer and a Director
of VK/AC Holding, Inc. and VKAC. Chairman, Chief Executive Officer and a
Director of Van Kampen American Capital Distributors, Inc., the Adviser, the VK
Adviser, Van Kampen American Capital Management, Inc. and Van Kampen American
Capital Advisors, Inc. Chairman, President and a Director of Van Kampen American
Capital Exchange Corporation, American Capital Contractual Services, Inc. and
American Capital Shareholders Corporation. Chairman and a Director of ACCESS
Investor Services, Inc., Van Kampen Merritt Equity Advisors Corp., Van Kampen
Merritt Equity Holdings Corp., and VCJ Inc., McCarthy, Crisanti & Maffei, Inc.,
McCarthy, Crisanti & Maffei Acquisition, and Van Kampen American Capital Trust
Company. Chairman, President and
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a Director of Van Kampen American Capital Services, Inc. President, Chief
Executive Officer and a Trustee of each of the Van Kampen American Capital Funds
advised by the Adviser and the VK Adviser. Director, Trustee or Managing General
Partner of other open-end investment companies and closed-end investment
companies advised by the Adviser. Chairman of the Board of the closed-end
investment companies advised by the VK Adviser.(1)(2)(3)
Age: 56
ALAN B. SHEPARD, JR., Trustee. 1512 Bonifacio Road, P.O. Box 63, Pebble
Beach, California 93953-0063. President of Seven Fourteen Enterprises, Inc.
(investments); Partner of Houston Partners (venture capital); Director and Vice
Chairman of Kwik-Kopy Corporation (printing); Director of Allied Waste
Industries (waste treatment).(1)(2)
Age: 72
- ---------------
* Such Trustees are "interested persons" (within the meaning of Section
2(a)(19) of the Investment Company Act of 1940). Mr. Powell is an interested
person of the Adviser and the Trust by reason of his position with the
Adviser. Mr. Lane is an interested person of the Distributor, the Subadviser
and the Trust by reason of his position with broker/dealer affiliates of
Travelers. Mr. Muller is an interested person of the Trust by reason of his
position as director of Alex Brown & Sons, Inc., a registered broker/dealer.
(1) A director of Van Kampen American Capital Bond Fund, Inc., Van Kampen
American Capital Convertible Securities, Inc. and Van Kampen American
Capital Income Trust, closed-end investment companies advised by the
Adviser.
(2) Managing General Partner of Van Kampen American Capital Exchange Fund, an
open-end investment company advised by the Adviser.
(3) An officer and/or director/trustee of other investment companies advised by
the Adviser.
OFFICERS
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Gerald Baxter............ Vice President Vice President, Associate General Counsel
3100 Breckenridge Blvd. and Secretary of Primerica Financial
Bldg. 200 Services. Formerly, partner with Trotter,
Duluth, Georgia Smith & Jacobs.
30199-0062
Age: 44
William N. Brown......... Vice President Executive Vice President of the Adviser,
2800 Post Oak Blvd. VK/AC Holding, Inc., VKAC, Van Kampen
Houston, TX 77056 American Capital Advisors, Inc., American
Age: 42 Capital Contractual Services, Inc., Van
Kampen American Capital Exchange
Corporation, ACCESS Investor Services, Inc.
("ACCESS"), and Van Kampen American Capital
Trust Company. Director of American Capital
Shareholders Corporation. Vice President of
each of the Van Kampen American Capital
Funds.
</TABLE>
25
<PAGE> 90
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Huey P. Falgout, Jr...... Assistant Secretary Assistant Vice President and Senior
2800 Post Oak Blvd. Attorney of VKAC. Assistant Vice President
Houston, TX 77056 and Assistant Secretary of the Distributor,
Age: 32 the Adviser, the VK Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, ACCESS, and American Capital
Shareholders Corporation. Assistant
Secretary of each of the Van Kampen
American Capital Funds.
Nori L. Gabert........... Vice President and Vice President, Associate General Counsel
2800 Post Oak Blvd. Secretary and Assistant Secretary of VKAC, the VK
Houston, TX 77056 Adviser and the Distributor. Vice President
Age: 42 and Secretary of closed-end funds advised
by the Adviser.
Steven M. Hill........... Assistant Treasurer Assistant Vice President of the Adviser and
One Parkview Plaza VK Adviser. Assistant Treasurer of each of
Oakbrook Terrace, IL the Van Kampen American Capital Funds.
60181 Assistant Treasurer of the closed-end funds
Age: 31 advised by the VK Adviser.
Tanya M. Loden........... Controller Controller of most of the investment
2800 Post Oak Blvd. companies advised by the Adviser, formerly
Houston, TX 77056 Tax Manager/Assistant Controller.
Age: 36
Dennis J. McDonnell...... Executive Vice President President, Chief Operating Officer and a
One Parkview Plaza Director of the Adviser, the VK Adviser and
Oakbrook Terrace, IL Van Kampen American Capital Management,
60181 Inc. Executive Vice President and a
Age: 53 Director of VK/AC Holding, Inc. and VKAC.
Chief Executive Officer of McCarthy,
Crisanti & Maffei, Inc. Chairman and a
Director of MCM Asia Pacific Company, Ltd.
Executive Vice President and a Trustee of
each of the Van Kampen American Capital
Funds. President of the closed-end
investment companies advised by the VK
Adviser. Prior to December, 1991, Senior
Vice President of Van Kampen Merritt Inc.
Curtis W. Morell......... Vice President and Chief Vice President and Chief Accounting Officer
2800 Post Oak Blvd. Accounting Officer of most of the investment companies advised
Houston, TX 77056 by the Adviser.
Age: 49
</TABLE>
26
<PAGE> 91
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
Ronald A. Nyberg......... Vice President and Executive Vice President, General Counsel
One Parkview Plaza Secretary and Secretary of Van Kampen American
Oakbrook Terrace, IL Capital and VK/AC Holding, Inc. Executive
60181 Vice President, General Counsel and a
Age: 42 Director of the Distributor. Executive Vice
President and General Counsel of the
Adviser and the Van Kampen American Capital
Investment Advisory Corp. ("VK Adviser"),
Van Kampen American Capital Management,
Inc., VSU Inc. VCJ, Inc., Van Kampen
Merritt Equity Advisors Corp., and Van
Kampen Merritt Equity Holdings Corp.
Executive Vice President, General Counsel
and Assistant Secretary of Van Kampen
American Capital Advisors, Inc., American
Capital Contractual Services, Inc., Van
Kampen American Capital Exchange
Corporation, ACCESS, American Capital
Shareholders Corporation, and Van Kampen
American Capital Trust Company. General
Counsel of McCarthy, Crisanti & Maffei,
Inc. and McCarthy, Crisanti & Maffei
Acquisition Corp. Vice President and
Secretary of each of the Van Kampen
American Capital Funds. Secretary of the
closed-end funds advised by the VK Adviser.
Director of ICI Mutual Insurance Co., a
provider of insurance to members of the
Investment Company Institute.
Robert C. Peck, Jr....... Vice President Executive Vice President and Director of
2800 Post Oak Blvd. the Adviser. Executive Vice President of
Houston, TX 77056 the VK Adviser. Vice President of each of
Age: 49 the Van Kampen American Capital Funds.
Gregory Pitts............ Vice President Senior Vice President of PFS Shareholder
3100 Breckenridge Blvd. Services.
Bldg. 200
Duluth, Georgia
30190-0062
Age: 33
Alan T. Sachtleben....... Vice President Executive Vice President and a Director of
2800 Post Oak Blvd. the Adviser. Executive Vice President of
Houston, TX 77056 the VK Adviser. Vice President of each of
Age: 53 the Van Kampen American Capital Funds.
John L. Sullivan......... Treasurer First Vice President of the Adviser and VK
One Parkview Plaza Adviser. Treasurer of each of the Van
Oakbrook Terrace, IL Kampen American Capital Funds. Controller
60181 of the closed- end funds advised by the VK
Age: 40 Adviser. Formerly Controller of open-end
funds advised by VK Adviser.
Robert Sullivan.......... Assistant Controller Assistant Controller of each of the Van
2800 Post Oak Blvd. Kampen American Capital Funds.
Houston, TX 77056
Age: 62
</TABLE>
27
<PAGE> 92
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------- -------------------------- -------------------------------------------
<S> <C> <C>
D. Richard Williams...... Vice President Chief Executive Officer and General Manager
3120 Breckenridge Blvd. and Executive Committee member of the
Duluth, Georgia Distributor; President, General Manager,
30199-0001 and Executive Committee member and Chief
Age: 39 Executive Officer of the Transfer Agent;
President of CSCS; Chief Financial Officer
and Treasurer of Primerica Financial;
Director, Chief Executive Officer and
Executive Committee Member of PFS
Investments Inc.; Director and Chief
Executive Officer of PFS Distributors,
Inc.; President Chief Executive Officer and
Director of PFS Asset Management, Inc. and
PFS Services, Inc.; President and Director
of PFS Custodial Services, Inc.; Vice
Chairman, Executive Committee Member,
Investment Committee Member, Co-Chief
Executive Officer, Chief Financial Officer
and Director of Primerica Life Insurance
Company.
Paul R. Wolkenberg....... Vice President Executive Vice President of the Adviser.
2800 Post Oak Blvd. President, Chief Executive Officer and a
Houston, TX 77056 Director of Van Kampen American Capital
Age: 51 Trust Company and ACCESS. Vice President of
each of the Van Kampen American Capital
Funds.
Edward C. Wood III....... Vice President and Chief Senior Vice President of VK Adviser. Vice
One Parkview Plaza Financial Officer President and Chief Financial Officer of
Oakbrook Terrace, IL each of the Van Kampen American Capital
60181 Funds. Vice President, Treasurer and Chief
Age: 40 Financial Officer of the closed-end funds
advised by VK Adviser.
</TABLE>
The Trustees and officers of the Trust as a group own less than one percent
of the outstanding shares of the Trust. The Trustees who are not affiliated with
the Adviser or Distributor initially will be compensated by the Trust at the
annual rate of $19,240 plus a fee of $1,285 per day for each Board meeting
attended. During the fiscal period ended October 31, 1995, the Trustees who were
not affiliated with the Adviser received as a group $150,855, $60,707, $43,787,
$24,604, $22,723, $6,800 and $6,460 in Trustees' fees from Growth Fund, Growth
and Income Fund, Government Fund, Municipal Bond Fund, Money Market Fund,
Emerging Growth Fund and International Equity Fund, respectively, in addition to
certain out-of-pocket expenses.
28
<PAGE> 93
Additional information regarding compensation paid by the Funds and the
related mutual funds for which the Trustees serve as directors or trustees noted
above is set forth below. The compensation shown for the Funds is for the fiscal
year ended October 31, 1995, while the total compensation shown for the Funds
and other related mutual funds is for the calendar year ended December 31, 1995.
Messrs. Lane and Powell are not compensated for their service as Trustees,
because of their affiliation with the Distributor and the Adviser, respectively.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL(1)
RETIREMENT COMPENSATION
AGGREGATE COMPENSATION BENEFITS FROM REGISTRANT
FROM REGISTRANT(3) ACCRUED AS AND FUND
---------------------------------------------------- PART OF FUND COMPLEX PAID
NAME OF PERSON EM INT G G/I GVT MB MM EXPENSES TO DIRECTORS
- --------------------------- ---- ---- ------ ----- ----- ----- ------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Donald M. Carlton...... $300 $280 11,565 4,689 3,104 1,963 1,798 N/A 36,000
Dr. A. Benton
Cocanougher.............. 440 420 12,415 5,069 3,754 2,133 1,968 N/A 39,500
Stephen Randolph Gross..... 460 440 13,500 5,464 3,604 2,278 2,078 N/A 42,000
Dr. Norman Hackerman(2).... 440 420 12,415 5,069 3,754 2,133 1,968 N/A 40,000
Robert D. H. Harvey(2)..... 460 440 13,500 5,464 3,604 2,278 2,078 N/A 42,000
Dr. Alan G. Merten......... 380 360 12,215 4,949 3,264 2,063 1,888 N/A 38,000
Dr. Steven Muller.......... 440 420 12,415 5,069 3,754 2,133 1,968 N/A 40,000
Dr. F. Robert Paulsen...... 520 500 13,861 5,651 4,138 2,376 2,183 N/A 45,000
Dr. R. Richardson Pettit... 380 360 12,215 4,949 3,264 2,063 1,888 N/A 38,000
Alan B. Shepard, Jr........ 460 440 13,820 5,595 3,693 2,335 2,128 N/A 41,500
Miller Upton(2)............ 440 420 12,415 5,069 3,754 2,133 1,968 N/A 39,500
Benjamin N. Woodson(2)..... 380 360 10,945 4,439 2,904 1,833 1,688 N/A 34,000
</TABLE>
- ---------------
(1) Reflects thirteen investment companies in the fund complex. Amounts
reflected are for the calendar year ended December 31, 1995.
(2) Messrs. Hackerman, Harvey, Upton and Woodson retired as Trustees on March
31, 1996.
(3) The Trustees of the Trust instituted a Retirement Plan to became effective
April 1, 1996. 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 retiring Trustees, 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;
accordingly, Dr. Hackerman, Mr. Harvey, Mr. Upton, and Mr. Woodson will
receive $24,845, $26,074, $24,533, and $21,120 per year.
Legend:
<TABLE>
<S> <C>
EM = Emerging Growth Fund
G = Growth Fund
G/I = Growth and Income Fund
GVT = Government Fund
INT = International Equity Fund
MB = Municipal Bond Fund
MM = Money Market Fund
</TABLE>
INVESTMENT ADVISORY AGREEMENTS
The Trust and the Adviser are parties to a separate Investment Advisory
Agreement for each Fund (each, an "Advisory Agreement" and together, the
"Advisory Agreements"). Under the Advisory Agreements, the Trust retains the
Adviser to manage the investment of its assets and to place orders for the
purchase and sale of its portfolio securities. The Adviser is responsible for
obtaining and evaluating economic,
29
<PAGE> 94
statistical, and financial data and for formulating and implementing investment
programs in furtherance of each Fund's investment objectives. The Adviser also
furnishes at no cost to the Trust (except as noted herein) the services of
sufficient executive and clerical personnel for the Trust as are necessary to
prepare registration statements, prospectuses, shareholder reports, and notices
and proxy solicitation materials. In addition, the Adviser furnishes at no cost
to the Trust the services of a President of the Trust, one or more Vice
Presidents as needed, and a Secretary.
Under the Advisory Agreements, the Trust bears the cost of its accounting
services, which includes maintaining its financial books and records and
calculating the daily net asset value of each Fund. The costs of such accounting
services include the salaries and overhead expenses of a Treasurer or other
principal financial officer and the personnel operating under his direction. The
services are provided at cost which is allocated among all investment companies
advised or subadvised by the Adviser. The Trust also pays transfer agency fees,
custodian fees, legal fees, the costs of reports to shareholders and all other
ordinary expenses not specifically assumed by the Adviser.
The Trust retains the Adviser to manage the investment of its assets and to
place orders for the purchase and sale of its portfolio securities. Under the
relevant Advisory Agreement, the Trust pays the Adviser an annual fee for the
Emerging Growth Fund, the Growth and Income Fund and the Growth Fund calculated
separately for each Fund, at the rate of 0.65% of the first $1 billion of the
Fund's average daily net assets; 0.60% of the next $1 billion of the Fund's
average daily net assets; 0.55% of the next $1 billion of the Fund's average
daily net assets; 0.50% of the next $1 billion of the Fund's average daily net
assets; and 0.45% of the Fund's average daily net assets in excess of $4
billion. The Trust pays the Adviser an annual fee for the Government Fund at the
rate of 0.60% of the first $1 billion of the Fund's average daily net assets;
0.55% of the next $1 billion of the Fund's average daily net assets; 0.50% of
the next $1 billion of the Fund's average daily net assets; 0.45% of the next $1
billion of the Fund's average daily net assets; 0.40% of the next $1 billion of
the Fund's average daily net assets; and 0.35% of the Fund's average daily net
assets in excess of $5 billion. The Trust pays the Adviser an annual fee for the
Money Market Fund at the rate of 0.50% of the first $2 billion of the Fund's
average daily net assets; 0.475% of the next $2 billion of the Fund's average
daily net assets; and 0.45% of the Fund's average daily net assets in excess of
$4 billion. The Trust pays the Adviser an annual fee for the Municipal Bond Fund
at the rate of 0.60% of the first $1 billion of the Fund's average daily net
assets; 0.55% of the next $1 billion of the Fund's average daily net assets;
0.50% of the next $1 billion of the Fund's average daily net assets; and 0.45%
of the Fund's average daily net assets in excess of $3 billion. The Trust pays
the Adviser an annual fee for the International Equity Fund at the rate of 1.00%
of the Fund's average daily net assets. This fee is higher than that charged by
most other mutual funds but the Trust believes it is justified by the special
international nature of the Fund and is not necessarily higher than the fees
charged by certain mutual funds with investment goals and policies similar to
those of the Fund. The Adviser has entered into a subadvisory agreement (the
"Subadvisory Agreement") with the Subadviser to assist it in performing its
investment advisory functions. Pursuant to the Subadvisory Agreement, the
Subadviser receives on an annual basis 50% of the compensation received by the
Adviser from the International Equity Fund.
The average daily net assets of each Fund are determined by taking the
average of all of the determinations of net asset value of such Fund for each
business day during a given calendar month. Such fee is payable for each
calendar month as soon as practicable after the end of that month. The fee
payable to the Adviser is reduced by any commissions, tender solicitation and
other fees, brokerage or similar payments received by the Adviser or any direct
or indirect majority owned subsidiary of VKAC in connection with the purchase
and sale of portfolio investments of the Trust, less any direct expenses
incurred by such person in connection with the purchase and sale of portfolio
investments of the Trust, less any direct expense incurred by the Adviser or
such person under common control with the Adviser in connection with obtaining
such payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Trust's benefit, and to advise
the Trustees of any other commissions, fees, brokerage or similar payments which
may be possible under applicable laws for the Adviser or any direct or indirect
majority owned subsidiary of VKAC to receive in connection with the Trust's
portfolio transactions or other arrangements which may benefit the Trust.
30
<PAGE> 95
The following table shows expenses paid under the relevant investment
advisory agreement during the periods ended October 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
GROWTH/ MONEY
GROWTH INCOME GOVERNMENT MUNICIPAL MARKET
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
OCTOBER 31, 1993
Accounting Services................... $ 245,804 $ 127,908 $ 93,300 $ 87,585 $ 61,162
Gross Advisory Fees................... 11,859,114 4,286,890 1,980,457 462,361 329,080
Contractual Expense Reimbursement..... -- -- -- -- --
Voluntary Expense Reimbursement....... -- -- -- (66,000) (486,724)
OCTOBER 31, 1994
Accounting Services................... $ 257,665 $ 122,188 $ 98,937 $ 95,639 $ 59,296
Gross Advisory Fees................... 13,176,814 4,599,033 2,122,662 639,343 282,897
Contractual Expense Reimbursement..... -- -- -- -- --
Voluntary Expense Reimbursement....... -- -- -- -- (475,398)
OCTOBER 31, 1995
Accounting Services................... 277,991 123,458 92,277 90,522 57,991
Gross Advisory Fees................... 14,436,748 4,937,121 1,979,623 678,530 281,553
Contractual Expense Reimbursement..... -- -- -- -- --
Voluntary Expense Reimbursement....... -- -- -- -- (400,167)
</TABLE>
The following table shows expenses paid under the relevant investment
advisory agreement during the periods noted below:
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING
EQUITY GROWTH
------------- --------
<S> <C> <C>
February 21, 1995 through October 31, 1995........................ $35,227 $47,662
</TABLE>
The Advisory Agreements also provide that, in the event the ordinary
business expenses of the Trust, calculated separately for each Fund, for any
fiscal year should exceed the most restrictive expense limitation applicable in
the states where the Trust's shares are qualified for sale, unless waived, the
compensation due the Adviser will be reduced by the amount of such excess and
that, if a reduction in and refund of the advisory fee is insufficient, the
Adviser will pay the Trust monthly an amount sufficient to make up the
deficiency, subject to readjustment during the year. Ordinary business expenses
do not include (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreements
and (4) payments made by a Fund pursuant to the Distribution Plans. Each Fund's
Advisory Agreement also provides that the Adviser shall not be liable to the
Trust for any actions or omissions if it acted in good faith without negligence
or misconduct. The Advisory Agreements also provide that the Adviser shall not
be liable to the Trust for any actions or omissions if it acted in good faith
without negligence or misconduct.
Each Advisory Agreement has an initial term of two years and thereafter
with respect to each Fund may be continued from year to year if specifically
approved at least annually (a)(i) by the Trustees or (ii) by vote of a majority
of the Fund's outstanding voting securities, and (b) by the affirmative vote of
a majority of the Trustees who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Advisory Agreements provide that they shall terminate automatically
if assigned and that they may be terminated without penalty by either party on
60 days written notice.
Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million, and 1 1/2% of the remaining
average net assets. The Trust has received from California (the state with the
most restrictive expense limitation) a waiver, effective retroactive to the
inception of the Trust, which allows each Fund to exclude shareholder service
costs from the calculation of the expense limitation.
31
<PAGE> 96
DISTRIBUTOR
The Distributor acts as the principal underwriter of the shares of the
Trust pursuant to a written agreement for the Funds ("Underwriting Agreement").
The Distributor has entered into a selling agreement with PFS Investments giving
PFS Investments the exclusive right to sell shares of each Fund of the Trust on
behalf of the Distributor. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Distributor is required to take and pay
only for such shares of each Fund as may be sold to the public. The Distributor
is not obligated to sell any stated number of shares. The Underwriting Agreement
is renewable from year to year if approved (a) by the Trustees or by a vote of a
majority of the Trust's outstanding voting securities, and (b) by the
affirmative vote of a majority of Trustees who are not parties to the Agreement
or interested persons of any party by votes cast in person at a meeting called
for such purpose. The Underwriting Agreement provides that it will terminate if
assigned, and that it may be terminated without penalty by either party on 60
days' written notice.
The following table shows commissions paid, amounts retained by the
Distributor and amounts received by PFS Investments during the periods ended
October 31, 1993, 1994 and 1995, and during the period from inception of the
Emerging Growth Fund and International Equity Fund (February 21, 1995) through
the end of the Trust's fiscal year (October 31, 1995).
<TABLE>
<CAPTION>
GROWTH/ MONEY
GROWTH INCOME GOVERNMENT MUNICIPAL MARKET
----------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
OCTOBER 31, 1993
Total Underwriting Commissions....... $31,727,768 $8,782,190 $5,678,658 $1,573,390 *
Amount Retained By Distributor....... 5,573,955 1,521,976 839,178 178,528 *
Amount Received By PFS Investments... 26,153,813 7,260,214 4,839,480 1,394,862 *
OCTOBER 31, 1994
Total Underwriting Commissions....... $27,792,315 $7,234,018 $3,530,139 $1,718,186 *
Amount Retained By Distributor....... 4,911,391 1,262,647 516,793 197,479 *
Amount Received By PFS Investments... 22,880,924 5,971,371 3,013,346 1,520,707 *
OCTOBER 31, 1995
Total Underwriting Commissions....... $21,001,021 $5,352,114 $1,871,172 $1,033,937 *
Amount Retained By Distributor....... 3,711,115 929,500 378,331 118,219 *
Amount Received By PFS Investments... 17,289,906 4,422,614 1,492,841 915,718 *
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL EMERGING
EQUITY GROWTH
------------- --------
<S> <C> <C>
Total Underwriting Commissions......................................... $ 147,459 $569,333
Amount Retained by Distributor......................................... 11,149 47,949
Amount Received by PFS Investments..................................... 136,310 521,384
</TABLE>
- ---------------
* Not Applicable.
The Distributor bears the cost of printing (but not typesetting)
prospectuses used in connection with this offering and the cost and expense of
supplemental sales literature, promotion and advertising. The Trust pays all
expenses attributable to the registrations of its shares under federal and state
blue sky laws, including registration and filing fees, the cost of preparation
of the prospectuses, related legal and auditing expenses, and the cost of
printing prospectuses for current shareholders.
PORTFOLIO TURNOVER
The portfolio turnover rate may vary greatly from year to year as well as
within a year. Each Fund's portfolio turnover rate for prior years is shown
under the "Financial Highlights" in the Prospectus.
32
<PAGE> 97
DISTRIBUTION PLANS
The Trust has adopted a Class A distribution plan and a Class B
distribution plan (the "Class A Plan" and "Class B Plan," respectively) to
permit each Fund directly or indirectly to pay expenses associated with
servicing shareholders and in the case of the Class B Plan the distribution of
its shares (the Class A Plan and the Class B Plan are sometimes referred to
herein collectively as "Plans" and individually as a "Plan").
With respect to the Class A Plan, each Fund is authorized to pay the
Distributor, as compensation for the Distributor's services, a service fee at an
annual rate of 0.25% of the average daily net assets (0.10% for Money Market
Fund) of the Fund's Class A shares. Such fee shall be calculated and accrued
daily and paid monthly. With respect to the Class A Plan, the Distributor
intends to make payments thereunder only to compensate PFS Investments for
personal service and/or the maintenance of shareholder accounts. With respect to
the Class B Plan, authorized payments by each Fund (other than Money Market
Fund) include payments at an annual rate of 0.25% of the average daily net
assets of the Class B shares to the Distributor for payments for personal
service and/or the maintenance of shareholder accounts. With respect to the
Class B Plan, authorized payments by each Fund also include payments at an
annual rate of 0.75% of the average daily net assets of the Class B shares to
the Distributor as compensation for providing sales and promotional activities
and services.
In reporting amounts expended under the Plans to the Trustees, the
Distributor will allocate expenses attributable to the sale of both Class A and
Class B shares to each class based on the ratio of sales of Class A and Class B
shares to the sales of both classes of shares. The service fees paid by the
Class A shares will not be used to subsidize the sale of Class B shares;
similarly, the service fees, if any, and distribution fees paid by the Class B
shares will not be used to subsidize the sale of Class A shares.
As required by Rule 12b-1 under the 1940 Act, each Plan and the forms of
servicing agreements were approved by the Trustees, including a majority of the
Trustees who are not interested persons (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
any of the Plans or in any agreements related to each Plan ("Independent
Trustees"). In approving each Plan in accordance with the requirements of Rule
12b-1, the Trustees determined that there is a reasonable likelihood that each
Plan will benefit the Trust and its shareholders.
Each Plan requires the Distributor to provide the Trustees at least
quarterly with a written report of the amounts expended pursuant to each Plan
and the purposes for which such expenditures were made. Unless sooner terminated
in accordance with its terms, the Plans will continue in effect for a period of
one year and thereafter will continue in effect so long as such continuance is
specifically approved at least annually by the Trustees, including a majority of
Independent Trustees.
Each Plan may be terminated by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting shares of the
respective class. Any change in any of the Plans that would materially increase
the distribution or service expenses borne by the Trust requires shareholder
approval, voting separately by class; otherwise, it may be amended by a majority
of the Trustees, including a majority of the Independent Trustees, by vote cast
in person at a meeting called for the purpose of voting upon such amendment. So
long as the Plan is in effect, the selection or nomination of the Independent
Trustees is committed to the discretion of the Independent Trustees.
With respect to each Plan, the Trustees considered all compensation that
the Distributor would receive under the Plan and the Underwriting Agreement,
including service fees and, as applicable, initial sales charges, distribution
fees and contingent deferred sales charges. The Trustees also considered the
benefits that would accrue to the Distributor under each Plan in that the
Distributor would receive service fees and distribution fees and the Adviser
would receive advisory fees which are calculated based upon a percentage of the
average net assets of each Fund, which fees would increase if the Plans were
successful and each Fund attained and maintained significant asset levels.
For the Plan year ended October 31, 1995, the aggregate expenses for Growth
Fund under the Class A Plan were $28,641 or .25%, respectively, of the Class A
shares' average net assets. Such expenses were paid to reimburse the Distributor
for payments made to Service Organizations for servicing Fund shareholders and
for
33
<PAGE> 98
administering the Class A Plan. For the Plan year ended October 31, 1995, the
Fund's aggregate expenses under the Class B Plan were $176,297 or 1.00% of the
Class B shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $132,223 for commissions and transaction
fees paid to broker-dealers and other Service Organizations in respect of sales
of Class B shares of the Fund and $44,074 for fees paid to Service Organizations
for servicing Class B shareholders and administering the Class B Plan.
For the Plan year ended October 31, 1995, the aggregate expenses for Growth
and Income Fund under the Fund's Class A Plan were $18,742 or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the Plan
year ended October 31, 1995, the Fund's aggregate expenses under the Class B
Plan were $102,215 or 1.00% of the Class B shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$76,661 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$25,554 for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.
For the Plan year ended October 31, 1995, the aggregate expenses for
Government Fund under the Fund's Class A Plan were $16,075 or 0.25%,
respectively, of the Class A shares' average net assets. Such expenses were paid
to reimburse the Distributor for payments made to Service Organizations for
servicing Fund shareholders and for administering the Class A Plan. For the Plan
year ended October 31, 1995, the Fund's aggregate expenses under the Class B
Plan were $55,032 or 1.00% of the Class B shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$41,274 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$13,758 for fees paid to Service Organizations for servicing Class B
shareholders and administering the Class B Plan.
For the Plan period February 21, 1995 through October 31, 1995, the
aggregate expenses for Emerging Growth Fund under the Fund's Class A Plan were
$11,480 or 0.19%, (not annualized) respectively, of the Class A shares' average
net assets. Such expenses were paid to reimburse the Distributor for payments
made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the Plan period February 21, 1995 through
October 31, 1995, the Fund's aggregate expenses under the Class B Plan were
$27,405 or 0.75% (not annualized) of the Class B shares' average net assets.
Such expenses were paid to reimburse the Distributor for the following payments:
$20,554 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$6,851 for fees paid to Service Organizations for servicing Class B shareholders
and administering the Class B Plan.
For the Plan period February 21, 1995 through October 31, 1995, the
aggregate expenses for International Equity Fund under the Fund's Class A Plan
were $6,920 or 0.17%, (not annualized) respectively, of the Class A shares'
average net assets. Such expenses were paid to reimburse the Distributor for
payments made to Service Organizations for servicing Fund shareholders and for
administering the Class A Plan. For the Plan period February 21, 1995 through
October 31, 1995, the Fund's aggregate expenses under the Class B Plan were
$7,546 or 0.75% (not annualized) of the Class B shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments:
$5,660 for commissions and transaction fees paid to broker-dealers and other
Service Organizations in respect of sales of Class B shares of the Fund and
$1,886 for fees paid to Service Organizations for servicing Class B shareholders
and administering the Class B Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser (and, in the case of the International Equity Fund, the Adviser
and the Subadviser) are responsible for decisions to buy and sell securities for
the Trust and for the placement of its portfolio business and the negotiation of
any commissions paid on such transactions. It is the policy of the Advisers to
seek the best security price available with respect to each transaction. In
over-the-counter transactions, orders are placed directly with a principal
market maker unless it is believed that a better price and execution can be
obtained by using a broker. Except to the extent that the Trust may pay higher
brokerage commissions for
34
<PAGE> 99
brokerage and research services (as described below) on a portion of its
transactions executed on securities exchanges, the Adviser (and, in the case of
the International Equity Fund, the Adviser and the Subadviser) seek the best
security price at the most favorable commission rate. From time to time, the
Fund may place brokerage transactions with affiliated persons of the Adviser
and/or the Subadviser. In selecting broker/dealers and in negotiating
commissions, the Adviser (and, in the case of the International Equity Fund, the
Adviser and the Subadviser) considers the firm's reliability, the quality of its
execution services on a continuing basis and its financial condition. When more
than one firm is believed to meet these criteria, preference may be given to
firms which also provide research services to the Trust or the Adviser or
Subadviser.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances, to cause an account
to pay a broker or dealer who supplies brokerage and research services a
commission for effecting a securities transaction in excess of the amount of
commission another broker or dealer would have charged for effecting the
transaction. Brokerage and research services include (a) furnishing advice as to
the value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (b) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, (c) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody), and (d)
furnishing other products or services that assist the Adviser or the Subadviser
in fulfilling their investment-decision making responsibilities.
Pursuant to provisions of the relevant Advisory Agreement, the Trustees
have authorized the Adviser and, with respect to the International Equity Fund,
the Subadviser, to cause the Trust to incur brokerage commissions in an amount
higher than the lowest available rate in return for research services provided
to the Adviser and the Subadviser. The Adviser and the Subadviser are of the
opinion that the continued receipt of supplemental investment research services
from dealers is essential to its provision of high quality portfolio management
services to the Trust. The Adviser and the Subadviser undertake that such higher
commissions will not be paid by the Trust unless (a) the Adviser (or, with
respect to the International Equity Fund, the Subadviser) determines in good
faith that the amount is reasonable in relation to the services in terms of the
particular transaction or in terms of the Adviser's (or the Subadviser's)
overall responsibilities with respect to the accounts as to which it exercises
investment discretion, (b) such payment is made in compliance with the
provisions of Section 28(e) and other applicable state and federal laws, and (c)
in the opinion of the Adviser (or, with respect to the International Equity
Fund, the Subadviser), the total commissions paid by the Trust are reasonable in
relation to the expected benefits to the Trust over the long term. The
investment advisory fees paid by the Trust under the Advisory Agreements are not
reduced as a result of the Adviser's (or the Subadviser's) receipt of research
services.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Trustees may determine, the Adviser may consider sales of shares
of the Trust as a factor in the selection of firms to execute portfolio
transactions for the Trust.
The Adviser and, with respect to the International Equity Fund, the
Subadviser, places portfolio transactions for other advisory accounts including
other investment companies. Research services furnished by firms through which
the Trust effects its securities transactions may be used by the Adviser and the
Subadviser in servicing all of its accounts; not all of such services may be
used by the Advisers in connection with the Trust. In the opinion of the Adviser
and the Subadviser, the benefits from research services to the Funds of the
Trust and to the accounts managed by the Adviser or the Subadviser cannot be
measured separately. Because the volume and nature of the trading activities of
the accounts are not uniform, the amount of commissions in excess of the lowest
available rate paid by each account for brokerage and research services will
vary. However, in the opinion of the Adviser or the Subadviser, such costs to
the Trust will not be disproportionate to the benefits received by the Trust on
a continuing basis.
The Adviser and the Subadviser will seek to allocate portfolio transactions
equitably whenever concurrent decisions are made to purchase or sell securities
by the Trust and other accounts that the Adviser or the
35
<PAGE> 100
Subadviser may establish in the future. In some cases, this procedure could have
an adverse effect on the price or the amount of securities available to the
Trust. In making such allocations among the Trust and other advisory accounts,
the main factors considered by the Adviser (or, with respect to the
International Equity Fund, the Subadviser) are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and opinions of the persons responsible for
recommending the investment.
The following table summarizes for each Fund the total brokerage
commissions paid, the amount of commissions paid to brokers selected primarily
on the basis of research services provided to the Adviser and the value of these
specific transactions.
<TABLE>
<CAPTION>
GROWTH/ MONEY
GROWTH INCOME GOVERNMENT MUNICIPAL MARKET
-------------- ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
1993
Total Brokerage Commissions........ $ 8,686,133 $ 930,176 $117,279 $ -- $ --
Commissions for Research
Services......................... 2,438,199 394,229 -- -- --
Value of Research Transactions..... 3,176,926,784 500,523,383 -- -- --
1994
Total Brokerage Commissions........ 8,521,566 1,845,028 94,887 -- --
Commissions for Research
Services......................... 2,509,260 539,629 -- -- --
Value of Research Transactions..... 1,715,386,926 350,246,609 -- -- --
1995
Total Brokerage Commissions........ 11,276,872 2,443,026 125,499 -- --
Commissions for Research
Services......................... 2,878,071 880,873 -- -- --
Value of Research Transactions..... 1,995,983,303 524,158,962 -- -- --
</TABLE>
<TABLE>
<CAPTION>
INCEPTION (FEBRUARY 21, 1995) INTERNATIONAL EMERGING
THROUGH OCTOBER 31, 1995 EQUITY GROWTH
- ------------------------------------------------------------------ ------------- -----------
<S> <C> <C>
Total Broker Commissions.......................................... $51,642 $ 33,144
Commissions for Research Services................................. -- 27,920
Value of Research Transactions.................................... -- 24,893,286
</TABLE>
The Funds may from time to time place brokerage transactions with brokers
that may be considered affiliated persons of the Adviser, the Subadviser or the
Distributor. The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction.
The Funds paid the following commissions to these brokers during the
periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1993 COMMISSIONS HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. $ 4,354 $163,304
Growth & Income........................................................ 2,023 96,883
Government............................................................. -- 21,696
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
36
<PAGE> 101
<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1993 PERCENTAGES HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. .05% 1.88%
Growth & Income........................................................ .22% 10.42%
Government............................................................. -- 18.50%
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
VALUE OF TRANSACTIONS WITH ROBINSON SMITH
AFFILIATES TO TOTAL TRANSACTIONS HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. .05% 6.61%
Growth & Income........................................................ .25% 20.87%
Government............................................................. -- 17.37%
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1994 COMMISSIONS HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. $17,369 $259,504
Growth & Income........................................................ 1,673 102,408
Government............................................................. -- 14,718
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1994 PERCENTAGES HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Commissions with affiliates to total commissions
Growth............................................................... .20% 3.05%
Growth & Income...................................................... .09% 5.55%
Government........................................................... -- 15.51%
Municipal Bond....................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
VALUE OF TRANSACTIONS WITH ROBINSON SMITH
AFFILIATES TO TOTAL TRANSACTIONS HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. .13% 10.14%
Growth & Income........................................................ .06% 13.44%
Government............................................................. -- 16.67%
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1995 COMMISSIONS HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. $ 5,250 $253,827
Growth & Income........................................................ 189 118,952
Government............................................................. -- 20,942
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
ROBINSON SMITH
FISCAL 1995 PERCENTAGES HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Commissions with affiliates to total commissions
Growth............................................................... .05% 2.25%
Growth & Income...................................................... .01% 4.87%
Government........................................................... -- 16.69%
Municipal Bond....................................................... -- --
</TABLE>
37
<PAGE> 102
<TABLE>
<CAPTION>
VALUE OF TRANSACTIONS WITH ROBINSON SMITH
AFFILIATES TO TOTAL TRANSACTIONS HUMPHREY BARNEY
- ----------------------------------------------------------------------- -------- --------
<S> <C> <C>
Growth................................................................. .03% 7.40%
Growth & Income........................................................ -- 10.52%
Government............................................................. -- 15.55%
Municipal Bond......................................................... -- --
Money Market........................................................... -- --
</TABLE>
For Emerging Growth Fund and International Equity Fund, the Funds paid the
following commissions during the period February 21, 1995 (inception) through
October 31, 1995:
<TABLE>
<CAPTION>
SMITH BARNEY
------------
<S> <C>
COMMISSIONS PAID
Emerging Growth II Fund............................................... $ 310
International Equity II Fund.......................................... 1,077
COMMISSIONS WITH AFFILIATES TO TOTAL COMMISSIONS
Emerging Growth II Fund............................................... .94%
International Equity II Fund.......................................... 2.1%
VALUE OF TRANSACTIONS WITH AFFILIATES TO TOTAL TRANSACTIONS
Emerging Growth II Fund............................................... .35%
International Equity II Fund.......................................... 1.23%
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund is determined each day the
New York Stock Exchange (the "Exchange") is open. The Exchange is currently
closed on weekends and on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
EMERGING GROWTH FUND, INTERNATIONAL EQUITY FUND, GROWTH FUND AND GROWTH AND
INCOME FUND
NET ASSET VALUATION
The net asset value of each Fund is computed by (i) valuing securities
listed or traded on a national securities exchange at the last reported sales
price, or if there has been no sale that day at the last reported bid price,
using prices as of the close of trading on the Exchange, (ii) valuing unlisted
securities for which over-the-counter market quotations are readily available at
the most recent bid price as supplied by the National Association of Securities
Dealers Automated Quotations (NASDAQ) or by broker-dealers, and (iii) valuing
any securities for which market quotations are not readily available, and any
other assets at fair value as determined in good faith by the Trustees. Options
on stocks, options on stock indexes and stock index futures contracts and
options thereon, which are traded on exchanges, are valued at their last sales
or settlement price as of the close of such exchanges, or, if no sales are
reported, at the mean between the last reported bid and asked prices. Debt
securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis which approximates market value.
Foreign securities trading may not take place on all days on which the New
York Stock Exchange ("NYSE") is open. Further, trading takes place in various
foreign markets on days on which the NYSE is not open. Accordingly, the
determination of the net asset value of a Fund may not take place
contemporaneously with the determination of the prices of investments held by
such Fund. Events affecting the values of investments that occur between the
time their prices are determined and 4:00 p.m. on each day that the NYSE is open
will not be reflected in a Fund's net asset value unless the Adviser or
Subadviser, under the supervision of the Board of Trustees, determines that the
particular event would materially affect net asset value. As a result, a Fund's
net asset value may be significantly affected by such trading on days when a
shareholder has no access to the Funds.
38
<PAGE> 103
GOVERNMENT FUND NET ASSET VALUATION
U.S. Government securities are traded in the over-the-counter market and
are valued at the last available bid price. Such valuations are based on
quotations of one of more dealers that make markets in the securities as
obtained from such dealers or from a pricing service. Options and interest rate
futures contracts and options thereon, which are traded on exchanges, are valued
at their last sales or settlement price as of the close of such exchanges, or,
if no sales are reported, at the mean between the last reported bid and asked
prices. Securities with a remaining maturity of 60 days or less are valued on an
amortized cost basis which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Trustees. Such
valuations and procedures will be reviewed periodically by the Trustees.
MUNICIPAL BOND FUND NET ASSET VALUATION
Municipal Bonds owned by the Fund are valued by an independent pricing
service ("Service"). When, in the judgment of the Service, quoted bid prices for
investments are readily available and are representative of the bid side of the
market, these investments are valued at such quoted bid prices (as obtained by
the Service from dealers in such securities). Other investments are carried at
fair value as determined by the Service, based on methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
coupon, maturity and type; indications as to values from dealers; and general
market conditions. The Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. Any assets which are not valued
by the Service would be valued at fair value using methods determined in good
faith by the Trustees.
MONEY MARKET FUND NET ASSET VALUATION
The valuation of the Fund's portfolio securities is based upon their
amortized cost, which does not take into account unrealized capital gains or
losses. Amortized cost valuation involves initially valuing an instrument at its
cost and thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price that the Fund would receive if
it sold the instrument.
The Fund's use of the amortized cost method of valuing its portfolio
securities is permitted by a rule adopted by the SEC. Under this rule, the Fund
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of thirteen months or less
and invest only in securities determined by the Adviser to be of eligible
quality with minimal credit risks.
The Trustees have established procedures reasonably designed, taking into
account current market conditions and the Fund's investment objective, to
stabilize the net asset value per share for purposes of sales and redemptions at
$1.00. These procedures include review by the Trustees, at such intervals as it
deems appropriate, to determine the extent, if any, to which the net asset value
per share calculated by using available market quotations deviates from $1.00
per share based on amortized cost. In the event such deviation should exceed
four tenths of one percent, the Trustees are required to promptly consider what
action, if any, should be initiated. If the Trustees believe that the extent of
any deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing shareholders, it will take
such steps as it considers appropriate to eliminate or reduce these consequences
to the extent reasonably practicable. Such steps may include selling portfolio
securities prior to maturity; shortening the average maturity of the portfolio;
withholding or reducing dividends; suspending sales of new shares; or utilizing
a net asset value per share determined by using available market quotations.
GENERAL
The assets belonging to the Class A, Class B and Class 1 shares of each
Fund will be invested together in a single portfolio. The net asset value of
each class will be determined separately by subtracting the expenses
39
<PAGE> 104
and liabilities allocated to that class from the assets belonging to that class
pursuant to an order issued by the SEC.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements that set forth in the Funds'
Prospectus under the heading "Purchase of Shares."
PURCHASE OF SHARES
Shares of each Fund are sold in a continuous offering and may be purchased
on any business day through PFS Investments.
ALTERNATIVE SALES ARRANGEMENT
Each Fund other than the Money Market Fund issues two classes of shares:
Class A shares are subject to an initial sales charge and Class B shares are
sold at net asset value and are subject to a contingent deferred sales charge.
The Money Market Fund issues Class A shares at net asset value without a sales
charge. Class B shares of the Money Market Fund are issued for exchanges only.
Each Fund offers Class 1 shares only to accounts of previously established
shareholders or their immediate family, and Class 1 shareholders of other Common
Share Funds exchanging their Class 1 shares for Class 1 shares of the Fund. The
classes of shares each represent interests in the same Fund's portfolio of
investments, have the same rights and are identical in all respects, except that
Class B shares bear the expenses of the deferred sales arrangements,
distribution fees, and any expenses (including any incremental transfer agency
costs) resulting from such sales arrangements, and have exclusive voting rights
with respect to the Rule 12b-1 distribution plan pursuant to the distribution
fee is paid.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times PFS Investments may be deemed to be an
underwriter for purposes of the 1933 Act.
INVESTMENTS BY MAIL
A Shareholder Investment Account may be opened by completing the
application included in the Prospectus and forwarding the application, through
PFS Investments to the Transfer Agent at 3100 Breckinridge Boulevard, Bldg. 200,
Duluth, Georgia 30199-0062. The account is opened only upon acceptance of the
application by the Transfer Agent. The minimum initial investment of $250 or
more in the form of a check payable to the Trust, must accompany the
application. This minimum may be waived by the Distributor for plans involving
continuing investments. Subsequent investments of $25 or more may be mailed
directly to the Transfer Agent. All such investments (except purchase of shares
of the Money Market Fund) are made at the public offering price of the Fund's
shares next computed following receipt of payment by the Transfer Agent.
Confirmations of the opening of an account and of all subsequent transactions in
the account are forwarded by the Transfer Agent to the shareholder.
In processing applications and investments, the Transfer Agent acts as
agent for the investor and for PFS Investments and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If the Transfer
Agent ceases to act as such, a successor company named by the Trust will act in
the same capacity so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales load reflected in the sales charge table as shown in the
Prospectus applies to purchases of Class A and Class 1 shares of Emerging Growth
Fund, International Equity Fund, Growth Fund, Growth and Income Fund, Government
Fund and Municipal Bond Fund. An aggregate investment includes all shares of all
of the above Funds and shares of other Common Sense Funds (except the Money
Market Fund) previously purchased and still owned, plus the shares being
purchased. The current offering price is used to determine the value of all such
shares. The same reduction is applicable to purchases under a Letter of Intent
40
<PAGE> 105
as described in the next paragraph. PFS Investments must notify the Distributor
at the time an order is placed for a purchase which would qualify for the
reduced charge on the basis of previous purchases. Similar notification must be
given in writing when such an order is placed by mail. The reduced sales charge
will not be applied if such notification is not furnished at the time of the
order. The reduced sales charge will also not be applied unless the records of
the Distributor or the Transfer Agent confirm the investor's representations
concerning his holdings.
LETTER OF INTENT
A Letter of Intent applies to purchases of Class A and Class 1 shares of
all Funds except the Money Market Fund. When an investor submits a Letter of
Intent to attain an investment goal within a 13-month period, the Transfer Agent
escrows shares totaling five percent of the dollar amount of the Letter of
Intent in the name of the investor. The Letter of Intent does not obligate the
investor to purchase the indicated amount. In the event the Letter of Intent
goal is not achieved within the 13-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and the sales charge actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrow shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
at the end of the 13-month period by refunding to the investor the amount of
excess sales commissions, if any, paid during the 13-month period.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE ("CDSC")
The CDSC is waived on redemptions of Class A and Class B shares in the
circumstances described below:
(a) Redemption Upon Disability or Death
The Trust may waive the CDSC on redemptions following the death or
disability of a Class B shareholder. An individual will be considered disabled
for this purpose if he or she meets the definition thereof in Section 72(m)(7)
of the Code, which in pertinent part defines a person as disabled if such person
"is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or to be of long-continued and indefinite duration." While the
Trust does not specifically adopt the balance of the Code's definition which
pertains to furnishing the Secretary of Treasury with such proof as he or she
may require, the Distributor will require satisfactory proof of death or
disability before it determines to waive the CDSC.
In cases of disability or death, the CDSC may be waived where the decedent
or disabled person is either an individual shareholder or owns the shares as a
joint tenant with right of survivorship or is the beneficial owner of a
custodial or fiduciary account, and where the redemption is made within one year
of the death or initial determination of disability. This waiver of the CDSC
applies to a total or partial redemption, but only to redemptions of shares held
at the time of the death or initial determination of disability.
(b) Redemption in Connection with Certain Distributions from Retirement Plans
The Trust may waive the CDSC when a total or partial redemption is made in
connection with certain distributions from Retirement Plans. The charge may be
waived upon the tax-free rollover or transfer of assets to another Retirement
Plan invested in one or more of the Funds; in such event, as described below,
the Fund will "tack" the period for which the original shares were held on to
the holding period of the shares acquired in the transfer or rollover for
purposes of determining what, if any, CDSC is applicable in the event that such
acquired shares are redeemed following the transfer or rollover. The charge also
may be waived on any redemption which results from the return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code, the return of
excess deferral amounts pursuant to Code Section 401(k)(8) or 402(g)(2), or from
the death or disability of the employee (see Code Section 72(m)(7) and
72(t)(2)(A)(ii)). In addition, the charge may be waived on any minimum
distribution required to be distributed in accordance with Code Section
401(a)(9).
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<PAGE> 106
The Trust does not intend to waive the CDSC for any distributions from IRAs
or other Retirement Plans not specifically described above.
(c) Redemption Pursuant to the Trust's Systematic Withdrawal Plan
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in a Fund. Under the Plan,
a dollar amount of a participating shareholder's investment in the Fund will be
redeemed systematically by the Fund on a periodic basis, and the proceeds mailed
to the shareholder. The amount to be redeemed and frequency of the systematic
withdrawals will be specified by the shareholder upon his or her election to
participate in the Plan. The CDSC may be waived on redemptions made under the
Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from such Fund without the imposition of a CDSC may not
exceed a maximum of 12% annually of the shareholder's initial account balance.
The Trust reserves the right to change the terms and conditions of the Plan and
the ability to offer the Plan.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
The Trust reserves the right to redeem shareholder accounts with balances
of less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. Any involuntary redemption may only occur if
the shareholder account is less than the amount specified in the Prospectus due
to shareholder redemptions. The Trust may waive the CDSC upon such involuntary
redemption.
(e) Redemption by Adviser
The Trust may waive the CDSC when a total or partial redemption is made by
the Adviser with respect to its investments in a Fund.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed,
including those holidays listed under "Determination of Net Asset Value." The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Trust
of securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust to fairly determine the value of its net assets; or
(d) the SEC, by order, so permits.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Exchange Privilege" in the
Prospectus:
By use of the exchange privilege, the investor authorizes PFS Shareholder
Services (the "Transfer Agent") to act on written exchange instructions from any
person representing himself to be the investor or the agent of the investor and
believed by the Transfer Agent to be genuine. The Transfer Agent's records of
such instructions are binding.
For purposes of determining the sales charge rate previously paid on Class
A and Class 1 shares of a Fund, all sales charges paid on the exchanged security
and on any security previously exchanged for such security or for any of its
predecessors shall be included. If the exchanged security was acquired through
reinvestment, that security is deemed to have been sold with a sales charge rate
equal to the rate previously paid on the security on which the dividend or
distribution was paid. If a shareholder exchanges less than all of
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<PAGE> 107
his securities, the security upon which the highest sales charge rate was
previously paid is deemed exchanged first.
Exchange requests received on a business day prior to the time shares of a
Fund involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in a fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the Funds involved in the request are priced will be processed on the
next business day in the manner described above.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The Growth Fund, the International Equity Fund and the Emerging Growth Fund
distribute dividends and capital gains annually; the Growth and Income Fund
declares and pays dividends quarterly. The Government Fund, the Money Market
Fund and the Municipal Bond Fund declare dividends each business day and
distributes monthly substantially all of its net investment income to
shareholders. The daily dividends of the Government Fund are a fixed amount
determined for each class at least monthly. The per share dividends on Class A
and Class B shares of each Fund will be lower than the per share dividends on
Class 1 shares as a result of the distribution fees and incremental transfer
agency fees, if any, applicable to the Class B shares. Each Fund intends
similarly to distribute to shareholders any taxable net realized capital gains.
Taxable net realized capital gains are the excess, if any, of the Fund's total
profits on the sale of securities during the year over its total losses on the
sale of securities, including capital losses carried forward from prior years in
accordance with the tax laws. Such capital gains, if any, are distributed at
least once a year. All income dividends and capital gains distributions are
reinvested in shares of a Fund at net asset value without sales charge on the
record date, except that any shareholder may otherwise instruct the shareholder
service agent in writing and receive cash. Shareholders are informed as to the
sources of distributions at the time of payment.
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code ("Code"). By so qualifying, a Fund
will not be subject to federal income taxes on amounts paid by it as dividends
and distributions to shareholders. If any Fund were to fail to qualify as a
regulated investment company under the Code, all of its income (without
deduction for income dividends or capital gain distributions paid to
shareholders) would be subject to tax at corporate rates. Each Fund expects to
be treated as a separate entity for purposes of determining federal tax
treatment.
The Code permits a regulated investment company whose assets consist
primarily of tax-exempt Municipal Bonds to pass through to its investors,
tax-exempt, net Municipal Bond interest income. In order for the Municipal Bond
Fund to be eligible to pay exempt-interest dividends during any taxable year, at
the close of each fiscal quarter, at least 50% of the aggregate value of the
Fund's assets must consist of exempt-interest obligations. In addition, the Fund
must distribute at least (i) 90% of the excess of its exempt-interest income
over certain disallowed deductions, and (ii) 90% of its "investment company
taxable net income" (i.e., its ordinary taxable income and the excess, if any,
of its net short-term capital gains over any net long-term capital losses)
recognized by the Fund during the taxable year (the "Distribution
Requirements").
Not later than 60 days after the close of its taxable year, the Municipal
Bond Fund will notify its shareholders of the portion of the dividends paid by
the Fund to the shareholders for the taxable year which constitutes exempt
interest dividends. The aggregate amount of dividends so designated cannot
exceed, however, the excess of the amount of interest exempt from tax under
Section 103 of the Code received by the Fund during the year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. Since the
percentage of dividends which are "exempt-interest" dividends is determined on
an average annual method for the fiscal year, the percentage of income
designated as tax-exempt for any particular dividend may be substantially
different from the percentage of the Fund's income that was tax-exempt during
the period covered by the dividend.
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<PAGE> 108
Although exempt-interest dividends generally may be treated by the
Municipal Bond Fund's shareholders as items of interest excluded from their
gross income, each shareholder is advised to consult his or her tax adviser with
respect to whether exempt-interest dividends retain this exclusion if the
shareholder should be treated as a "substantial user" or a "related person" with
respect to any of the tax-exempt obligations held by the Fund. "Substantial
user" is defined under U.S. Treasury Regulations to include a non-exempt person
who regularly uses in his trade or business a part of any facilities financed
with the tax-exempt obligations and whose gross revenues derived from such
facilities exceed five percent of the total revenues derived from the facilities
by all users, or who occupies more than five percent of the usable area of the
facilities or for whom the facilities or a part thereof were specifically
constructed, reconstructed or acquired. Examples of "related persons" include
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Bond Fund is not deductible for federal income tax
purposes if the Fund distributes exempt-interest dividends during the
shareholder's taxable year. If a shareholder receives an exempt-interest
dividend with respect to any shares and such shares are held for six months or
less, any short-term capital loss on the sale or exchange of the shares will be
disallowed to the extent of the amount of such exempt-interest dividend.
If, during any taxable year, the Municipal Bond Fund realizes net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) from the sale or other disposition of Municipal Bonds or other assets,
the Fund will have no tax liability with respect to such gains if they are
distributed to shareholders. Distributions designated as capital gains dividends
are taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held his or her shares. Not later than 60 days after the close
of the Fund's taxable year, the Fund will send to its shareholders a written
notice designating the amount of any distributions made during the year which
constitute capital gain.
While the Municipal Bond Fund expects that a major portion of its
investment income will constitute tax-exempt interest, a portion may consist of
"investment company taxable income" and "net capital gains". As pointed out
above, the Fund will be subject to tax for any year on its undistributed
investment company taxable income and net capital gains.
A capital gain dividend received after the purchase of the shares of any
one of the Funds in the Trust reduces the net asset value of the shares by the
amount of the distribution and will be subject to income taxes. A loss on the
sale of shares held for less than six months (to the extent not disallowed on
account of the receipt of exempt-interest dividends) attributable to a capital
gain dividend is treated as a long-term capital loss for Federal income tax
purposes.
Each Fund is subject to a four percent excise tax to the extent it fails to
distribute to its shareholders during any calendar year at least (1) 98% of its
ordinary taxable income for the twelve months ended December 31, plus (2) 98% of
its capital gain net income for the twelve months ended October 31 of such year.
Each Fund intends to distribute sufficient amounts to avoid liability for the
excise tax.
The Tax Reform Act added a provision that, for years beginning after
December 31, 1989, 75% of the excess of a corporation's adjusted current
earnings (generally, earning and profits, with adjustments) over its other
alternative minimum taxable income is an item of tax preference for
corporations. All tax-exempt interest is included in the definition of "adjusted
current earnings" so a portion of such interest is included in computing the
alternative minimum tax on corporations. For shareholders that are financial
institutions, the Tax Reform Act eliminates their ability to deduct interest
payments to the extent allocated on a pro rata basis to the purchase of Fund
shares.
Dividends from net investment income and distributions from any short-term
capital gains are taxable to shareholders as ordinary income. A portion of
dividends taxable as ordinary income paid by the Emerging Growth Fund, the
International Equity Fund, Growth Fund and the Growth and Income Fund qualify
for the 70% dividends received deduction for corporations. To qualify for the
dividends received deduction, a corporate shareholder must hold the shares on
which the dividend is paid for more than 45 days.
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<PAGE> 109
Dividends and distributions declared payable to shareholders of record
after September 30 of any year and paid before February 1 of the following year
are considered taxable income to shareholders on December 31 even though paid in
the next year.
Distributions from long-term capital gains are taxable to shareholders as
long-term capital gains, regardless of how long the shareholder has held Fund
shares. Such dividends and distributions from short-term capital gains are not
eligible for the dividends received deduction referred to above. Any loss on the
sale of Fund shares held for less than six months is treated as a long-term
capital loss to the extent of any long-term capital gain distribution paid on
such shares, subject to any exception that may be provided by IRS regulations
for losses incurred under certain systematic withdrawal plans. All dividends and
distributions are taxable to the shareholder whether or not reinvested in
shares. Shareholders are notified annually by the Fund as to the federal tax
status of dividends and distributions paid by the Fund.
If shares of each Fund are sold or exchanged within 90 days of acquisition,
and shares of the same or a related mutual fund are acquired, to the extent the
sales charge is reduced or waived on the subsequent acquisition, the sales
charge may not be used to determine the basis in the disposed shares for
purposes of determining gain or loss. To the extent the sales charge is not
allowed in determining gain or loss on the initial shares, it is capitalized in
the basis of the subsequent shares.
Dividends to shareholders who are non-resident aliens may be subject to a
United States withholding tax at a rate of up to 30% under existing provisions
of the Code applicable to foreign individuals and entities unless a reduced rate
of withholding or a withholding exemption is provided under applicable treaty
laws. Non-resident shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.
Dividends and capital gains distributions may also be subject to state and
local taxes. Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
BACK-UP WITHHOLDING. The Trust is required to withhold and remit to the
United States Treasury 31% of (i) reportable taxable dividends and distributions
and (ii) the proceeds of any redemptions of Trust shares with respect to any
shareholder who is not exempt from withholding and who fails to furnish the
Trust with a correct taxpayer identification number, who fails to report fully
dividend or interest income or who fails to certify to the Trust that he has
provided a correct taxpayer identification number and that he is not subject to
withholding. (An individual's taxpayer identification number is his or her
social security number.) The 31% "Back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular federal income tax
liability.
The Code includes special rules applicable to certain listed options
(excluding equity options as defined in the Code), futures contracts, and
options on futures contracts which the Emerging Growth Fund, the International
Equity Fund, the Growth Fund, the Growth and Income Fund, the Government Fund
and the Municipal Bond Fund may write, purchase or sell. Such options and
contracts are classified as Section 1256 contracts under the Code. The character
of gain or loss resulting from the sale, disposition, closing out, expiration or
other termination of Section 1256 contracts is generally treated as long-term
capital gain or loss to the extent of 60 percent thereof and short-term capital
gain or loss to the extent of 40 percent thereof ("60/40 gain or loss"). Such
contracts, when held by the Fund at the end of a fiscal year, generally are
required to be treated as sold at market value on the last day of such fiscal
year for federal income tax purposes ("marked-to-market"). Over-the-counter
options are not classified as Section 1256 contracts and are not subject to the
marked-to-market rule or to 60/40 gain or loss treatment. Any gains or losses
recognized by the Government Fund from transactions in over-the-counter options
generally constitute short-term capital gains or losses. If over-the-counter
call options written, or over-the-counter put options purchased, by the
Government Fund are exercised, the gain or loss realized on the sale of the
underlying securities may be either short-term or long-term, depending on the
holding period of the securities. In determining the amount of gain or loss, the
sales proceeds are reduced by the premium paid for over-the-counter puts or
increased by the premium received for over-the-counter calls.
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<PAGE> 110
Certain of the Emerging Growth Fund's, the International Equity Fund's, the
Growth Fund's, the Growth and Income Fund's, the Government Fund's and the
Municipal Bond Fund's transactions in options, futures contracts, and options on
futures contracts, particularly its hedging transactions, may constitute
"straddles" which are defined in the Code as offsetting positions with respect
to personal property. A straddle in which at least one (but not all) of the
positions are Section 1256 contracts is a "mixed straddle" under the Code if
certain conditions are met.
The Code generally provides with respect to straddles (i) "loss deferral"
rules which may postpone recognition for tax purposes of losses from certain
closing purchase transactions or other dispositions of a position in the
straddle to the extent of unrealized gains in the offsetting position, (ii)
"wash sale" rules which may postpone recognition for tax purposes of losses
where a position is sold and a new offsetting position is acquired within a
prescribed period and (iii) "short sale" rules which may terminate the holding
period of securities owned by the Fund when offsetting positions are established
and which may convert certain losses from short-term to long-term.
The Code provides that certain elections may be made for mixed straddles
that can alter the character of the capital gain or loss recognized upon
disposition of positions which form part of a straddle. Certain other elections
are also provided in the Code. No determination has been reached to make any of
these elections.
The Municipal Bond Fund may acquire an option to "put" specified portfolio
securities to banks or municipal bond dealers from whom the securities are
purchased. See "Stand-By Commitments," in the Prospectus. The Fund has been
advised by its legal counsel that it will be treated for federal income tax
purposes as the owner of the Municipal Securities acquired subject to the put;
and the interest on the Municipal Securities will be tax-exempt to the Fund.
Counsel has pointed out that although the Internal Revenue Service has issued a
favorable published ruling on a similar but not identical situation, it could
reach a different conclusion from that of counsel. Counsel has also advised the
Fund that the Internal Revenue Service presently will not ordinarily issue
private letter rulings regarding the ownership of securities subject to stand-by
commitments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and these Treasury
Regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
OTHER INFORMATION
PERFORMANCE INFORMATION
The Growth Fund's, the Growth and Income Fund's and the Government Fund's
average annual total return for Class 1 shares (computed in the manner described
in the Prospectus) for the one-year, five-year and eight-year periods ended
October 31, 1995 was 13.48%, 12.07% and 6.59%; 15.24%, 13.29% and 7.00%; and
9.52%, 8.69%, and 7.02%, respectively. The Municipal Bond Fund's average annual
total return for Class 1 shares (computed in the manner described in the
Prospectus) for approximately the one-year, five-year and
seven-year-and-three-months periods ended October 31, 1995 was 7.39%, 7.26% and
7.24%. The Money Market Fund's average annual total return for Class 1 shares
(computed in the manner described in the Prospectus) for approximately the
one-year, five-year and seven-year-and-ten-months periods ended October 31, 1995
was 5.01%, 3.83% and 5.23%, respectively. These results are based on historical
earnings and asset value fluctuations and are not intended to indicate future
performance. Such information should be considered in light of the Fund's
investment objectives and policies as well as the risks incurred in the Fund's
investment practices.
The Government Fund's and the Municipal Bond Fund's annualized current
yield for Class 1 shares for the 30-day period ending October 31, 1995 was 5.55%
and 4.73%, respectively. The Municipal Bond Fund's tax equivalent yield for
Class 1 shares for the 30-day period ending October 31, 1995 was 7.39%. The
Fund's yield is not fixed and will fluctuate in response to prevailing interest
rates and the market value of portfolio
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securities, and as a function of the type of securities owned by the Fund,
portfolio maturity and the Fund's expenses.
The Money Market Fund's annualized current yield for Class 1 shares, on a
subsidized basis, for the seven-day period ending October 31, 1995 was 4.79%.
The Fund's compound effective yield for Class 1 shares for the same period was
4.91%. On a non-subsidized basis, the annualized current yield for the same
period was 4.50% with a compound effective yield of 4.60%.
The overall total return for the Growth Fund, the Growth and Income Fund
and the Government Fund (computed in the manner described in the Prospectus) for
Class A shares for the one-year-and-18-months periods ended October 31, 1995 was
12.42%, 11.70% and 3.57%, respectively. The overall total return for the Growth
Fund, the Growth and Income Fund and the Government Fund (computed in the manner
described in the Prospectus) for Class B shares for the one-year-and-18-months
periods ended October 31, 1995 was 13.36%, 12.59% and 3.59%, respectively. The
overall total return for Emerging Growth Fund and International Equity Fund
(computed in the manner described in the Prospectus) for Class A shares for the
period from inception (March 17, 1995) through October 31, 1995 was 34.85% and
15.88%, respectively. The overall total return for Emerging Growth Fund and
International Equity Fund (computed in the manner described in the Prospectus)
for Class B shares for the period from inception (March 17, 1995) through
October 31, 1995 was 33.95% and 34.85%, respectively. These results are based on
historical earnings and asset value fluctuations and are not intended to
indicate future performance. Such information should be considered in light of
the Fund's investment objectives and policies as well as the risks incurred in
the Fund's investment practices.
The Government Fund's annualized current yield (non-subsidized) for Class A
shares and Class B shares for the 30 day period ending October 31, 1995 was
3.48% and 2.88%, respectively. The yield for Class A and Class B shares is not
fixed and will fluctuate in response to prevailing interest rates and the market
value of portfolio securities, and as a function of the type of securities owned
by the Fund, portfolio maturity and the Fund's expenses.
Yield and total return for the Government Fund, the Municipal Bond Fund and
the Money Market Fund are computed separately for each class of shares.
To increase the Fund's yield the Adviser, for an indefinite period has
agreed to absorb a certain amount of the future ordinary business expenses of
the Money Market Fund. The Adviser may stop absorbing these expenses at any time
without prior notice.
The yield of the Fund is its net income expressed in annualized terms. The
SEC requires by rule that a yield quotation set forth in an advertisement for a
"money market" fund be computed by a standardized method based on a historical
seven calendar day period. The standardized yield is computed by determining the
net change (exclusive of realized gains and losses and unrealized appreciation
and depreciation) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, dividing the net change in
account value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by 365/7.
The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and such additional shares, and all fees
that are charged to all shareholder accounts, in proportion to the length of the
base period and the Fund's average account size. The Fund may also calculate its
effective yield by compounding the unannualized base period return (calculated
as described above) by adding 1 to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting 1.
The yield quoted at any time represents the amount being earned on a
current basis for the indicated period and is a function of the types of
instruments in the Fund, their quality and length of maturity, and the Fund's
operating expenses. The length of maturity for the Fund is the average dollar
weighted maturity of the Fund. This means that the Fund has an average maturity
of a stated number of days for all of its issues. The calculation is weighted by
the relative value of the investment.
The yield fluctuates daily as the income earned on the investments of the
Fund fluctuates. Accordingly, there is no assurance that the yield quoted on any
given occasion will remain in effect for any period of time. It
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should also be emphasized that the Fund is an open-end investment company and
that there is no guarantee that the net asset value will remain constant. A
shareholder's investment in the Fund is not insured. Investors comparing results
of the Fund with investment results and yields from other sources such as banks
or savings and loan associations should understand this distinction.
Other funds of the money market type as well as banks and savings and loan
associations may calculate their yield on a different basis, and the yield
quoted by the Fund could vary upwards or downwards if another method of
calculation or base period were used.
The Funds may illustrate in advertising materials the use of a Payroll
Deduction Plan as a convenient way for business owners to help their employees
set up either IRA or voluntary mutual fund accounts. The Funds may illustrate in
advertising materials retirement planning through employee contributions and/or
salary reductions. Such advertising material will illustrate that employees may
have the opportunity to save for retirement and reduce taxes by electing to
defer a portion of their salary into a special mutual fund IRA account. The
Funds may illustrate in advertising materials that Uniform Gift to Minors Act
accounts may be used as a vehicle for saving for a child's financial future.
Such illustrations will include statements to the effect that upon reaching the
age of majority, such custodial accounts become the child's property.
SHAREHOLDER SERVICES
UNIFORM GIFTS TO MINORS ACT. The Trust recognizes the importance to a child
of establishing a savings and investment plan early in life for education and
other purposes when the child becomes older. The advantages of regular
investment with interest or earnings compounding over a number of years are
great. In addition, taxes on these earnings are assessed against the income of
the child rather than the donor, usually at a lower bracket.
Investors wishing to establish a UGMA account should call the Trust for an
application. Individuals desiring to open an account under UGMA are also advised
to consult with a tax adviser before establishing the account.
INDIVIDUAL RETIREMENT ACCOUNT. Any individual who has compensation or
earned income from employment or self-employment and who is under age 70 1/2 may
establish an IRA. The limitation on the maximum annual contribution to an IRA is
the lesser of 100% of compensation or $2,000. An IRA may also be established for
a spouse who has no compensation (or who elects to be treated as having no
compensation), and the limitation on the maximum annual contributions to the two
IRAs is the lesser of 100% of compensation or $2,250.
Under the Tax Reform Act of 1986, whether contributions to an IRA are
deductible for federal income tax purposes depends on whether an individual (or
his/her spouse) is a participant in an employer-sponsored plan and on the
adjusted gross income of the individual.
In the case of an individual who is a participant in an employer-sponsored
plan, no deduction is available for IRA contributions if his adjusted gross
income reaches certain levels ($35,000 for a single individual, $50,000 for
married individuals filing jointly and $10,000 for married individuals filing
separately) and the deduction is phased out ratably if his adjusted gross income
falls within certain ranges ($25,000 - $35,000 for a single individual,
$40,000 - $50,000 for married individuals filing jointly and $0 - $10,000 for
married individuals filing separately). IRA contributions, up to the annual
limit, remain fully deductible for all single individuals with less than $25,000
of annual adjusted gross income and all married individuals with less than
$40,000 of annual adjusted gross income. Individuals who are disqualified from
making deductible IRA contributions can make non-deductible contributions to
their IRAs, subject to the same limitation on maximum annual contribution
discussed above.
In addition, any individual, regardless of age, may establish a rollover
IRA to receive an eligible rollover distribution from an employer-sponsored
plan.
SIMPLIFIED EMPLOYEE PENSION PLAN (SEP) AND SALARY REDUCTION SIMPLIFIED
EMPLOYEE PENSION PLAN (SARSEP). A SEP/SARSEP is a means for an employer to
provide retirement contributions to IRAs for all
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employees, without the complicated reporting and record keeping involved in a
qualified plan. Employees covered by a SEP/SARSEP can use the same IRA to
receive their own allowable IRA contribution.
SECTION 403(B)(7) PLAN. Employees of certain exempt organizations and
schools can have a portion of their compensation set aside, and income taxes
attributable to such portion deferred, in a Section 403(b)(7) plan. Teachers,
school administrators, ministers, employees of hospitals, libraries, community
chests, funds, foundations, and many others may be eligible. The employer must
be an organization described in Section 501(c)(3) of the Internal Revenue Code
and must be exempt from tax under Section 501(a) of the Code. In addition, any
employee of most public educational institutions is eligible if his employer is
a state or a political subdivision of a state, or any agency or instrumentality
of either. The employee is not taxed on the amount set aside or the earnings
thereon until the funds are withdrawn, normally at retirement.
CUSTODY OF ASSETS
All securities owned by the Trust and all cash, including proceeds from the
sale of shares of the Trust and of securities in the Trust's investment
portfolio, are held by State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, as Custodian.
SHAREHOLDER REPORTS
Semi-annual statements are furnished to shareholders, and annually such
statements are audited by the independent accountants whose selection is
ratified annually by shareholders or the Trustees.
INDEPENDENT AUDITORS
Ernst & Young LLP, 1221 McKinney, Suite 2400, Houston, Texas 77010, the
independent auditors for the Trust, perform annual examinations of the Trust's
financial statements.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY
Under the laws of certain states, including Massachusetts, where the Trust
was organized, and Texas, where the Trust's principal office is located,
shareholders of a Massachusetts business trust may, under certain circumstances,
be held personally liable as partners for the obligations of the Trust. However,
the risk of a shareholder incurring any financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations. The Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification out of Trust property to any
shareholder held personally liable for the obligations of the Trust and also
provides for the Trust to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees or Officers are not liable for
actions or failure to act; however, they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The Trust will
provide indemnification to its Trustees and Officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
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FINANCIAL STATEMENTS
The attached financial statements in the form of the Annual Report to
Shareholders including the related report of Independent Auditors on such
financial statements are hereby included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
OCTOBER 31,
1995
------
<S> <C>
GROWTH FUND
Net Asset Value and redemption price per Class 1 share
(Net assets divided by shares outstanding)................................. $17.46
Offering price per share (100/91.5 of per share net asset value)............. $19.08
Net Asset Value and redemption price per Class A share
(Net assets divided by shares outstanding)................................. $14.57
Offering price per share (100/94.5 of per share net asset value)............. $15.42
GROWTH AND INCOME FUND
Net Asset Value and redemption price per Class 1 share
(Net assets divided by shares outstanding)................................. $16.95
Offering price per share (100/91.5 of per share net asset value.............. $18.52
Net Asset Value and redemption price per Class A share
(Net assets divided by shares outstanding)................................. $13.92
Offering price per share (100/94.5 of per share net asset value)............. $14.73
GOVERNMENT FUND
Net Asset Value and redemption price per Class 1 share
(Net assets divided by shares outstanding)................................. $10.67
Offering price per share (100/93.25 of per share
(Net asset value).......................................................... $11.44
Net Asset Value and redemption price per Class A share
(Net assets divided by shares outstanding)................................. $12.14
Offering price per share (100/95.25 of per share)
(Net asset value).......................................................... $12.75
MUNICIPAL BOND FUND
Net Asset Value and redemption price per Class 1 share
(Net assets divided by shares outstanding)................................. $13.77
Offering price per share (100/95.25 of per share
(Net asset value).......................................................... $14.46
MONEY MARKET FUND
Net Asset Value, redemption price and offering price per Class 1 share
(Net assets divided by shares outstanding)................................. $ 1.00
</TABLE>
50
<PAGE> 115
<TABLE>
<CAPTION>
OCTOBER 31,
1995
------
<S> <C>
EMERGING GROWTH FUND
Net Asset Value and redemption price per Class A share
(Net assets divided by shares outstanding)............................... $15.12
Offering price per share (100/94.5 of per share net asset value)........... $16.00
INTERNATIONAL EQUITY FUND
Net Asset Value and redemption price per Class A share
(Net assets divided by shares outstanding)............................... $13.86
Offering price per share (100/94.5 of per share)
(Net asset value)........................................................ $14.67
</TABLE>
51
<PAGE> 116
APPENDIX 1
(Commercial Paper, Bond and Other Short- and Long-Term Ratings)
Description of the highest commercial paper, bond and other short- and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's"), Fitch Investors Service, Inc. ("Fitch"),
Duff and Phelps, Inc. ("Duff") and IBCA Limited and IBCA Inc. ("IBCA");
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations and ordinarily will established industries,
high rates of return of funds employed, conservative well established
industries, high rates of return of funds employed, conservative capitalization
structures with moderate reliance on debt and ample asset protection, broad
margins in earnings coverage of fixed financial charges and high internal cash
generation, and well established access to a range of financial markets and
assured sources of alternate liquidity. Issues rated Prime-2 (P-2) have a strong
capacity for repayment of short-term promissory obligations. This ordinarily
will be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff,
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors small.
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. The designation A2 by
IBCA indicates that the obligation is supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest and, in the majority of instances, differ only in small
degrees from issues rated AAA.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
Bonds are rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in
52
<PAGE> 117
the higher end of this rating category, the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates a ranking in the lower end of the rating
category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations rated AA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Rating and Individual Ratings. In addition, IBCA assigns banks Long- and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support by central banks or shareholders if it
experienced difficulties, and such ratings are considered by IBCA to be a prime
factor in its assessment of credit risk. Individual Ratings, which range in
gradations from A through E, represent IBCA's assessment of a bank's economic
merits and address the question of how the bank would be viewed if it were
entirely independent and could not rely on support from state authorities or its
owners.
53
<PAGE> 118
APPENDIX 2
MUNICIPAL BOND RATINGS
DESCRIPTIONS OF MOODY'S INVESTORS SERVICE ("MOODY'S") MUNICIPAL BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CONDITIONAL RATING: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a midrange ranking;
and a modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
SHORT-TERM NOTES: The four ratings of Moody's for short-term notes are MIG
1, MIG 2, MIG 3 and MIG 4; MIG 1 denotes "best quality, enjoying strong
protection from established cash flows"; MIG 2 denotes "high quality" with
"ample margins of protection"; MIG 3 notes are of "favorable quality . . . but
lacking the undeniable strength of the preceding grades"; MIG 4 notes are of
"adequate quality, carrying specific risk but having protection . . . and not
distinctly or predominantly speculative."
Beginning on February 5, 1985, Moody's started new rating categories for
variable rate demand obligations ("VRDO's"). VRDO's receive two ratings. The
first rating, depending on the maturity of the VRDO, is assigned either a bond
or MIG rating which represents an evaluation of the risk associated with
scheduled principal and interest payments. The second rating, designated as
"VMIG," represents an
54
<PAGE> 119
evaluation of the degree of risk associated with the demand feature. The new
VRDO's demand feature ratings and symbols are:
VMIG 1: strong protection by established cash flows, superior liquidity
support, demonstrated access to the market for refinancing.
VMIG 2: ample margins of protection, high quality.
VMIG 3: favorable quality, liquidity and cash flow protection may be
narrow, market access for refinancing may be less well
established.
VMIG 4: adequate quality, not predominantly speculative but there is
risk.
DESCRIPTIONS OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
The first two are described below:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") MUNICIPAL DEBT RATINGS
A S&P's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources S&P considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or for other
reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default -- capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditor's rights.
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
55
<PAGE> 120
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB,B Debt rated "BB" and "B" is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that S&P does not rate a
particular type of obligation as a matter of policy.
A S&P Commercial Paper Rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days. The
highest category is "A" which is further defined with the designation of 1, 2
and 3 to indicate the relative degree of safety. The first two categories are
described below:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment.
A-1 This designation indicates that the degree of safety regarding
timely payment is very strong.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer and obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of, such information.
Commencing on July 27, 1984, S&P instituted a new rating category with
respect to certain municipal note issues with a maturity of less than three
years. The new note ratings and symbols are:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be
given a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
S&P may continue to rate note issues with a maturity greater than three
years in accordance with the same rating scale currently employed for municipal
bond ratings.
S&P assigns dual ratings to all long-term debt issues that have a demand or
put feature. The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses the demand feature alone.
Long-term debt rating symbols are used for the long-term maturity and commercial
paper rating symbols are used for the put option (for example, AAA/A-1+). For
demand notes, S&P's note rating symbols are used with the commercial paper
symbols (for example, SP-1+/a-1+).
56
<PAGE> 121
Rating criteria described in the Prospectus are applied on the basis of the
highest rating applicable to the Municipal Security. This applies to split rated
securities (i.e., different ratings by Moody's and S&P) and dual rated
securities as described above.
Subsequent to its purchase by the Fund, an issue of Municipal Bonds or a
Temporary Investment may cease to be rated or its rating may be reduced, causing
more than 20% of the Fund's assets invested in Municipal Bonds to be invested in
low or non-rated bonds. This would not require the elimination of such
obligation from the Fund's portfolio, but the Adviser will consider such an
event in its determination of whether the Fund should continue to hold such
obligation in its portfolio. To the extent that the ratings accorded by S&P or
Moody's for Municipal Bonds or Temporary Investment may change as a result of
changes in such organizations, or changes in their rating systems, the Fund will
attempt to use comparable ratings as standards for its investments in Municipal
Bonds or Temporary Investments in accordance with the investment policies
contained herein.
57
<PAGE> 122
GROWTH FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------
<S> <C> <C>
Common Stock 91.2%
CONSUMER DISTRIBUTION 5.5%
100,000 Dayton Hudson Corp................................ $ 6,875,000
*500,000 Eckerd Corp....................................... 19,812,500
375,000 Gap, Inc.......................................... 14,765,625
*173,200 Kohl's Corp....................................... 7,858,950
*800,000 Kroger Co......................................... 26,700,000
400,000 May Department Stores Co.......................... 15,700,000
325,000 Nordstrom, Inc.................................... 12,045,313
*550,000 OfficeMax, Inc.................................... 13,612,500
750,000 Sears, Roebuck & Co............................... 25,500,000
-----------
142,869,888
-----------
CONSUMER DURABLES 1.5%
150,000 Chrysler Corp..................................... 7,743,750
400,000 Echlin, Inc....................................... 14,300,000
400,000 General Motors Corp............................... 17,500,000
-----------
39,543,750
-----------
CONSUMER NON-DURABLES 9.2%
525,000 ConAgra, Inc...................................... 20,278,125
200,000 CPC International, Inc............................ 13,275,000
250,000 Duracell International, Inc....................... 13,093,750
300,000 General Mills, Inc................................ 17,212,500
300,000 Gillette Co....................................... 14,512,500
300,000 Heinz (H.J.) Co................................... 13,950,000
950,000 Nabisco Holdings Corp., Class A................... 25,531,250
750,000 PepsiCo, Inc...................................... 39,562,500
450,000 Procter & Gamble Co............................... 36,450,000
450,000 Ralston Purina Group.............................. 26,718,750
700,000 Sara Lee Corp..................................... 20,562,500
-----------
241,146,875
-----------
CONSUMER SERVICES 4.6%
125,000 Capital Cities ABC, Inc........................... 14,828,125
*500,000 Cox Communications, Inc........................... 9,375,000
263,000 Disney (Walt) Co.................................. 15,155,375
375,000 Marriott International, Inc....................... 13,828,125
600,000 Service Corp. International....................... 24,075,000
*510,000 Tele-Communications International, Class A........ 11,538,750
350,000 Time Warner, Inc.................................. 12,775,000
150,000 Tribune Co........................................ 9,468,750
*200,000 ViaCom, Inc., Class B............................. 10,000,000
-----------
121,044,125
-----------
ENERGY 6.9%
641,300 Coastal Corp...................................... 20,762,088
400,000 Exxon Corp........................................ 30,550,000
300,000 Mobil Corp........................................ 30,225,000
800,000 Panhandle Eastern Corp............................ 20,200,000
</TABLE>
F-1
<PAGE> 123
GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY--continued
300,000 Repsol SA, ADR....................................................... $ 8,887,500
200,000 Schlumberger, Ltd.................................................... 12,450,000
325,000 Texaco, Inc.......................................................... 22,140,625
600,000 USX-Marathon Group................................................... 10,650,000
626,500 Williams Companies................................................... 24,198,563
------------
180,063,776
------------
FINANCE 16.4%
300,000 Ahmanson (H.F.) & Co................................................. 7,500,000
350,000 American Express Co.................................................. 14,218,750
190,000 American International Group, Inc.................................... 16,031,250
800,000 Bank of Boston Corp.................................................. 35,600,000
300,000 Bank of New York, Inc................................................ 12,600,000
200,000 BankAmerica Corp..................................................... 11,500,000
430,000 Bankers Trust New York Corp.......................................... 27,412,500
400,000 BayBanks, Inc........................................................ 32,400,000
150,000 Chase Manhattan Corp................................................. 8,550,000
150,000 Chemical Banking Corp................................................ 8,531,250
400,000 CoreStates Financial Corp............................................ 14,550,000
*46,400 Donaldson, Lufkin & Jenrette, Inc.................................... 1,380,400
400,000 Federal National Mortgage Association................................ 41,950,000
750,000 Greenpoint Financial Corp............................................ 20,250,000
900,000 Green Tree Financial Corp............................................ 23,962,500
300,000 Merrill Lynch & Co., Inc............................................. 16,650,000
125,000 Morgan Stanley Group, Inc............................................ 10,875,000
275,000 Morgan (J.P.) & Co., Inc............................................. 21,209,375
8,397,720 Van Kampen American Capital Small Capitalization Fund (see Note 2)... 102,200,258
------------
427,371,283
------------
HEALTH CARE 11.8%
160,000 American Home Products Corp.......................................... 14,180,000
*250,000 Amgen, Inc........................................................... 12,000,000
300,000 Astra, AB, Series A, ADR............................................. 11,025,000
250,000 Baxter International, Inc............................................ 9,656,250
150,000 Becton Dickinson & Co................................................ 9,750,000
850,000 Caremark International, Inc.......................................... 17,531,250
*85,000 Cordis Corp.......................................................... 9,392,500
*500,000 Genzyme Corp......................................................... 29,125,000
210,000 Lilly (Eli) & Co..................................................... 20,291,250
300,000 Mallinckrodt Group, Inc.............................................. 10,425,000
310,000 Medtronic, Inc....................................................... 17,902,500
195,000 Merck & Co., Inc..................................................... 11,212,500
*175,000 Nellcor, Inc......................................................... 10,062,500
425,000 Pfizer, Inc.......................................................... 24,384,375
500,000 Schering-Plough Corp................................................. 26,812,500
625,000 SmithKline Beecham, ADR.............................................. 32,421,875
80,000 St. Jude Medical, Inc................................................ 4,260,000
500,000 U.S. Healthcare, Inc................................................. 19,250,000
225,000 Warner Lambert Co.................................................... 19,153,125
------------
308,835,625
------------
</TABLE>
F-2
<PAGE> 124
GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 6.6%
150,000 Fluor Corp. ..................................... $ 8,475,000
330,000 General Electric Co. ............................ 20,872,500
450,000 Honeywell, Inc. ................................. 18,900,000
175,000 Illinois Tool Works, Inc. ....................... 10,171,875
300,000 ITT Corp. ....................................... 36,750,000
200,000 Rockwell International Corp. .................... 8,900,000
*675,045 Thermo Fibertek, Inc. ........................... 10,631,959
100,000 TRW, Inc. ....................................... 6,575,000
425,000 United Technologies Corp. ....................... 37,718,750
430,000 WMX Technologies, Inc. .......................... 12,093,750
------------
171,088,834
------------
RAW MATERIALS/PROCESSING INDUSTRIES 3.2%
225,000 Champion International Corp. .................... 12,037,500
315,000 Freeport-McMoRan, Copper Gold, Series B.......... 7,166,250
200,000 Grace (W.R.) & Co. .............................. 11,150,000
825,000 James River Corp. ............................... 26,503,125
250,000 Monsanto Co. .................................... 26,187,500
------------
83,044,375
------------
TECHNOLOGY 18.2%
140,000 Adobe Systems, Inc. ............................. 7,980,000
*300,000 Bay Networks, Inc. .............................. 19,875,000
250,000 Boeing Co. ...................................... 16,406,250
*400,000 Cisco Systems, Inc. ............................. 31,000,000
*550,000 Compaq Computer Corp. ........................... 30,662,500
650,000 Computer Associates International, Inc. ......... 35,750,000
*630,000 Dell Computer Corp. ............................. 29,373,750
*580,000 Digital Equipment Corp. ......................... 31,392,500
125,700 DST Systems, Inc. ............................... 2,639,700
350,000 General Motors Corp., Class H.................... 14,700,000
300,000 Hewlett-Packard Co. ............................. 27,787,500
500,000 Intel Corp. ..................................... 34,937,500
320,000 International Business Machines Corp. ........... 31,120,000
500,000 Loral Corp. ..................................... 14,812,500
*300,000 LSI Logic Corp. ................................. 14,137,500
175,000 McDonnell Douglas Corp. ......................... 14,306,250
*250,000 Microsoft Corp. ................................. 25,000,000
160,000 Motorola, Inc. .................................. 10,500,000
*200,000 National Semiconductor Corp. .................... 4,875,000
150,000 Northrop Grumman Corp. .......................... 8,587,500
*155,700 Oracle System Corp. ............................. 6,792,413
*58,200 Parametric Technology Corp. ..................... 3,899,400
*500,000 Symantec Corp. .................................. 12,156,250
200,000 Texas Instruments, Inc. ......................... 13,650,000
*550,000 3Com Corp. ...................................... 25,850,000
160,000 Varian Associates, Inc. ......................... 8,220,000
------------
476,411,513
------------
</TABLE>
F-3
<PAGE> 125
GROWTH FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION 1.5%
150,000 Burlington Northern, Inc............................................................................ $ 12,581,250
400,000 Conrail, Inc........................................................................................ 27,500,000
--------------
40,081,250
--------------
UTILITIES 5.8%
160,000 Ameritech Corp. .................................................................................... 8,640,000
500,000 AT&T Corp. ......................................................................................... 32,000,000
*150,000 Cellular Communications, Inc., Class A.............................................................. 8,043,750
800,000 Frontier Corp. ..................................................................................... 21,600,000
1,425,000 MCI Communications Corp. ........................................................................... 35,535,936
160,000 SBC Communications, Inc. ........................................................................... 8,940,000
*1,100,000 WorldCom, Inc. ..................................................................................... 35,887,500
--------------
150,647,186
--------------
TOTAL COMMON STOCK (Cost $2,121,303,425).......................................................... 2,382,148,480
--------------
Preferred Stock 0.5%
*244,130 Cellular Communications, Inc., Class A (Cost $7,632,548)............................................ 13,091,471
--------------
Principal
Amount Short-Term Investments 8.3%
----------
REPURCHASE AGREEMENTS+ 5.7%
$**46,740,000 Lehman Government Securities, 5.90%, repurchase proceeds $46,747,660................................ 46,740,000
15,415,000 SBC Capital Markets, Inc., 5.87%, repurchase proceeds $15,417,514................................... 15,415,000
85,455,000 State Street Bank & Trust Co., 5.88%, repurchase proceeds $85,468,958............................... 85,455,000
--------------
147,610,000
--------------
UNITED STATES AGENCIES & GOVERNMENT OBLIGATIONS 2.6%
**13,000,000 Federal Farm Credit Banks, 5.63%, 1/16/96........................................................... 12,845,170
**7,500,000 Federal Home Loan Banks, 5.61%, 4/12/96............................................................. 7,313,775
**42,000,000 Federal National Mtg. Association, 5.58% to 5.62%, 12/22/95 to 2/12/96.............................. 41,528,369
**6,500,000 Treasury Bills, 5.45%, 3/7/96....................................................................... 6,377,280
--------------
68,064,594
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $215,677,899).................................................. 215,674,594
--------------
TOTAL INVESTMENTS (Cost $2,344,613,872) 100.0%..................................................... 2,610,914,545
Other assets and liabilities, net 0.0%.............................................................. 590,364
--------------
NET ASSETS, equivalent to $17.46 per share 100%..................................................... $2,611,504,909
==============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
149,533,377 shares outstanding................................................................................... $ 1,495,334
Capital surplus.................................................................................................... 1,970,060,661
Undistributed net realized gain on securities...................................................................... 352,658,120
Net unrealized appreciation of securities
Investments....................................................................................................... 266,300,673
Futures contracts ................................................................................................ 39,318
Undistributed net investment income ............................................................................... 20,950,803
--------------
NET ASSETS ........................................................................................................ $2,611,504,909
==============
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $99.6 million were placed as
collateral for futures contracts (see Note 1B).
+ Dated 10/31/95, due 11/1/95, collateralized by U.S. Government obligations in
a pooled cash account.
See Notes to Financial Statements.
F-4
<PAGE> 126
GROWTH FUND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Dividends...................................................................................... $ 35,447,186
Interest....................................................................................... 12,456,275
--------------
Investment income............................................................................ 47,903,461
--------------
Expenses
Advisory fees.................................................................................. 14,436,748
Shareholder service agent's fees and expenses.................................................. 7,777,431
Accounting services............................................................................ 277,991
Trustees' fees and expenses.................................................................... 164,063
Audit fees..................................................................................... 27,534
Custodian fees................................................................................. 98,812
Legal fees..................................................................................... 14,778
Reports to shareholders........................................................................ 549,716
Registration and filing fees................................................................... 95,114
Miscellaneous.................................................................................. 74,558
--------------
Total expenses............................................................................... 23,516,745
--------------
Net investment income........................................................................ 24,386,716
--------------
Realized and Unrealized Gain (Loss) on Securities
Net unrealized gain on securities
Investments.................................................................................. 348,559,285
Futures contracts............................................................................ 9,631,709
Net unrealized appreciation (depreciation) of securities during the period
Investments.................................................................................. 132,789,518
Futures contracts............................................................................ (2,562,118)
--------------
Net realized and unrealized gain on securities............................................... 488,418,394
--------------
Increase in net assets resulting from operations............................................. $ 512,805,110
==============
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended October 31
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $2,169,907,302 $2,065,704,741
-------------- --------------
Operations
Net investment income....................................................... 24,386,716 18,949,920
Net realized gain on securities............................................. 358,190,994 150,460,394
Net unrealized appreciation (depreciation) of securities during the period.. 130,227,400 (125,267,340)
-------------- --------------
Increase in net assets resulting from operations........................... 512,805,110 44,142,974
-------------- --------------
Distributions to shareholders from
Net investment income....................................................... (22,053,177) (14,476,435)
Net realized gain on securities............................................. (147,259,430) (151,147,388)
-------------- --------------
Total distributions........................................................ (169,312,607) (165,623,823)
-------------- --------------
Capital transactions
Proceeds from shares sold................................................... 294,906,458 394,956,323
Proceeds from shares issued for distributions reinvested.................... 168,462,102 164,787,271
Cost of shares redeemed..................................................... (365,263,456) (334,060,184)
-------------- --------------
Increase in net assets resulting from capital transactions................. 98,105,104 225,683,410
-------------- --------------
Increase in Net Assets....................................................... 441,597,607 104,202,561
-------------- --------------
NET ASSETS, end of period.................................................... $2,611,504,909 $2,169,907,302
============== ==============
CAPITAL TRANSACTIONS
Shares sold................................................................. 19,019,524 25,712,863
Shares issued for distributions reinvested.................................. 12,278,591 10,798,656
Shares redeemed............................................................. (23,505,333) (21,793,543)
-------------- --------------
Increase in shares outstanding............................................. 7,792,782 14,717,976
============== ==============
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 127
GROWTH AND INCOME FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------
<S> <C> <C>
Common Stock 81.5%
CONSUMER DISTRIBUTION 4.7%
*92,000 Ann Taylor Stores, Inc.............. $ 1,012,000
45,000 Dayton Hudson Corp.................. 3,093,750
*260,000 Federated Department Stores, Inc.... 6,597,500
90,100 Fleming Companies, Inc.............. 2,038,513
86,000 Gap, Inc............................ 3,386,250
23,500 Interstate Bakeries Co.............. 502,312
260,000 May Department Stores Co............ 10,205,000
*77,000 Nine West Group, Inc................ 3,426,500
101,000 Nordstrom, Inc...................... 3,743,313
145,000 Sears, Roebuck & Co................. 4,930,000
-----------
38,935,138
-----------
CONSUMER DURABLES 1.4%
58,000 Eastman Kodak Co.................... 3,632,250
121,000 General Motors Corp................. 5,293,750
160,000 Sunbeam-Oster, Inc.................. 2,400,000
-----------
11,326,000
-----------
CONSUMER NON-DURABLES 7.5%
119,000 Coca-Cola Co........................ 8,553,125
80,000 CPC International, Inc.............. 5,310,000
64,000 General Mills, Inc.................. 3,672,000
114,000 Gillette Co......................... 5,514,750
400,000 Nabisco Holdings Corp., Class A..... 10,750,000
64,000 Nike, Inc., Class B................. 3,632,000
135,000 Procter & Gamble Co................. 10,935,000
151,600 Quaker Oats Co...................... 5,173,350
151,000 Ralston Purina Group................ 8,965,625
-----------
62,505,850
-----------
CONSUMER SERVICES 4.3%
38,000 Capital Cities ABC, Inc............. 4,507,750
113,000 Disney (Walt) Co.................... 6,511,625
191,000 McDonald's Corp..................... 7,831,000
79,571 Omnicom Group, Inc.................. 5,082,598
*129,000 Viacom, Inc., Class B............... 6,450,000
267,000 Wendy's International, Inc.......... 5,306,625
-----------
35,689,598
-----------
ENERGY 9.0%
103,000 British Petroleum Co., PLC, ADR..... 9,089,750
203,000 Exxon Corp.......................... 15,504,125
108,000 Mobil Corp.......................... 10,881,000
410,000 Pacific Enterprises................. 10,147,500
126,000 Panhandle Eastern Corp.............. 3,181,500
131,000 Royal Dutch Petroleum Co., ADR...... 16,096,625
135,000 Texaco, Inc......................... 9,196,875
-----------
74,097,375
-----------
</TABLE>
F-6
<PAGE> 128
GROWTH AND INCOME FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------
<S> <C> <C>
FINANCE 14.1%
65,000 Ahmanson (H. F.) & Co................... $ 1,625,000
79,500 American International Group, Inc....... 6,707,812
151,000 Banc One Corp........................... 5,096,250
117,000 Bank Of Boston Corp..................... 5,206,500
193,000 Bankers Trust New York Corp............. 12,303,750
60,000 BayBanks, Inc........................... 4,860,000
62,000 Beacon Property Corp.................... 1,348,500
114,000 Chemical Banking Corp................... 6,483,750
60,000 Chubb Corp.............................. 5,392,500
234,000 CoreStates Financial Corp............... 8,511,750
136,000 Debartolo Realty Corp................... 1,768,000
43,000 Duke Realty Investments, Inc............ 1,316,875
171,000 Federal National Mortgage Association... 17,933,625
48,000 Health Care Property Investors, Inc..... 1,626,000
191,000 Horace Mann Educators Corp.............. 5,085,375
143,000 Morgan (J.P.) & Co., Inc................ 11,028,875
306,000 Prudential Reinsurance Holdings......... 6,234,750
97,000 St. Paul Companies, Inc................. 4,922,750
198,000 State Street Boston Corp................ 7,697,250
11,100 Vornado Realty Trust.................... 398,212
38,000 Weingarten Realty Investors............. 1,311,000
-----------
116,858,524
-----------
HEALTH CARE 10.7%
124,000 Abbott Laboratories, Inc................ 4,929,000
99,000 American Home Products Corp............. 8,773,875
*190,000 Amgen, Inc.............................. 9,120,000
95,000 Astra, A B, Series A, ADR............... 3,491,250
138,000 Baxter International, Inc............... 5,330,250
*145,000 Charter Medical Corp.................... 2,610,000
111,000 Mallinckrodt Group, Inc................. 3,857,250
217,000 Merck & Co., Inc........................ 12,477,500
150,000 Pfizer, Inc............................. 8,606,250
186,000 Pharmacia Aktiebolag, ADR............... 6,510,000
171,000 Schering-Plough Corp.................... 9,169,875
205,000 Tenet Healthcare Corp................... 3,664,375
77,000 Teva Pharmaceutical, Ltd., ADR.......... 3,022,250
*116,000 Vencor, Inc............................. 3,219,000
64,000 Zeneca Group PLC, ADR................... 3,608,000
-----------
88,388,875
-----------
PRODUCER MANUFACTURING 5.1%
101,000 Allied-Signal, Inc...................... 4,292,500
143,000 Fluor Corp.............................. 8,079,500
109,000 General Electric Co..................... 6,894,250
203,000 Honeywell, Inc.......................... 8,526,000
109,000 Illinois Tool Works, Inc................ 6,335,625
125,000 Stewart & Stevenson Services, Inc....... 2,843,750
188,000 WMX Technologies, Inc................... 5,287,500
-----------
42,259,125
-----------
</TABLE>
F-7
<PAGE> 129
GROWTH AND INCOME FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------
<S> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 5.5%
88,000 Air Products & Chemicals, Inc.................. $ 4,543,000
75,000 Aluminum Co. of America........................ 3,825,000
148,000 Bemis, Inc..................................... 3,848,000
98,000 Champion International Corp.................... 5,243,000
104,900 Grace (W.R.) & Co.............................. 5,848,175
120,000 James River Corp............................... 3,855,000
87,000 Monsanto Co.................................... 9,113,250
95,000 Scott Paper Co................................. 5,058,750
81,000 Sigma-Aldrich Corp............................. 3,847,500
-----------
45,181,675
-----------
TECHNOLOGY 9.2%
95,000 Adobe Systems, Inc............................. 5,415,000
105,000 Alcatel Alsthom, ADR........................... 1,771,875
100,000 Boeing Co...................................... 6,562,500
*120,000 Compaq Computer Corp........................... 6,690,000
164,000 Computer Associates International, Inc......... 9,020,000
*115,000 Digital Equipment Corp......................... 6,224,375
61,000 Hewlett-Packard Co............................. 5,650,125
33,000 International Business Machines Corp........... 3,209,250
210,000 Loral Corp..................................... 6,221,250
*57,000 Microsoft Corp................................. 5,700,000
26,000 Motorola, Inc.................................. 1,706,250
45,000 Nokia Corp., ADS............................... 2,508,750
67,000 Northrop Grumman Corp.......................... 3,835,750
*100,000 Symantec Corp.................................. 2,431,250
74,000 Xerox Corp..................................... 9,601,500
-----------
76,547,875
-----------
TRANSPORTATION 0.6%
78,000 Union Pacific Corp............................. 5,099,250
-----------
UTILITIES 9.4%
110,000 Ameritech Corp................................. 5,940,000
199,000 AT&T Corp...................................... 12,736,000
149,000 Cincinnati Bell, Inc........................... 4,376,875
200,000 Frontier Corp.................................. 5,400,000
220,000 General Public Utilities Corp.................. 6,875,000
362,000 MCI Communications Corp........................ 9,027,375
211,000 National Power, ADR............................ 2,637,500
330,000 PacifiCorp..................................... 6,228,750
248,000 Peco Energy Co................................. 7,254,000
245,000 PowerGen, PLC, ADR............................. 4,073,125
91,000 Southern New England Telecommunications Corp... 3,287,375
231,000 Telefonos de Mexico, S.A., ADR................. 6,352,500
83,000 U. S. West, Inc................................ 3,952,875
-----------
78,141,375
-----------
TOTAL COMMON STOCK (Cost $567,170,224)....... 675,030,660
-----------
</TABLE>
F-8
<PAGE> 130
GROWTH AND INCOME FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Corporate Obligations 7.1%
CONSUMER DISTRIBUTION 0.7%
$ 4,000,000 Federated Department Stores, Inc., 5.00%, 10/01/03........... $ 3,880,000
4,500,000 Rite Aid Corp., LYON, Zero Coupon, 7/24/06................... 2,238,750
-----------
6,118,750
-----------
CONSUMER SERVICES 2.6%
22,000,000 ADT Operations, Inc., LYON, Zero Coupon, 7/06/10............. 9,900,000
12,000,000 News America Holdings, Inc., LYON, Zero Coupon, 3/11/13...... 5,340,000
2,193,250 Time Warner, Inc., 8.75%, 1/10/15............................ 2,283,722
9,000,000 Time Warner, Inc., LYON, Zero Coupon, 6/22/13................ 3,600,000
-----------
21,123,722
-----------
HEALTH CARE 2.8%
4,200,000 Ciba-Geigy Corp., 6.25%, 3/15/16............................. 4,200,000
23,000,000 Roche Holdings, Inc., LYON, 4/20/10.......................... 9,487,500
2,510,000 Sandoz, Ltd., 2.00%, 10/06/02................................ 2,202,525
6,000,000 United Technologies Corp., PEN, Zero Coupon, 9/08/97......... 7,140,000
-----------
23,030,025
-----------
UTILITIES 1.0%
115,000 Sprint Corp., DECS, 8.25%, 3/30/00........................... 4,171,745
12,500,000 U.S. Cellular Corp., LYON, Zero Coupon, 6/15/15.............. 4,250,000
-----------
8,421,745
-----------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost $53,792,467). 58,694,242
-----------
Number
of Shares Convertible Preferred Stock 4.1%
- -----------
165,000 Browning-Ferris Industries, Inc., ACES, $7.25................ 5,424,375
130,000 Corning Glassworks, MIPS, 6.00%.............................. 5,850,000
190,000 James River Corp., DECS, $1.55............................... 5,795,000
66,000 SCI Finance, LLC, NV, 6.25%.................................. 4,653,000
136,000 Time Warner, Inc., PERCS, $1.24.............................. 4,352,000
115,000 Williams Companies, Inc., $3.50.............................. 7,820,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $30,242,889)....... 33,894,375
-----------
</TABLE>
F-9
<PAGE> 131
GROWTH AND INCOME FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 6.5%
REPURCHASE AGREEMENT 5.3%
**$44,120,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%
due 11/01/95 (collateralized by U.S. Government
obligations in a pooled cash account)
repurchase proceeds $44,127,194.................... $ 44,120,000
------------
UNITED STATES GOVERNMENT OBLIGATIONS 1.2%
**10,000,000 United States Treasury Bills, 5.33% to 5.44%,
12/14/95 to 02/08/96............................... 9,893,739
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $54,014,989). 54,013,739
------------
TOTAL INVESTMENTS (Cost $705,220,569) 99.2%....... 821,633,016
Other assets and liabilities, net 0.8%............ 6,685,784
------------
NET ASSETS equivalent to $16.95 per share 100%.... $828,318,800
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited
shares authorized; 48,862,007 shares outstanding................ $ 488,620
Capital surplus................................................... 620,858,953
Undistributed net realized gain on securities..................... 84,630,671
Net unrealized appreciation of securities
Investments..................................................... 116,412,447
Futures contracts............................................... 444,125
Undistributed net investment income............................... 5,483,984
------------
NET ASSETS........................................................ $828,318,800
============
</TABLE>
ACES--Automatically convertible equity stock
DECS--Dividend enhanced convertible stock
LYON--Liquid yield option note, zero coupon
MIPS--Monthly income paying security
PEN--Pharmaceutical exchange note
PERCS--Preferred equity redeemable cumulative stock
*Non-income producing security.
**Securities with a market value of approximately $32.2 million were placed as
collateral for futures contracts (see Note 1B).
See Notes to Financial Statements.
F-10
<PAGE> 132
GROWTH AND INCOME FUND FINANCIAL STATEMENTS
STATEMENT of Operations
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Dividends .................................................................................. $ 18,964,829
Interest ................................................................................... 5,576,108
------------
Investment income ........................................................................ 24,540,937
------------
Expenses
Advisory fees .............................................................................. 4,937,121
Shareholder service agent's fees and expenses .............................................. 1,864,452
Accounting services ........................................................................ 123,458
Trustees' fees and expenses ................................................................ 66,447
Audit fees ................................................................................. 21,234
Custodian fees ............................................................................. 41,577
Legal fees ................................................................................. 6,008
Reports to shareholders .................................................................... 124,201
Registration and filing fees ............................................................... 58,712
Miscellaneous .............................................................................. 24,466
------------
Total expenses ........................................................................... 7,267,676
------------
Net investment income .................................................................... 17,273,261
------------
Realized and Unrealized Gain on Securities
Net realized gain on securities
Investments .............................................................................. 83,590,199
Futures contracts ........................................................................ 1,261,711
Net unrealized appreciation of securities during the period
Investments .............................................................................. 52,512,988
Futures contracts ........................................................................ 491,867
------------
Net realized and unrealized gain on securities ........................................... 137,856,765
------------
Increase in net assets resulting from operations ......................................... $155,130,026
============
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period ............................................... $712,895,284 $712,367,257
------------ ------------
Operations
Net investment income ....................................................... 17,273,261 12,993,062
Net realized gain on securities ............................................. 84,851,910 72,326,560
Net unrealized appreciation (depreciation) of securities during the period .. 53,004,855 (81,656,758)
------------ ------------
Increase (decrease) in net assets resulting from operations ............... 155,130,026 3,662,864
------------ ------------
Distributions to shareholders from
Net investment income ....................................................... (14,344,183) (12,164,102)
Net realized gain on securities ............................................. (71,729,488) (48,603,788)
------------ ------------
Total distributions ....................................................... (86,073,671) (60,767,890)
------------ ------------
Capital transactions
Proceeds from shares sold ................................................... 94,833,007 124,276,586
Proceeds from shares issued for distributions reinvested .................... 84,847,579 59,928,843
Cost of shares redeemed ..................................................... (133,313,425) (126,572,376)
------------ ------------
Increase in net assets resulting from capital transactions ................ 46,367,161 57,633,053
------------ ------------
Increase in Net Assets ........................................................ 115,423,516 528,027
------------ ------------
NET ASSETS, end of period ..................................................... $828,318,800 $712,895,284
============ ============
CAPITAL TRANSACTIONS
Shares sold ................................................................. 6,095,770 7,820,632
Shares issued for distributions reinvested .................................. 6,153,341 3,781,949
Shares redeemed ............................................................. (8,600,756) (7,984,398)
------------ ------------
Increase in shares outstanding ............................................ 3,648,355 3,618,183
============ ============
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE> 133
GOVERNMENT FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Government Agencies 47.6%
Federal National Mortgage Association
$ 9,808,713 7.00% Pools, 4/1/24 to 5/1/25........................................................... $ 9,725,928
9,400,488 7.50% Pools, 12/31/23 to 11/1/24........................................................ 9,497,406
28,723,524 8.00% Pools, 5/1/22 to 7/1/25........................................................... 29,423,804
Federal Home Loan Mortgage Corp.
5,738,334 6.50% 5 yr. Pools, 10/1/97 to 7/1/98.................................................... 5,768,805
655,215 7.00% 5 yr. Pools, 12/1/96 to 8/1/97.................................................... 662,999
5,004,038 7.00% 30 yr. Pools, 7/1/24 to 9/1/24.................................................... 4,964,956
24,189,221 7.50% 30 yr. Pools, 4/1/24 to 10/1/24................................................... 24,461,350
9,449,628 8.00% 30 yr. Pools, 6/1/24 to 10/1/24................................................... 9,680,010
Government National Mortgage Association
23,726,589 7.00% Pools, 3/15/22 to 5/15/24......................................................... 23,563,587
17,561,169 7.50% Pools, 3/15/22 to 10/15/24........................................................ 17,791,747
12,148,781 8.00% Pools, 6/15/16 to 7/15/24......................................................... 12,498,058
8,210,879 8.50% Pools, 12/15/05 to 6/15/23........................................................ 8,539,128
13,747 10.00% Pool, 3/15/16.................................................................... 14,993
------------
TOTAL UNITED STATES GOVERNMENT AGENCIES (Cost $150,362,195)............................. 156,592,771
------------
United States Treasury Notes 49.8%
**9,000,000 6.50%, 8/15/97.......................................................................... 9,129,420
**20,000,000 7.75%, 12/31/99......................................................................... 21,415,600
**25,000,000 7.875%, 2/15/96......................................................................... 25,152,250
**45,000,000 7.875%, 1/15/98......................................................................... 47,025,000
**10,000,000 8.00%, 5/15/01.......................................................................... 11,006,300
10,000,000 9.00%, 5/15/98.......................................................................... 10,768,800
**39,000,000 9.25%, 1/15/96.......................................................................... 39,268,320
------------
TOTAL UNITED STATES TREASURY NOTES (Cost $163,208,203).................................. 163,765,690
------------
Forward Purchase Commitments 17.8%
Federal National Mortgage Association
*10,000,000 7.50%, settling December '95............................................................ 10,088,400
*8,500,000 7.50%, settling January '96............................................................. 8,563,070
Government National Mortgage Association
*30,000,000 7.00%, settling November '95............................................................ 29,793,900
*10,000,000 7.50%, settling December '95............................................................ 10,116,900
------------
TOTAL FORWARD PURCHASE COMMITMENTS (Cost $57,619,375)................................... 58,562,270
------------
</TABLE>
F-12
<PAGE> 134
GOVERNMENT FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement 0.9%
$ 2,840,000 SBC Capital Markets, Inc., dated 10/31/95, 5.90%, due 11/01/95
(collateralized by U.S. Government obligations in a pooled cash
account) repurchase proceeds $2,840,465 (Cost $2,840,000).................. $ 2,840,000
------------
TOTAL INVESTMENTS (Cost $374,029,773) 116.1%................................. 381,760,731
Receivable for investments sold 13.8%........................................ 45,519,531
Other assets and liabilities, net 1.5%....................................... 4,981,524
Payable for investments purchased (23.7%).................................... (77,867,031)
Payable for forward sale commitments (7.7%).................................. (25,379,800)
------------
NET ASSETS, equivalent to $10.67 per share 100%.............................. $329,014,955
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
30,839,945 shares outstanding............................................................ $ 308,399
Capital surplus............................................................................ 352,075,117
Accumulated net realized loss on securities................................................ (32,693,720)
Net unrealized appreciation of securities
Investments.............................................................................. 7,730,958
Forward commitments...................................................................... 459,911
Futures contracts........................................................................ 757,898
Undistributed net investment income........................................................ 376,392
------------
NET ASSETS................................................................................. $329,014,955
============
</TABLE>
* Non-income producing security.
** Securities with a market value of approximately $156.5 were placed as
collateral for futures contracts and forward commitments (see Note 1B).
See Notes to Financial Statements.
F-13
<PAGE> 135
GOVERNMENT FUND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Interest....................................................................................... $ 25,311,576
------------
Expenses
Advisory fees.................................................................................. 1,979,623
Shareholder service agent's fees and expenses.................................................. 483,108
Accounting services............................................................................ 92,277
Trustees' fees and expenses.................................................................... 47,762
Audit fees..................................................................................... 13,934
Custodian fees................................................................................. 62,234
Legal fees..................................................................................... 2,335
Reports to shareholders........................................................................ 33,087
Registration and filing fees................................................................... 6,429
Miscellaneous.................................................................................. 11,113
------------
Total expenses............................................................................... 2,731,902
------------
Net investment income........................................................................ 22,579,674
------------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments.................................................................................. (2,531,140)
Forward commitments.......................................................................... 5,294,570
Futures contracts............................................................................ (2,220,552)
Net unrealized appreciation of securities during the period
Investments.................................................................................. 19,778,951
Forward commitments.......................................................................... 433,218
Futures contracts............................................................................ 761,879
------------
Net realized and unrealized gain on securities............................................... 21,516,926
------------
Increase in net assets resulting from operations............................................. $ 44,096,600
============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $334,961,646 $370,213,049
------------ ------------
Operations
Net investment income....................................................... 22,579,674 24,980,745
Net realized gain (loss) on securities...................................... 542,878 (34,030,620)
Net unrealized appreciation (depreciation) of securities during the period.. 20,974,048 (11,216,315)
------------ ------------
Increase (decrease) in net assets resulting from operations................ 44,096,600 (20,266,190)
------------ ------------
Distributions to shareholders from
Net investment income....................................................... (22,389,062) (22,822,040)
Excess of book-basis net realized gain on securities (see Note 1F).......... - (16,458,421)
------------ ------------
Total distributions........................................................ (22,389,062) (39,280,461)
------------ ------------
Capital transactions
Proceeds from shares sold................................................... 40,107,323 82,600,565
Proceeds from shares issued for distributions reinvested.................... 19,322,483 34,396,895
Cost of shares redeemed..................................................... (87,084,035) (92,702,212)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions...... (27,654,229) 24,295,248
------------ ------------
Decrease in Net Assets....................................................... (5,946,691) (35,251,403)
------------ ------------
NET ASSETS, end of period.................................................... $329,014,955 $334,961,646
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................. 3,887,096 7,689,030
Shares issued for distributions reinvested.................................. 1,865,887 3,189,561
Shares redeemed............................................................. (8,448,288) (8,707,829)
------------ ------------
Increase (decrease) in shares outstanding.................................. (2,695,305) 2,170,762
============ ============
</TABLE>
See Notes to Financial Statements.
F-14
<PAGE> 136
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Municipal Bonds 99.0%
EDUCATION 8.1%
$ 500,000 Cook County, Illinois, Community College, District #508,
Certificates of Participation, FGIC, 8.75%, 1/1/07........................................ $ 651,360
500,000 Connecticut State Health & Educational Facilities Authority Rev. (University of Hartford)
Series S, 6.75%, 7/1/12................................................................... 497,960
500,000 District of Columbia Rev. (Howard University) Series A, MBIA, 8.00%, 10/1/17................ 532,930
500,000 Erie, Pennsylvania, Higher Education Building Authority, College Rev.
Series A, 8.50%, 6/1/15................................................................... 576,885
Frenship, Texas, Independent School District, Refunding
500,000 5.50%, 2/15/03............................................................................ 523,940
500,000 5.50%, 2/15/04............................................................................ 522,135
200,000 Huron Valley, Michigan, School District, FGIC, 7.10%, 5/1/08................................ 227,798
1,000,000 Illinois Educational Facilities Authority Rev. (Illinois State University,
Auxiliary Facilities System) MBIA, 5.75%, 4/1/14.......................................... 993,210
500,000 Merrillville, Indiana, Multi-School Building Corp., 1st Mtg. Bonds,
MBIA, 7.50%, 7/15/09...................................................................... 572,415
350,000 New York City, New York, Industrial Development Agency, Civil Facility Rev.
(Marymount Manhattan College Project) 7.00%, 7/1/23....................................... 363,898
New York State Dormitory Authority Rev.
100,000 City University System, Series A, 8.00%, 7/1/07........................................... 108,353
500,000 City University System, Series C, 6.00%, 7/1/16........................................... 492,390
750,000 State University Education Facilities, Series A, 7.70%, 5/15/12........................... 865,132
Pennsylvania State Higher Educational Facilities Authority Rev.
500,000 Hahnemann University Project, Series 1989, MBIA, 7.20%, 7/1/19............................ 547,200
150,000 Thomas Jefferson University, 8.00%, 1/1/18................................................ 164,448
250,000 Medical College of Pennsylvania, Series A, 8.375%, 3/1/11................................. 271,813
500,000 Shenandoah Valley Pennsylvania, School District, Series B, Zero Coupon, 2/1/12.............. 191,320
480,000 Volusia County, Florida, School Board Certificates Participation
(Florida Master Lease Program) FSA, 5.30%, 8/1/10......................................... 475,598
1,000,000 Wisconsin State Health & Educational Facilities Rev. (Marquette University Project)
FGIC, 6.45%, 12/1/19...................................................................... 1,050,560
-----------
9,629,345
-----------
HEALTH CARE 9.4%
660,000 Delaware County, Ohio, Health Care, FHA, 6.55%, 2/1/35...................................... 668,006
250,000 Illinois, Finance and Development Authority Rev., 8.50%, 2/1/15............................. 271,882
1,500,000 Illinois Health Facilities Authority Rev. (Cent. DuPage Health--Wyndemere)
MBIA, 5.75%, 11/1/22...................................................................... 1,469,805
1,000,000 Indiana Health Facilities Finance Authority, MBIA, 6.85%, 7/1/22............................ 1,073,230
500,000 New York State Medical Care Facilities Agency Rev. (Montefiore Medical Center) FHA,
7.25%, 2/15/24............................................................................ 539,645
1,250,000 Harris County, Texas, Health Facilities (TECO Project), Series A, AMBAC, 7.25%, 2/15/15..... 1,348,750
2,000,000 Massachusetts State Health & Educational Facilities Authority Rev.
(Cape Cod Health System), Series A, CONN, 5.625%, 11/15/23................................ 1,887,080
370,000 New Hampshire Higher Educational & Health Facilities Authority Rev., First Mtg.
(Odd Fellows Home) 9.00%, 6/1/14.......................................................... 417,874
3,675,000 South Carolina Jobs Economic Development Authority, Hospital Facilities Rev.
(Toumey Regional Medical Center) Series A, MBIA, 5.50%, 11/1/20........................... 3,539,797
-----------
11,216,069
-----------
</TABLE>
F-15
<PAGE> 137
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOSPITALS 23.8%
$ 500,000 Ames, Iowa, Hospital Rev. (Mary Greeley Medical Center Project) AMBAC, 5.75%, 8/15/22 ................. $ 486,635
500,000 Bexar County, Texas, Health Facilities Development Rev. (St. Lukes Lutheran Hospital Project)
7.90%, 5/1/18 ....................................................................................... 600,505
500,000 Boston, Massachusetts, Rev. (Boston City Hospital) FHA, 7.625%, 2/15/21 ............................... 575,970
250,000 Delaware State, Economic Development Authority Rev. (Osteopathic Hospital Association) Series A,
6.75%, 1/1/13 ....................................................................................... 237,100
500,000 Ector County, Texas, Hospital District (Medical Center Hospital) 7.125%, 4/15/02 ...................... 536,765
250,000 Erie County, Pennsylvania, Hospital Authority Rev. (Metro Health Center) Series 1992, 7.25%, 7/1/12 ... 263,427
250,000 Harris County, Texas, Health Facilities Development Corp. (Memorial Hospital System Project)
7.125%, 6/1/15 ...................................................................................... 270,117
Illinois Health Facilities Authority Rev.
105,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03 ............................................ 108,085
40,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03 ............................................ 47,347
500,000 Delnor Community Hospital, 8.00%, 5/15/19 ........................................................... 568,015
500,000 Lutheran Health Systems, Series B, MBIA, 6.00%, 4/1/18 .............................................. 502,260
500,000 Masonic Medical Center, Series 1989-B, 7.70%, 10/1/19 ............................................... 568,340
250,000 Memorial Hospital, 7.25%, 5/1/24 .................................................................... 255,717
300,000 Mercy Center For Health Care Services, 6.625%, 10/1/12 .............................................. 307,275
500,000 Northwestern Memorial Hospital, 6.75%, 8/15/11 ...................................................... 532,595
500,000 Kent Hospital Finance Authority, Michigan (Butterworth Hospital) Series A, 7.25%, 1/15/12 ............. 561,630
100,000 Leesburg, Florida, Hospital Rev., 8.40%, 7/1/08 ....................................................... 103,756
3,000,000 Loma Linda, California, Hospital Rev. (Loma Linda University Medical Center) Series C, MBIA,
5.375%, 12/1/22 ..................................................................................... 2,793,780
500,000 Louisiana Public Facilities Authority, Hospital Rev. (Southern Baptist Hospital Project) FSA,
6.80%, 5/15/12 ...................................................................................... 567,710
2,250,000 Massachusetts State, Series B, 6.50%, 7/1/15 .......................................................... 2,215,417
500,000 Michigan State, Hospital Finance Authority Rev., 7.50%, 10/1/07 ....................................... 518,710
250,000 Michigan State Hospital Finance Authority Rev. (Detroit Medical Center) Series A, 8.125%, 8/15/12 ..... 278,616
Mississippi, Hospital Equipment and Facilities, Series A
500,000 Magnolia Hospital Project, 7.375%, 10/1/21 .......................................................... 515,645
250,000 Wesley Health System Inc., CONN, 6.05%, 4/1/12 ...................................................... 255,160
Missouri State Health and Educational Facilities Authority Rev.
500,000 Heartland Health Systems Project, 6.875%, 11/15/04 .................................................. 543,895
250,000 Heartland Health Systems Project, 8.125%, 10/1/10 ................................................... 284,972
500,000 Lake of the Ozarks Hospital, 8.00%, 2/15/11 ......................................................... 538,545
280,000 Montgomery County, Pennsylvania, IDR (Pennsburg Nursing & Rehabilitation Center) 7.625%, 7/1/18 ....... 269,749
520,000 New Hampshire Higher Education & Health, 7.50%, 6/1/05 ................................................ 574,189
250,000 Newton, Kansas, Hospital Rev. (Newton Healthcare Corp.) Series A, 7.375%, 11/15/14 .................... 261,918
250,000 North Carolina Medical Care Community Health Care Facility Rev. (Stanley Memorial Hospital Project)
7.80%, 10/1/19 ...................................................................................... 267,728
Northeastern Pennsylvania, Hospital Authority Rev.
100,000 Nesbitt Memorial Hospital, Series A, 7.50%, 7/1/12 .................................................. 114,391
500,000 Wilkes Barre General Hospital, 8.375%, 7/1/06 ....................................................... 543,865
2,400,000 Pitt County, North Carolina, Rev. (Pitt County Memorial Hospital) 5.25%, 12/1/21 ...................... 2,260,344
250,000 Rusk County, Texas, Health Facilities Corp., Hospital Rev. (Henderson Memorial Hospital Project)
7.75%, 4/1/13 ....................................................................................... 263,455
</TABLE>
F-16
<PAGE> 138
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HOSPITALS--continued
$ 250,000 Scranton-Lackawanna, Pennsylvania, Health & Welfare Authority Rev. (Moses Taylor Hospital Project)
Series B, 8.50%, 7/1/20 ............................................................................. $ 273,590
South Dakota State Health & Educational Facility Authority Rev.
250,000 Sioux Valley Hospital, 7.625%, 11/1/13 .............................................................. 277,741
500,000 Huron Regional Medical Center, 7.25%, 4/1/20 ........................................................ 512,810
500,000 St. Joseph County, Indiana, Hospital Authority Rev. (Memorial Hospital South Bend Project) MBIA,
6.25%, 8/15/22 ...................................................................................... 510,175
500,000 St. Petersburg, Florida, Health Facilities Authority Rev., Allegany Health System (St. Mary Hospital)
Series B, 7.75%, 12/1/15 ............................................................................ 573,570
3,495,000 Tampa, Florida, Rev., Allegany Health Systems, St. Mary's, MBIA, 5.125%, 12/1/23 ...................... 3,180,800
500,000 Tarrant County, Texas, Health Facilities Development Corp., Hospital Rev., Refunding & Improvement
(Fort Worth Osteopathic Hospital) 7.00%, 5/15/28 .................................................... 522,970
500,000 Tulsa, Oklahoma, Industrial Authority, Hospital Rev. (Tulsa Regional Medical Center) 6.20%, 6/1/17 .... 540,885
500,000 Warren County, Pennsylvania, Hospital Authority Rev. (Warren General Hospital Project) Series A,
6.90%, 4/1/11 ....................................................................................... 510,380
1,000,000 Weslaco, Texas, Health Facilities Development (Knapp Medical Center Project) Series-A, Connie Lee,
5.25%, 6/1/16 ....................................................................................... 936,630
1,000,000 Wisconsin State Health & Educational Facilities Authority, Rev. (Waukesha Memorial Hospital) Series A,
AMBAC, 5.25%, 8/15/19 ............................................................................... 918,550
------------
28,351,729
------------
HOUSING 6.3%
685,000 Austin, Texas, Housing Finance Corp., Multi-Family Housing Rev., 6.50%, 10/1/10 ....................... 690,103
70,000 East Baton Rouge, Louisiana, Mtg. Finance Authority, Single Family Mtg. Rev., Series C, GNMA,
8.375%, 2/1/17 ...................................................................................... 72,888
1,000,000 Greater Cincinnati, Ohio, (FHA Cambridge Apartments), Series A, 6.60%, 8/1/25 ......................... 1,017,500
500,000 Lebanon County, Pennsylvania, Health Facilities (United Church of Christ Homes Project) Series A,
6.75%, 10/1/10 ...................................................................................... 507,840
1,000,000 Lynchburg, Virginia, Redevelopment & Housing Authority Rev. (Waldon Pond III) Series A, GNMA,
6.20%, 7/20/27 ...................................................................................... 1,000,000
250,000 Maine State Housing Authority, Mtg. Purchase Rev., Series B, FHA, 7.90%, 11/15/06 ..................... 263,125
400,000 Maricopa County, Arizona, IDR, Multi-Family Rev., Refunding (Laguna Point Apartments Project)
6.50%, 7/1/09 ....................................................................................... 415,228
250,000 Massachusetts State, Single Family, Series 31, 6.45%, 12/1/16 ......................................... 256,875
150,000 Minneapolis, Minnesota, Health Care Facility (Ebenezer Society Project) Series A, 7.00%, 7/1/12 ....... 150,000
500,000 Ridgeland, Mississippi, Urban Renewal (The Orchard, Ltd. Project) Series A, 7.75%, 12/1/15 ............ 516,850
500,000 South Carolina State Housing Finance and Development Authority, Homeownership Mtg., Series A,
7.625%, 7/1/16 ...................................................................................... 531,250
1,000,000 Tennessee Housing Development Agency, 6.80%, 7/1/17 ................................................... 1,045,100
Texas Housing Agency
485,000 Residential Development Rev., Adjustable Mtg., Series A, GNMA, 7.60%, 7/1/16 ........................ 503,774
320,000 Single Family Mtg., Refunding, Series A, 7.15%, 9/1/12 .............................................. 332,970
90,000 Utah State Housing Finance Agency, Single Family Mtg., Series G-1, FHA, 8.10%, 7/1/16 ................. 95,625
150,000 Wisconsin Housing & Economical Development Authority Rev., Series B, 8.00%, 11/1/18 ................... 154,443
------------
7,553,571
------------
</TABLE>
F-17
<PAGE> 139
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIFECARE 0.2%
$ 225,000 Scottsdale, Arizona, Industrial Development, Series A, 8.25%, 6/1/15 .................................. $ 244,395
------------
MISCELLANEOUS 14.3%
250,000 Berry Creek Metropolitan District, Eagle, Colorado, G.O., Refunding & Improvement, 8.25%, 12/1/11 ..... 269,845
100,000 California Special District Finance Authority, Certificates of Participation Rev., Series A,
8.50%, 7/1/18 ....................................................................................... 108,987
2,000,000 Clark County, Nevada (Nevada Power Co. Project) IDR, AMBAC, 7.20%, 10/1/22 ............................ 2,222,000
500,000 Compton, California, Certificates of Participation, Refunding, Series B, 7.50%, 8/1/15 ................ 541,035
500,000 Cook County, Illinois, MBIA, 7.00%, 11/1/10 ........................................................... 564,860
500,000 Detroit, Michigan, Tax Increment (Development Area No. 1) Series A, 7.60%, 7/1/10 ..................... 527,880
500,000 District of Columbia, Series A, AMBAC, 7.50%, 6/1/10 .................................................. 570,970
500,000 Du Page County, Illinois, Alternative Rev. (Stormwater Project) 6.55%, 1/1/21 ......................... 558,205
1,000,000 El Paso County, Texas, Parking Facilities Rev., 6.50%, 8/15/11 ........................................ 1,091,630
250,000 Emmaus, Pennsylvania, General Authority, Local Government Pool Program Rev., Series A, BIG,
8.15%, 5/15/18 ...................................................................................... 269,912
1,000,000 Hawaii State, Series -CD, 5.00%, 2/1/03 ............................................................... 1,024,970
500,000 Highlands Ranch, Colorado, Metropolitan District No. 1, Refunding & Improvement, Series A,
7.30%, 9/1/12 ....................................................................................... 588,045
1,500,000 Irving, Texas, Flood Control District, Section #3, AMBAC, Zero Coupon, 9/1/08 ......................... 755,145
1,200,000 Kansas City, Missouri, Redevelopment Authority Lease Rev., 5.90%, 12/1/18 ............................. 1,218,300
500,000 Milwaukee County, Wisconsin, Refunding, Series A, 5.25%, 9/1/00 ....................................... 519,185
1,000,000 New York, New York, G.O., Series B, 7.00%, 8/15/16 .................................................... 1,064,200
1,000,000 Orange County, California, Series A, MBIA, 6.00%, 6/1/09 .............................................. 1,044,420
50,000 Pocahontas, Iowa, IDR (International Harvester Co.) 10.25%, 10/1/00 ................................... 52,066
2,000,000 Sullivan County, Tennessee, Industrial Development Board Rev., Mtg. (Brandy Mill I) Series A, GNMA,
6.35%,7/20/27 ....................................................................................... 2,033,300
100,000 Tampa, Florida, Capital Improvement Project Rev., Series B, 8.375%, 10/1/18 ........................... 106,632
Texas General Services, Community Partner Interests (Office Building and Land Acquisition Project)
130,000 7.00%, 8/1/14 ....................................................................................... 134,081
330,000 7.00%, 8/1/24 ....................................................................................... 340,372
250,000 Utah State Building Ownership Authority Lease Rev. (Dept. of Employment Security) 7.80%, 8/15/10 ..... 273,498
1,000,000 Valdez, Alaska, Marine Term Rev., Refunding (Sohio Pipeline) 7.125%, 12/1/25 .......................... 1,112,580
------------
16,992,118
------------
MUNICIPAL UTILITY DISTRICT (MUD) 0.6%
250,000 Brazoria County, Texas, MUD No. 2, Refunding, 7.00%, 9/1/08 ........................................... 257,422
500,000 Harris County, Texas, #322, 6.25%, 5/1/17 ............................................................. 488,455
------------
745,877
------------
NURSING HOMES 0.5%
100,000 Carmel, Indiana, Retirement Rent Housing Rev., Refunding (Beverly Enterprises, Inc. Project) Series
1992, 8.75%, 12/1/08 ................................................................................ 113,000
230,000 Louisiana Public Facilities Authority, IDR, Refunding (Beverly Enterprises, Inc.) 8.25%, 9/1/08 ....... 247,781
250,000 Massachusetts, Industrial Finance Agency, IDR, Refunding (Beverly Enterprises/Gloucester and Lexington
Projects) Series 1992, 8.00%, 5/1/02 ................................................................ 266,765
------------
627,546
------------
</TABLE>
F-18
<PAGE> 140
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
POLLUTION CONTROL REVENUE (PCR) 5.3%
$ 250,000 County of Coshocton, Ohio, Solid Waste Disposal Rev., Refunding (Stone Container Corp. Project) Series
1992, 7.875%, 8/1/13 ................................................................................ $ 262,440
1,000,000 Farmington, New Mexico, PCR, Refunding, 7.20%, 4/1/21 ................................................. 1,095,030
1,000,000 Ohio State Water Development Authority Facilities Rev., PCR (Ohio Edison Co. Project) 5.95%, 5/15/29 .. 931,670
570,000 Ohio State Air Quality Development Authority Rev., PCR (Cleveland Co. Project) FGIC, 8.00%, 12/1/13 ... 663,544
1,000,000 Petersburg, Indiana, PCR, Refunding (Indianapolis Power & Lighting) Series 1993-A, 6.10%, 1/1/16 ...... 1,008,270
1,500,000 Skowhegan, Maine, PCR, Refunding (Scott Paper Company Project) 5.90%, 11/1/13 ......................... 1,486,875
400,000 Stevens County, Washington, Public Corp., PCR (Washington Water & Power Co., Kettle Project)
6.00%, 12/1/23 ...................................................................................... 383,756
500,000 Sweetwater County, Wyoming, PCR (Idaho Power Co.) Series C, 7.625%, 12/1/13 ........................... 524,835
------------
6,356,420
------------
POOL FINANCING PROGRAM 2.7%
Arapahoe County, Colorado, Local Public Improvement
1,000,000 7.00%, 8/31/26 ...................................................................................... 1,042,060
4,500,000 Zero Coupon, 8/31/15 ................................................................................ 1,102,230
10,000,000 Zero Coupon, 8/31/26 ................................................................................ 1,057,800
------------
3,202,090
------------
RESOURCE RECOVERY REVENUE 1.6%
440,000 Broward County, Florida, (North Project) 7.95%, 12/1/08 ............................................... 496,069
1,000,000 Montgomery County, Pennsylvania, Industrial Development Authority, 7.50%, 1/1/12 ...................... 1,067,040
250,000 Regional Waste Systems, Inc., Maine, Solid Waste, 7.95%, 7/1/10 ....................................... 272,870
------------
1,835,979
------------
SALES TAX REVENUE 3.2%
500,000 Arvada, Colorado, Refunding & Improvement, FGIC, 6.25%, 12/1/12 ....................................... 525,915
250,000 Crestwood, Illinois, Tax Increment Rev., Refunding, 7.25%, 12/1/08 .................................... 251,792
400,000 Edgewater, Colorado, Redevelopment Authority Tax Increment Rev., Refunding (Edgewater Development
Project) 6.75%, 12/1/08 ............................................................................. 414,160
100,000 Jefferson County, Colorado, Southeast Jefferson County Local Improvement District, 8.20%, 12/1/13 111,481
2,000,000 Orange County, Florida, Rev., Series B, FGIC, 5.375%, 1/1/24 .......................................... 1,910,520
500,000 Rhode Island Depositors' Economic Corp., Special Obligation, Series A, FSA, 6.625%, 8/1/19 ............ 564,105
------------
3,777,973
------------
TRANSPORTATION 5.0%
500,000 Cleveland, Ohio, Parking Facilities Improvement Rev., 8.00%, 9/15/12 .................................. 530,875
500,000 Delaware Transportation Authority Rev., 5.50%, 7/1/16 ................................................. 488,495
2,000,000 Denver, Colorado, City & County Airport Rev., Series A, MBIA, 5.70%, 11/15/25 ......................... 1,957,740
1,000,000 Des Moines, Iowa, Parking Facilities Rev., FGIC, 7.25%, 7/1/15 ........................................ 1,098,550
1,000,000 New Jersey State Turnpike Authority, Series C, 6.50%, 1/1/16 .......................................... 1,097,610
Triborough Bridge & Tunnel Authority, New York, Rev.
150,000 Series A, 8.00%, 1/1/18 ............................................................................. 164,091
500,000 Series R, 7.375%, 1/1/16 ............................................................................ 563,410
------------
5,900,771
------------
</TABLE>
F-19
<PAGE> 141
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES 18.0%
$ 500,000 Brownsville, Texas, Utility System Rev., AMBAC, 6.50%, 9/1/17 ......................................... $ 552,410
500,000 Chicago, Illinois, Metropolitan Water District, G.O., 7.00%, 1/1/11 ................................... 587,210
500,000 Chicago, Illinois, Wastewater Transmission, Rev., FGIC, 6.30%, 1/1/12 ................................ 555,650
500,000 Houston, Texas, Water System Rev., 7.25%, 12/1/07 ..................................................... 540,940
Intermountain Power Agency, Utah
500,000 1st Crossover Series, Special Obligation, 7.875%, 7/1/14 ............................................ 521,960
1,000,000 Power Supply Rev., Series B, 7.00%, 7/1/21 .......................................................... 1,056,940
250,000 Jefferson, Wisconsin, Sewer System, Waterworks, 7.40%, 7/1/16 ......................................... 285,350
1,000,000 Los Angeles, California, Dept. of Water & Power, Electric Plan Rev., 5.375%, 9/1/23 ................... 930,460
930,000 Louisia, Virginia, Industrial Development Authority Hospital Facility Rev. (Virginia Electric & Power)
AMBAC, 5.45%, 1/1/24 ................................................................................ 883,779
100,000 Massachusetts Municipal Wholesale Electric Co., Power Supply System Rev., Series A, 8.75%, 7/1/18 ..... 110,344
500,000 Massachusetts State Water Resource Authority, Series A, 7.50%, 4/1/16 ................................. 568,960
500,000 New York City Municipal Water Finance Authority, New York, Water & Sewer System Rev., Series C,
7.75%, 6/15/20 ...................................................................................... 587,370
North Carolina Eastern Municipal Power Agency, Power System Rev.
500,000 Series A, 4.50%, 1/1/24 ............................................................................. 414,170
50,000 8.00%, 1/1/21 ....................................................................................... 54,926
400,000 8.00%, 1/1/21, Pre-Refunded, 11/1/98 ................................................................ 439,408
1,000,000 North Carolina Municipal Power Agency, Catawba Electric Rev., MBIA, 5.75%, 1/1/20 ..................... 998,610
250,000 North Carolina Municipal Power Agency #1, Catawba Electric Rev., 7.875%, 1/1/19 ....................... 273,963
1,000,000 Northern Minnesota Municipal Power Agency, Series A, AMBAC, 7.25%, 1/1/16 ............................. 1,086,760
Puerto Rico, Electric Power Authority Rev., Series Z
2,650,000 5.25%, 7/1/21 ....................................................................................... 2,436,569
2,250,000 5.50%, 7/1/16 ....................................................................................... 2,161,283
775,000 Sam Rayburn, Texas, Municipal Power Agency, Refunding, Series A, 6.75%, 10/1/14 ....................... 717,418
500,000 Texas Water Resource Finance Authority Rev., AMBAC, 7.50% 8/15/13 ..................................... 532,845
Washington State Public Power Supply System Rev.
250,000 Nuclear Project #1, Series B, FGIC, 7.125%, 7/1/16 .................................................. 286,450
250,000 Nuclear Project #2, Series 1990-C, 7.625%, 7/1/10 ................................................... 289,050
1,500,000 Nuclear Project #3, MBIA, 5.60%, 7/1/17 ............................................................. 1,445,235
3,000,000 Series C, FGIC, 5.375%, 7/1/15 ...................................................................... 2,836,140
250,000 Winters, Texas, Water Works & Sewer Rev., 8.50%, 8/1/17 ............................................... 311,268
------------
21,465,468
------------
TOTAL MUNICIPAL BONDS (Cost $112,360,413) ........................................................... 117,899,351
------------
</TABLE>
F-20
<PAGE> 142
MUNICIPAL BOND FUND STATEMENT OF NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Municipal Variable Rate Demand Notes+ 2.6%
$1,000,000 Subseries A-4, 3.90%, 8/1/22.............................................................. $ 1,000,000
1,900,000 Subseries A-10, 4.00%, 8/1/16............................................................. 1,900,000
200,000 Series 1993-A4, 3.90%, 8/1/21............................................................. 200,000
------------
TOTAL MUNICIPAL VARIABLE RATE DEMAND NOTES (Cost $3,100,000).............................. 3,100,000
------------
TOTAL INVESTMENTS (Cost $115,460,413) 101.6%................................................ 120,999,351
Other assets and liabilities, net (1.6)%.................................................... (1,876,431)
------------
NET ASSETS, equivalent to $13.77 per share 100%............................................. $119,122,920
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited shares authorized; 8,649,853
shares outstanding.................................................................................... $ 86,498
Capital surplus......................................................................................... 112,964,627
Undistributed net realized gain on securities........................................................... 374,277
Net unrealized appreciation of investments.............................................................. 5,538,937
Undistributed net investment income..................................................................... 158,581
------------
NET ASSETS.............................................................................................. $119,122,920
============
</TABLE>
<TABLE>
<S> <C>
+Interest rates are as of October 31, 1995 Insurers:
FHA--Federal Housing Administration AMBAC--AMBAC Indemnity Corp.
G.O.--General obligation bond BIG--Bond Investors Guaranty Insurance Co.
Rev.--Revenue bond CONN--Connie Lee
IDR--Industrial Development Revenue Bond FGIC--Financial Guaranty Insurance Corp.
FSA--Financial Security Assurance, Inc.
MBIA--Municipal Bond Investor's Assurance Corp.
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE> 143
MUNICIPAL BOND FUND FINANCIAL STATEMENTS
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Interest.................................................................................. $ 7,405,369
------------
Expenses
Advisory fees............................................................................. 678,530
Shareholder service agent's fees and expenses............................................. 219,615
Accounting services....................................................................... 90,522
Trustees' fees and expenses............................................................... 27,472
Audit fees................................................................................ 16,933
Custodian fees............................................................................ 5,823
Legal fees................................................................................ 2,351
Reports to shareholders................................................................... 18,750
Registration and filing fees.............................................................. 26,447
Miscellaneous............................................................................. 3,931
------------
Total expenses.......................................................................... 1,090,374
------------
Net investment income................................................................... 6,314,995
------------
Realized and Unrealized Gain on Securities
Net realized gain on securities........................................................... 401,050
Net unrealized appreciation of securities during the period............................... 6,922,298
------------
Net realized and unrealized gain on securities.......................................... 7,323,348
------------
Increase in net assets resulting from operations........................................ $ 13,638,343
============
</TABLE>
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $112,088,419 $ 95,903,641
------------ ------------
Operations
Net investment income....................................................... 6,314,995 5,614,009
Net realized gain on securities............................................. 401,050 14,380
Net unrealized appreciation (depreciation) of securities during the period.. 6,922,298 (9,413,118)
------------ ------------
Increase (decrease) in net assets resulting from operations................ 13,638,343 (3,784,729)
------------ ------------
Distributions to shareholders from net investment income..................... (6,187,572) (5,586,734)
------------ ------------
Net equalization credit...................................................... -- 34,076
------------ ------------
Capital transactions
Proceeds from shares sold................................................... 26,976,160 46,071,557
Proceeds from shares issued for distributions reinvested.................... 5,355,586 4,883,341
Cost of shares redeemed..................................................... (32,748,016) (25,432,733)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions...... (416,270) 25,522,165
------------ ------------
Increase in Net Assets....................................................... 7,034,501 16,184,778
------------ ------------
NET ASSETS, end of period.................................................... $119,122,920 $112,088,419
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................. 2,026,724 3,404,943
Shares issued for distributions reinvested.................................. 402,352 363,194
Shares redeemed............................................................. (2,471,996) (1,889,648)
------------ ------------
Increase (decrease) in shares outstanding.................................. (42,920) 1,878,489
============ ============
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE> 144
MONEY MARKET FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements* 49.6%
$9,970,000 Lehman Government Securities, 5.90%, repurchase proceeds $9,971,634..................... $ 9,970,000
9,965,000 SBC Capital Markets, Inc, 5.90%, repurchase proceeds $9,966,633......................... 9,965,000
9,965,000 State Street Bank & Trust Co., 5.88%, repurchase proceeds $9,966,628.................... 9,965,000
-----------
TOTAL REPURCHASE AGREEMENTS (Cost $29,900,000).......................................... 29,900,000
-----------
United States Agencies Obligations 32.3%
Federal Home Loan Banks
2,000,000 5.68%, 03/15/96......................................................................... 1,958,218
2,425,000 5.69%, 03/06/96......................................................................... 2,377,521
3,000,000 Federal Home Loan Mortgage Corp., 5.55%, 12/01/95....................................... 2,986,050
Federal National Mortgage Association
3,000,000 5.62%, 02/12/96......................................................................... 2,952,160
1,280,000 5.64%, 04/11/96......................................................................... 1,248,240
2,000,000 5.68%, 01/17/96......................................................................... 1,976,080
3,000,000 5.70%, 12/21/95......................................................................... 2,976,455
3,000,000 5.79%, 12/18/95......................................................................... 2,977,520
-----------
TOTAL UNITED STATES AGENCIES OBLIGATIONS (Cost $19,452,244)............................. 19,452,244
-----------
Commercial Paper 18.4%
2,800,000 Associates Corp. of North America, 5.77%, 01/09/96...................................... 2,769,021
2,800,000 General Electric Capital Corp, 5.78%, 11/14/95.......................................... 2,793,793
2,800,000 General Electric Co., 5.67%, 12/11/95................................................... 2,782,174
2,800,000 Pitney Bowes Credit Corp., 5.78%, 11/27/95.............................................. 2,788,198
-----------
TOTAL COMMERCIAL PAPER (Cost $11,133,186)............................................... 11,133,186
-----------
TOTAL INVESTMENTS (Cost $60,485,430) 100.3%............................................. 60,485,430
Other assets and liabilities, net (0.3%)................................................ (180,531)
-----------
NET ASSETS, equivalent to $1.00 per share 100%.......................................... $60,304,899
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par value $.01 per share; unlimited shares authorized;
60,304,001 shares outstanding...................................................................... $ 603,040
Capital surplus..................................................................................... 59,700,713
Undistributed net investment income................................................................. 1,146
-----------
NET ASSETS.......................................................................................... $60,304,899
===========
</TABLE>
*dated 10/31/95, due 11/1/95, collaterallized by U.S. Government obligations in
a pool cash account.
See Notes to Financial Statements.
F-23
<PAGE> 145
MONEY MARKET FUND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Interest............................................................................... $3,316,783
----------
Expenses
Advisory fees.......................................................................... 281,553
Shareholder service agent's fees and expenses.......................................... 520,976
Accounting services.................................................................... 57,991
Trustees' fees and expenses............................................................ 25,254
Audit fees............................................................................. 13,373
Custodian fees......................................................................... 7,283
Legal fees............................................................................. 2,565
Report to shareholders................................................................. 22,951
Registration and filing fees........................................................... 29,242
Miscellaneous.......................................................................... 2,086
Expense reimbursement.................................................................. (400,167)
----------
Total expenses..................................................................... 563,107
----------
Net investment income.............................................................. 2,753,676
----------
Increase in net assets resulting from operations................................... $2,753,676
==========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Year Ended October 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period............................................ $ 56,401,350 $ 59,198,092
------------ ------------
Operations
Net investment income.................................................... 2,753,676 1,621,523
------------ -------------
Distributions to shareholders from net investment income................... (2,753,721) (1,621,596)
------------ ------------
Capital transactions
Proceeds from shares sold................................................ 63,147,486 59,396,624
Proceeds from shares issued for distributions reinvested................. 2,705,499 1,600,922
Cost of shares redeemed.................................................. (61,949,391) (63,794,215)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions.. 3,903,594 (2,796,669)
------------ ------------
Increase (decrease) in Net Assets.......................................... 3,903,549 (2,796,742)
------------ ------------
NET ASSETS, end of period.................................................. $ 60,304,899 $ 56,401,350
============ ============
CAPITAL TRANSACTIONS
Shares sold.............................................................. 63,147,478 59,396,624
Shares issued for distributions reinvested............................... 2,705,499 1,600,922
Shares redeemed.......................................................... (61,949,391) (63,794,215)
------------ ------------
Increase (decrease) in shares outstanding.............................. 3,903,586 (2,796,669)
============ ============
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE> 146
NOTES TO FINANCIAL STATEMENTS
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"). 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.
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 6% 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 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 commitment 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.
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
F-25
<PAGE> 147
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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.
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 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.
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. Equalization
At October 31, 1994, the Municipal Bond discontinued the accounting practice
of equalization, which it had used since its inception. Equalization is a
practice whereby a portion of the proceeds from sales and the costs of
redemptions of Trust shares, equivalent on a per-share basis to the amount of
the undistributed net investment income, is charged or credited to
undistributed net investment income.
H. 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.
F-26
<PAGE> 148
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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 $400,167 of Money Market's expenses.
Accounting services include the salaries and overhead expenses of the Trust's
Treasurer 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 $406,044 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............................. $ 38,471 $ 16,553 $ 10,679 $ 7,656 $6,854
Sales of Trust shares, Distributor commissions.. 3,711,115 929,500 378,331 118,219 --
</TABLE>
F-27
<PAGE> 149
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 3.9% of Growth's total
net assets. Small Cap's portfolio consisted of the following securities.
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------
<S> <C> <C>
Common Stock
CONSUMER DISTRIBUTION
22,000 Big B, Inc............................. $ 316,250
22,000 Books-A-Million, Inc................... 280,500
11,000 Cardinal Health, Inc................... 577,500
3,000 Carson Pirie Scott & Co................ 50,625
4,000 CDW Computer Centers, Inc.............. 195,000
21,000 Circuit City Stores, Inc............... 698,250
42,000 Claire's Stores, Inc................... 834,750
12,000 CompUSA, Inc........................... 481,500
14,000 Consolidated Stores Corp............... 327,250
1,000 Dole Food, Inc......................... 38,000
9,800 Eckerd Corp............................ 390,775
52,000 Fingerhut Companies, Inc............... 695,500
46,000 General Nutrition Companies, Inc....... 1,115,500
1,000 Great Atlantic & Pacific............... 20,375
29,000 Gymboree Corp.......................... 659,750
11,000 Health Management, Inc................. 126,500
2,000 Hills Stores Co........................ 15,250
10,000 Lear Seating Corp...................... 290,000
14,000 MacFrugals Bargains Closeouts.......... 164,500
9,000 Medicine Shoppe International, Inc..... 389,250
6,000 Mens Wearhouse, Inc.................... 235,500
15,000 Micro Wharehouse, Inc.................. 678,750
38,000 OfficeMax, Inc......................... 940,500
83,900 Pier 1 Imports. Inc.................... 818,025
5,000 Proffitts, Inc......................... 118,750
6,000 Rexel, Inc............................. 69,000
3,000 Richfood Holdings, Inc................. 74,625
7,000 Ross Stores, Inc....................... 110,250
25,000 Staples, Inc........................... 668,750
42,800 Stop & Shop Companies, Inc............. 877,400
40,000 Sunglass Hut International, Inc........ 1,090,000
4,000 Tiffany & Co........................... 174,500
25,000 Viking Office Products, Inc............ 1,109,375
43,000 Waban, Inc............................. 661,125
6,000 Whole Foods Market, Inc................ 72,750
3,000 Younkers, Inc.......................... 66,375
32,000 Zale Corp.............................. 472,000
-----------
15,904,700
-----------
CONSUMER DURABLES
3,000 Borg Warner Automotive, Inc............ 86,625
50,000 Breed Technologies, Inc................ 925,000
47,000 Brunswick Corp......................... 922,375
21,000 Champion Enterprises, Inc.............. 546,000
35,000 Clayton Homes, Inc..................... 936,250
23,000 Cobra Golf, Inc........................ 621,000
4,000 Department 56, Inc..................... 182,500
24,000 Echlin, Inc............................ 864,000
5,000 Fleetwood Enterprises, Inc............. 103,125
14,000 Gencorp, Inc........................... 148,750
8,400 Harman International Industries, Inc... 389,550
46,000 Leggett & Platt, Inc................... 1,115,500
7,000 Lennar Corp............................ 161,875
14,000 Outboard Marine Corp................... 297,500
7,000 Smith (A. O.) Corp..................... 146,125
6,000 Snap-On Tools, Inc..................... 254,250
22,000 Toro Co................................ 632,500
-----------
8,332,925
-----------
CONSUMER NON-DURABLES
1,000 Alberto Culver Co., Class B............ 31,625
34,000 American Greetings Corp., Class A...... 1,079,500
29,000 Barefoot, Inc.......................... 337,125
7,000 Fieldcrest Cannon, Inc................. 134,750
9,000 Fossil, Inc............................ 96,750
2,000 Hormel (G. A.) & Co.................... 46,000
13,000 IBP, Inc............................... 781,625
41,000 Liz Claiborne, Inc..................... 1,158,250
23,000 Nautica Enterprises, Inc............... 787,750
10,000 Nu-Kote Holdings, Inc., Class A........ 198,750
11,000 Phillips-Van Heusen Corp............... 111,375
3,000 Scotts Co., Class A.................... 60,000
9,000 Smithfield Foods, Inc.................. 236,250
15,000 Springs Industries, Inc................ 643,125
8,000 St. John Knits, Inc.................... 382,000
21,000 Starbucks Corp......................... 834,750
56,000 Topps, Inc............................. 343,000
1,000 Unifi, Inc............................. 22,750
9,000 Universal Foods Corp................... 309,375
18,000 Westpoint Stevens, Inc................. 382,500
25,000 Whitman Corp........................... 534,375
18,000 Wolverine World Wide, Inc.............. 549,000
-----------
9,060,625
-----------
CONSUMER SERVICES
4,000 Advo, Inc.............................. 102,500
10,000 Banta Corp............................. 427,500
12,000 Belo (A. H.) Corp...................... 414,000
14,000 Boston Chicken, Inc.................... 476,000
26,000 Bowne & Co., Inc....................... 481,000
11,000 Boyd Gaming Corp....................... 148,500
1,000 Casino America, Inc.................... 7,000
19,000 Equifax, Inc........................... 722,000
9,000 HFS, Inc............................... 559,125
30,000 Kelly Services, Inc.................... 765,000
25,000 King World Productions, Inc............ 865,625
21,000 Lone Star Steakhouse Saloon, Inc....... 813,750
9,000 Media General, Inc., Class A........... 250,875
21,000 Mirage Resorts, Inc.................... 695,625
19,000 New York Times Co., Class A............ 529,625
27,760 Ogden Corp............................. 635,010
16,000 Olsten Corp............................ 612,000
17,000 Omnicom Group.......................... 1,088,000
26,000 Outback Steakhouse, Inc................ 809,250
3,000 Papa John's International, Inc......... 116,625
13,200 PHH Corp............................... 580,800
31,500 Players International, Inc............. 342,563
1,000 Pulitzer Publishing Co................. 45,375
19,000 Regal Cinemas, Inc..................... 741,000
17,000 Reynolds & Reynolds Co................. 603,500
23,000 Rio Hotel & Casino, Inc................ 293,250
</TABLE>
F-28
<PAGE> 150
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------
<S> <C> <C>
28,000 Robert Half International, Inc............ $ 1,029,000
26,000 Sbarro, Inc............................... 549,250
12,500 Scientific Games Holdings Corp............ 415,625
6,000 Sonic Corp................................ 132,000
13,500 Spelling Entertainment Group, Inc......... 173,813
24,000 Wendys International, Inc................. 480,000
32,000 Westcott Communications, Inc.............. 444,000
-----------
16,349,186
-----------
ENERGY
17,000 BJ Services Co............................ 401,625
13,000 Brooklyn United Gas Co.................... 326,625
24,100 Eastern Enterprises....................... 716,975
38,000 El Paso Natural Gas Co.................... 1,026,000
25,000 KCS Energy, Inc........................... 246,875
12,000 K.N. Energy, Inc.......................... 307,500
25,000 Mesa, Inc................................. 106,250
91,000 Nabors Industries, Inc.................... 784,875
14,000 NACCO Industries, Inc., Class A........... 805,000
2,500 National Fuel Gas Co...................... 75,000
24,000 NICOR, Inc................................ 648,000
15,000 Nuevo Energy Co........................... 333,750
16,000 Offshore Logistics, Inc................... 198,000
14,400 ONEOK, Inc................................ 356,400
28,000 Pacific Enterprises....................... 693,000
48,000 Smith International, Inc.................. 768,000
1,000 Tidewater, Inc............................ 26,375
25,000 Union Texas Petroleum Holdings, Inc....... 459,375
12,000 United Meridian Corp...................... 202,500
24,000 Valero Energy Corp........................ 567,000
30,000 Varco International, Inc.................. 277,500
6,000 Washington Gas & Light Co................. 115,500
500 Weatherford Enterra, Inc.................. 12,250
3,000 Western Atlas, Inc........................ 133,500
12,400 WICOR, Inc................................ 370,450
188 Williams Companies........................ 7,285
-----------
9,965,610
-----------
FINANCE
12,000 Advanta Corp., Class A.................... 468,000
25,000 Ahmanson (H. F.) & Co..................... 634,375
15,000 AMBAC, Inc................................ 643,125
34,000 American Financial Group, Inc............. 956,250
25,000 American Re Corp.......................... 956,250
29,000 Bankers Life Holding Corp................. 525,625
33,000 Bear Stearns Companies, Inc............... 660,000
24,000 California Federal Bank................... 357,000
4,000 CCB Financial Corp........................ 196,000
26,000 Charter One Financial, Inc................ 737,750
58,000 City National Corp........................ 783,000
10,000 CMAC Investment Corp...................... 475,000
23,000 Commercial Federal Corp................... 750,375
1,500 Countrywide Credit Industries, Inc........ 33,188
23,000 Crestar Financial Corp.................... 1,319,625
41,000 Edwards (A.G.), Inc....................... 1,040,375
22,000 Finova Group, Inc......................... 1,001,000
7,000 First American Corp....................... 306,250
10,000 First Financial Corp...................... 210,000
18,000 First Tennessee National Corp............. 972,000
13,000 First USA, Inc............................ 606,125
20,300 Fremont General Corp...................... 596,313
19,000 GATX Corp................................. 909,625
49,000 Mercury Financial Co...................... 943,250
7,300 MGIC Investment Corp...................... 415,188
9,000 North American Mtg., Co................... 185,625
21,000 North Fork Bancorporation................. 459,375
22,000 Northern Trust Corp....................... 1,050,500
12,880 Norwest Corp.............................. 388,010
2,000 Ohio Casualty Corp........................ 71,500
10,000 Penncorp Financial Group, Inc............. 238,750
32,000 Peoples Heritage Financial................ 620,000
25,000 Protective Life Corp...................... 712,500
18,000 Regions Financial Corp.................... 720,000
109,000 Reliance Group Holding.................... 803,875
17,000 Reliastar Financial Corp.................. 716,125
3,000 Roosevelt Financial Group, Inc............ 48,375
38,000 Southtrust Corp........................... 959,500
5,000 Sovereign Bancorp, Inc.................... 50,000
19,300 Star Banc Corp............................ 1,061,500
16,000 TCF Financial Corp........................ 936,000
6,000 TIG Holdings, Inc......................... 151,500
6,000 Transatlantic Holdings, Inc............... 405,750
28,000 Union Planters Corp....................... 854,000
5,000 Vesta Insurance Group, Inc................ 203,125
38,000 Washington Mutual, Inc.................... 980,875
15,000 Webb Del Corp............................. 313,125
9,000 Zions Bancorporation...................... 623,250
-----------
29,048,949
-----------
HEALTH CARE
25,000 Amsco International, Inc.................. 409,375
24,000 Bausch & Lomb, Inc........................ 840,000
5,000 Bio Rad Labs, Inc., Class A.............. 190,625
19,000 CNS, Inc.................................. 199,500
11,000 Community Health Systems, Inc............. 349,250
52,000 Cor Therapeutics, Inc..................... 533,000
1,000 Cordis Corp............................... 110,625
4,000 Dentsply International, Inc............... 138,000
29,000 Foundation Health Corp.................... 1,236,125
2,000 HBO & Co.................................. 143,250
20,000 Healthcare Compare Corp................... 770,000
8,000 Healthsouth Rehabilitation................ 211,000
39,000 Horizon/CMS Healthcare.................... 784,875
37,073 ICN Pharmaceuticals, Inc.................. 759,997
24,000 Integrated Health Services, Inc........... 519,000
29,000 Lincare Holdings, Inc..................... 725,000
3,000 Manor Care, Inc........................... 98,625
1,000 Maxicare Health Plans..................... 17,625
32,000 Medisense, Inc............................ 716,000
47,500 Mylan Labs, Inc........................... 890,625
16,000 Nellcor Puritan Bennett, Inc.............. 924,000
8,000 North American Biological................. 65,000
2,000 Orthofix International, NV............... 19,500
16,000 Oxford Health Plans, Inc.................. 1,260,000
6,000 Pacific Physician Services................ 94,500
3,000 Quintiles Transnational Corp.............. 192,750
17,000 Renal Treatment Centers, Inc.............. 612,000
6,000 Rexall Sundown, Inc....................... 90,000
3,000 Target Therapeutics, Inc.................. 229,500
18,000 Thermo Cardiosystems, Inc................. 877,500
2,000 United American Healthcare Corp........... 22,250
12,000 Universal Health Services, Inc., Class B.. 448,500
20,000 Vivra, Inc................................ 660,000
25,320 Watsons Pharmaceuticals, Inc.............. 1,145,730
-----------
16,283,727
-----------
</TABLE>
F-29
<PAGE> 151
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING
16,000 Agco Corp. $ 754,000
3,000 Alliant Techsystems, Inc. 139,500
5,000 Ametek, Inc. 88,750
14,600 Aptar Group, Inc. 501,875
7,000 Blount, Inc., Class A 305,375
21,000 Briggs & Stratton Corp. 847,875
6,000 Cognex Corp. 363,000
22,000 Cummins Engine Co., Inc. 792,000
26,000 Danaher Corp. 812,500
22,000 Detroit Diesel Corp. 396,000
11,000 Duracraft Corp. 239,250
6,000 Granite Construction, Inc. 171,750
18,500 IDEX Corp. 698,375
7,000 INDRESCO, Inc. 120,750
1,000 Johnson Controls, Inc. 58,500
20,000 Juno Lighting, Inc. 292,500
2,000 Kent Electrics Corp. 97,750
16,000 Kulicke & Sofa Industries, Inc. 560,000
24,000 Mueller Industries, Inc. 561,000
4,000 National Service Industries, Inc. 119,500
9,000 Navistar International Corp. 93,375
19,000 PACCAR, Inc. 798,000
30,000 Southdown, Inc. 495,000
90,000 Sterling Chemicals, Inc. 731,250
11,000 Teledyne, Inc. 275,000
28,300 Thermo Instrument Systems, Inc. 856,075
26,000 Timken Co. 1,036,750
8,000 United Waste Systems, Inc. 316,000
31,000 Varity Corp. 1,108,250
6,000 Watts Industries, Inc., Class A 123,750
32,000 Wellman, Inc. 752,000
9,000 Wolverine Tube, Inc. 319,500
-----------
14,825,200
-----------
RAW MATERIALS/PROCESSING INDUSTRIES
17,000 Cleveland Cliffs, Inc. 641,750
16,000 Cyprus Amax Minerals 428,000
4,000 Cytec Industries, Inc. 218,000
6,000 First Mississippi Corp. 123,750
14,000 Geon Co. 346,500
24,000 Georgia Gulf Corp. 801,000
15,000 Goodrich (B. F.) Co. 990,000
46,000 Handy & Harman 644,000
8,000 Inland Steel Industries, Inc. 186,000
2,000 International Specialty Products, Inc. 17,500
62,000 Jefferson Smurfit Corp. 759,500
40,000 J&L Specialty Steel, Inc. 660,000
44,000 Longview Fibre Co. 643,500
15,000 Lubrizol Corp. 435,000
41,000 Lyondell Petrochemical Co. 881,500
46,000 Magma Copper Co., Class B 770,500
6,000 Medusa Corp. 149,250
3,000 NCH Corp. 163,125
14,000 Olin Corp. 904,750
51,000 Owens-Illinois, Inc. 643,875
12,000 Potlatch Corp. 505,500
3,000 Quanex Corp. 58,875
11,000 Rayonier, Inc. 418,000
69,000 Rexene Corp. 621,000
20,000 Sealed Air Corp. 522,500
5,000 Sigma-Aldrich Corp. 240,000
33,000 Sonoco Products Co. 833,250
43,000 Stone Container Corp. 736,375
46,000 Terra Industries, Inc. 580,750
1,000 Texas Industries, Inc. 52,875
23,000 USG Corp. 669,875
15,000 Vigoro Corp. 652,500
5,000 Vulcan Materals Co. 277,500
43,500 Worthington Industries, Inc. 744,938
-----------
17,321,438
-----------
TECHNOLOGY
6,000 Adaptec, Inc. 264,000
20,000 Alantec Corp. 710,000
4,000 Altera Corp. 244,000
15,000 America Online, Inc. 1,215,000
3,000 Analysts International Corp. 90,000
28,000 Aspect Telecommunications Corp. 973,000
19,000 Atmel Corp. 594,936
1,000 Auspex Systems, Inc. 14,812
27,000 Autodesk, Inc. 911,250
21,400 Avnet, Inc. 1,080,700
10,000 BMC Industries, Inc. 386,250
18,000 BMC Software, Inc. 641,250
56,000 Borland International, Inc. 777,000
36,000 Cadence Design Systems, Inc. 1,174,500
19,000 Cascade Communications 1,344,250
21,000 Cidco, Inc. 588,000
2,000 Computer Network Technology 13,125
60,000 Conner Peripherals, Inc. 1,095,000
22,000 Credence Systems Corp. 825,000
1,000 Dallas Semiconductor Co. 21,250
13,000 Dovatron International, Inc. 399,750
22,000 Dynatech Corp. 335,500
12,000 Electroglas, Inc. 867,000
13,000 Electronics For Imaging, Inc. 1,082,250
4,000 FTP Software, Inc. 108,188
34,000 Gateway 2000, Inc. 1,160,250
9,000 Harris Corp. 525,375
23,000 In Focus Systems, Inc. 730,250
44,000 Integrated Device Technology, Inc. 844,250
22,000 International Rectifier Corp. 1,009,250
37,000 Intervoice, Inc. 689,125
24,000 KLA Instruments Corp. 1,050,000
3,000 Komag, Inc. 172,875
13,000 Lam Research Corp. 809,250
3,000 Littelfuse, Inc. 98,625
17,000 McAfee Associates, Inc. 998,750
10,000 Microchip Technology, Inc. 397,500
26,000 Netmanage, Inc. 542,750
14,000 Network Equipment Technologies 465,500
22,000 Network General Corp. 907,500
12,500 Novellus Systems, Inc. 857,812
8,000 Peoplesoft, Inc. 688,000
4,500 Pioneer Standard Electronics, Inc. 62,438
9,000 Policy Management Systems Corp. 426,375
5,000 Quantum Corp. 86,250
23,000 Read-Rite Corp. 819,375
4,000 Recoton Corp. 89,000
38,000 S3, Inc. 650,750
14,000 Seagate Technology 638,750
30,000 Sequent Computer Systems, Inc. 525,000
25,000 Solectron Corp. 1,018,750
9,000 Sterling Software, Inc. 416,250
19,000 Symbol Technologies, Inc. 665,000
</TABLE>
F-30
<PAGE> 152
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------
<S> <C> <C>
20,000 Teradyne, Inc............................. $ 670,000
12,000 3Com Corp................................. 582,000
11,474 U.S. Robotics Corp........................ 1,067,080
19,000 Unitrode Corp............................. 513,000
8,500 Varian Associates, Inc.................... 437,750
27,000 Vishay Intertechnology, Inc............... 972,000
19,000 Wyle Electronics, Inc..................... 814,625
21,000 Xilinx, Inc............................... 1,000,125
------------
39,157,591
------------
TRANSPORTATION
49,000 Arkansas Best Corp........................ 453,250
32,000 Comair Holdings, Inc...................... 896,000
10,800 Consolidated Freightways, Inc............. 252,450
1,000 Continental Airlines, Inc., Class B....... 35,625
24,000 Fritz Companies, Inc...................... 846,000
26,000 Illinois Central Corp..................... 1,001,000
22,000 MS Carriers, Inc.......................... 341,000
12,000 Northwest Airlines, Inc., Class A......... 486,000
19,000 Pittston Company Services Group........... 520,125
6,000 Stolt Nielsen, S.A........................ 182,250
11,000 TNT Freightways Corp...................... 203,500
------------
5,217,200
------------
UTILITIES
29,000 AES Corp.................................. 572,750
26,000 AT&T Corp................................. 1,040,000
34,100 Boston Edison Co.......................... 937,750
4,500 C-Tec Corp................................ 94,500
12,000 California Energy, Inc.................... 216,000
27,000 Centerior Energy Corp..................... 273,375
4,300 Central Hudson Gas & Electric Corp........ 131,688
1,000 Colorado Public Service Co................ 34,000
10,000 Commnet Cellular, Inc..................... 252,500
38,000 Delmarva Power & Light Co................. 845,500
17,000 DQE, Inc.................................. 469,625
8,000 Eastern Utilities Association............. 187,000
4,251 Firstmiss Gold, Inc....................... 77,049
42,000 Frontier Corp............................. 1,139,250
36,000 Illinova Corp............................. 1,026,000
41,000 Long Island Lighting Co................... 707,250
33,000 New Mexico Public Service Co.............. 556,875
24,000 NIPSCO Industries, Inc.................... 879,000
9,500 Oklahoma Gas & Electric Co................ 380,000
3,000 Orange & Rockland Utilities............... 105,375
27,000 Pinnacle West Capital Corp................ 742,500
32,000 Portland General Corp..................... 872,000
14,200 Southern New England Telecommunications... 514,750
23,000 U.S. Cellular Corp........................ 790,625
1,000 U.S. Long Distance Corp................... 13,000
------------
12,858,362
------------
TOTAL COMMON STOCK...................... 194,325,513
------------
Convertible Preferred Stock
1,600 FHP International, $1.25, Series A........ 38,000
------------
Principal
Amount
(000) Repurchase Agreement
- ---------
$ 5,805 Lehman Government Securities, Inc.,
5.75%, 11/01/95 5,805,000
------------
TOTAL INVESTMENTS......................... 200,168,513
Other assets and liabilities, net......... 176,308
------------
NET ASSETS................................ $200,344,821
============
</TABLE>
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.................................... $5,043,956,174 $839,567,650 $711,194,232 $59,686,173
Sales........................................ 5,091,891,937 860,305,407 802,093,408 53,754,489
</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.
<TABLE>
<CAPTION>
Growth Municipal
Growth and Income Government Bond
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Identified cost.................. $2,349,280,952 $705,387,413 $374,263,301 $115,460,414
============== ============ ============ ============
Gross unrealized appreciation.... $ 292,498,875 $129,326,111 $ 8,463,025 $ 5,934,935
Gross unrealized depreciation.... (30,865,282) (13,070,508) (965,595) (395,998)
-------------- ------------ ------------ ------------
Net unrealized appreciation...... $ 261,633,593 $116,255,603 $ 7,497,430 $ 5,538,937
============== ============ ============ ============
</TABLE>
F-31
<PAGE> 153
NOTES TO FINANCIAL STATEMENTS, CONTINUED
At the end of the period, the Trust held the following long futures contracts:
<TABLE>
<CAPTION>
Unrealized
Number of Market Appreciation
Fund Description Contracts Value (Depreciation)
----------------- ------------------------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Growth Standard & Poor's 500 Index
(expiring Dec. 95) 340 $99,254,500 $ 39,318
=========== ========
Growth and Income Standard & Poor's 500 Index
(expiring Dec. 95) 110 $32,111,750 $444,125
=========== ========
Government U.S. Treasury Bond
(expiring Dec. 95) 190 $22,241,875 $405,422
U.S. Treasury Notes, five years
(expiring Dec. 95) 80 8,666,250 136,493
U.S. Treasury Notes, ten years
(expiring Dec. 95) 80 8,922,500 201,494
U.S. Treasury Bond
(expiring Mar. 96) 90 10,504,688 4,181
U.S. Treasury Notes, ten years
(expiring Mar. 96) 50 5,578,125 10,308
----------- --------
$55,913,438 $757,898
=========== ========
</TABLE>
At the end of the period, Government held the following forward commitments for
which delivery was not intended:
<TABLE>
<CAPTION>
Unrealized
Principal Market Appreciation
Amount Security Value (Depreciation)
----------- ---------------------------------------- ------------- --------------
<S> <C> <C> <C>
Federal National Mortgage Association
$10,000,000 8.00%, settling 11/95 (sale) $(10,243,800) $ (6,300)
Government National Mortgage Association
10,000,000 7.00%, settling 11/95 (sale) (9,931,300) (50)
10,000,000 7.00%, settling 12/95 (purchase) 9,918,800 79,737
6,000,000 7.00%, settling 1/96 (purchase) 5,943,780 26,280
20,000,000 7.50%, settling 11/95 (purchase) 20,262,600 414,944
5,000,000 8.50%, settling 11/95 (sale) (5,204,700) (54,700)
------------ --------
(Net obligation $10,285,469) $ 10,745,380 $459,911
============ ========
</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............ $150,855 $60,707 $43,787 $24,604 $22,723
======== ======= ======= ======= =======
</TABLE>
F-32
<PAGE> 154
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ....................... $ 15.31 $ 16.26 $ 16.02 $ 15.47 $ 11.26
--------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income .......................................... .32 .29 .281 .30 .36
Expenses ................................................... (.16) (.16) (.165) (.17) (.17)
--------- ---------- ---------- ---------- ----------
Net investment income ...................................... .16 .13 .116 .13 .19
Net realized and unrealized gain or losses on securities ... 3.18 .2075 2.0065 1.3925 4.2425
--------- ---------- ---------- ---------- ----------
Total from investment operations ........................... 3.34 .3375 2.1225 1.5225 4.4325
--------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS FROM
Net investment income ...................................... (.155) (.1125) (.115) (.17) (.2225)
Net realized gain on securities ............................ (1.035) (1.175) (1.3996) (.8025) --
Excess of book-basis net realized gain on securities ....... -- -- (.3679) -- --
--------- ---------- ---------- ---------- ----------
Total distributions ........................................ (1.19) (1.2875) (1.8825) (.9725) (.2225)
--------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 17.46 $ 15.31 $ 16.26 $ 16.02 $ 15.47
========= ========== ========== ========== ==========
TOTAL RETURN(1) .......................................... 24.01% 2.04% 14.27% 9.83% 39.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) ....................... $2,611.5 $2,169.9 $2,065.7 $1,648.0 $1,311.5
Average net assets (millions) .............................. $2,352.1 $2,123.1 $1,894.0 $1,479.7 $1,127.8
Ratios to average net assets
Expenses ............................................... 1.00% 1.09% 1.14% 1.18% 1.26%
Net investment income .................................. 1.04% .89% .80% .91% 1.44%
Portfolio turnover rate .................................... 230% 164% 166% 134% 100%
- -----------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ....................... $ 15.77 $ 17.13 $ 15.54 $ 14.70 $ 11.49
--------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income .......................................... .51 .45 .46 .435 .46
Expenses ................................................... (.15) (.16) (.17) (.16) (.155)
--------- ---------- ---------- ---------- ----------
Net investment income ...................................... .36 .29 .29 .275 .305
Net realized and unrealized gain or losses on securities ... 2.715 (.2125) 1.8775 1.2875 3.2225
--------- ---------- ---------- ---------- ----------
Total from investment operations ........................... 3.075 .0775 2.1675 1.5625 3.5275
--------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS FROM
Net investment income ...................................... (.30) (.275) (.2775) (.295) (.3175)
Net realized gain on securities ............................ (1.595) (1.1625) (.30) (.4275) --
--------- ---------- ---------- ---------- ----------
Total distributions ........................................ (1.895) (1.4375) (.5775) (.7225) (.3175)
--------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 16.95 $ 15.77 $ 17.13 $ 15.54 $ 14.70
========= ========== ========== ========== ==========
TOTAL RETURN(1) .......................................... 22.45% .51% 14.13% 10.85% 31.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) ....................... $ 828.3 $ 712.9 $ 712.4 $ 591.0 $ 499.6
Average net assets (millions) .............................. $ 759.6 $ 707.5 $ 659.5 $ 545.0 $ 449.4
Ratios to average net assets
Expenses ............................................... .96% 1.02% 1.05% 1.09% 1.14%
Net investment income .................................. 2.27% 1.84% 1.76% 1.84% 2.29%
Portfolio turnover rate .................................... 117% 88% 51% 32% 42%
</TABLE>
(1)Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
F-33
<PAGE> 155
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Year Ended October 31
------------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Government Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 9.99 $ 11.80 $ 11.56 $ 11.47 $ 10.79
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .79 .78 .8536 .97 1.012
Expenses................................................ (.09) (.09) (.0920) (.11) (.107)
--------- --------- --------- --------- ---------
Net investment income................................... .70 .69 .7616 .86 .905
Net realized and unrealized gain or loss on securities.. .6779 (1.358) .4249 .1639 .6788
--------- --------- --------- --------- ---------
Total from investment operations........................ 1.3779 (.668) 1.1865 1.0239 1.5838
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS FROM
Net investment income................................... (.6979) (.6878) (.7615) (.8639) (.9038)
Net realized gain on securities......................... - - (.185) (.07) -
Excess of book-basis net realized gains on securities... - (.4542) - - -
Total distributions..................................... (.6979) (1.142) (.9465) (.9339) (.9038)
--------- --------- --------- --------- ---------
Net asset value, end of period.......................... $ 10.67 $ 9.99 $ 11.80 $ 11.56 $ 11.47
========= ======== ========= ========= =========
TOTAL RETURN(1)......................................... 14.27% (5.45%) 10.55% 9.32% 15.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $ 329.0 $ 335.0 $ 370.2 $ 282.0 $ 189.0
Average net assets (millions)........................... $ 329.9 $ 353.8 $ 330.1 $ 229.5 $ 161.2
Ratios to average net assets
Expenses............................................... .83% .89% .89% .95% .96%
Net investment income.................................. 6.84% 7.06% 7.35% 7.46% 8.15%
Portfolio turnover rate................................. 214% 256% 218% 112% 39%
</TABLE>
(1) Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
F-34
<PAGE> 156
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Year Ended October 31
---------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Municipal Bond Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 12.89 $ 14.07 $ 13.03 $ 12.84 $ 12.18
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .87 .84 .859 .875 .905
Expenses................................................ (.13) (.13) (.141) (.15) (.145)
Expense reimbursement(2)................................ - - .01 - -
------- ------- ------- ------- -------
Net investment income................................... .74 .71 .728 .725 .76
Net realized and unrealized gain or loss on securities.. .867 (1.182) 1.038 .2175 .648
------- ------- ------- ------- -------
Total from investment operations........................ 1.607 (.472) 1.766 .9425 1.408
------- ------- ------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME................ (.727) (.708) (.726) (.7525) (.748)
------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 13.77 $ 12.89 $ 14.07 $ 13.03 $ 12.84
======= ======= ======= ======= =======
TOTAL RETURN(1)......................................... 12.72% (3.38%) 13.84% 7.57% 11.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $ 119.1 $ 112.1 $ 95.9 $ 60.3 $ 42.5
Average net assets (millions)........................... $ 113.1 $ 106.6 $ 77.1 $ 50.0 $ 39.2
Ratios to average net assets(2)
Expenses............................................... .96% .99% .96% 1.14% 1.15%
Expenses, without expense reimbursement................ - - 1.04% - -
Net investment income.................................. 5.58% 5.27% 5.29% 5.56% 6.08%
Net investment income, without expense reimbursement... - - 5.21% - -
Portfolio turnover rate................................. 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
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .0593 .0388 .033 .0424 .0647
Expenses................................................ (.0172) (.0184) (.0174) (.016) (.014)
Expense reimbursement(2)................................ .0071 .0084 .0074 .006 .0041
-------- ------- ------- ------- -------
Net investment income................................... .0492 .0288 .023 .0324 .0548
-------- ------- ------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME................ (.0492) (.0288) (.023) (.0324) (.0548)
-------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN(1)......................................... 5.01% 2.91% 2.31% 3.29% 5.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $ 60.3 $ 56.4 $ 59.2 $ 72.5 $ 84.8
Average net assets (millions)........................... $ 56.3 $ 56.6 $ 65.8 $ 77.9 $ 92.6
Ratios to average net assets(2)
Expenses............................................... 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, without expense reimbursement................ 1.71% 1.84% 1.74% 1.60% 1.41%
Net investment income.................................. 4.89% 2.87% 2.30% 3.27% 5.53%
Net investment income, without expense reimbursement... 4.18% 2.03% 1.56% 2.67% 5.12%
</TABLE>
(1)Total return does not consider the effect of sales charges.
(2)See Note 2.
See Notes to Financial Statements.
F-35
<PAGE> 157
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Common Sense Trust
We have audited the accompanying statements of net assets of Common Sense Growth
Fund, Common Sense Growth and Income Fund, Common Sense Government Fund, Common
Sense Municipal Bond Fund, and Common Sense Money Market Fund (cumulatively the
"Funds"), five of the ten portfolios constituting the series of the Common Sense
Trust (the "Trust"), as of October 31, 1995, and for each of the Funds, the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds of the Common Sense Trust listed above at October
31, 1995, the results of their operations, the changes in their net assets and
the financial highlights for each of the periods identified above, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
December 1, 1995
F-36
<PAGE> 158
GROWTH II FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
Common Stock 86.5%
CONSUMER DISTRIBUTION 5.3%
3,000 Dayton Hudson Corp.............................. $ 206,250
*9,500 Eckerd Corp..................................... 376,437
8,000 Gap, Inc........................................ 315,000
*3,000 Kohl's Corp..................................... 136,125
*16,000 Kroger Co....................................... 534,000
8,000 May Department Stores Co........................ 314,000
6,000 Nordstrom, Inc.................................. 222,375
*9,500 OfficeMax, Inc.................................. 235,125
15,000 Sears, Roebuck & Co............................. 510,000
----------
2,849,312
----------
CONSUMER DURABLES 1.4%
2,500 Chrysler Corp................................... 129,062
8,000 Echlin, Inc..................................... 286,000
8,000 General Motors Corp............................. 350,000
----------
765,062
----------
CONSUMER NON-DURABLES 8.9%
9,500 ConAgra, Inc.................................... 366,937
4,000 CPC International, Inc.......................... 265,500
9,700 Duracell International, Inc..................... 508,037
6,000 General Mills, Inc.............................. 344,250
6,000 Gillette Co..................................... 290,250
5,500 Heinz (H. J.) Co................................ 255,750
17,000 Nabisco Holdings Corp., Class A................. 456,875
14,000 PepsiCo, Inc.................................... 738,500
8,000 Procter & Gamble Co............................. 648,000
10,000 Ralston Purina Group............................ 593,750
13,000 Sara Lee Corp................................... 381,875
----------
4,849,724
----------
CONSUMER SERVICES 4.2%
2,400 Capital Cities ABC, Inc......................... 284,700
*8,000 Cox Communications, Inc......................... 150,000
4,000 Disney (Walt) Co................................ 230,500
6,600 Marriott International, Inc..................... 243,375
12,500 Service Corp. International..................... 501,563
*10,000 Tele-Communications International, Class A...... 226,250
7,000 Time Warner, Inc................................ 255,500
3,300 Tribune Co...................................... 208,313
*4,000 Viacom, Inc., Class B........................... 200,000
----------
2,300,201
----------
</TABLE>
F-37
<PAGE> 159
GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 6.5%
13,500 Coastal Corp........................................................ $ 437,062
7,500 Exxon Corp.......................................................... 572,812
5,500 Mobil Corp.......................................................... 554,125
17,500 Panhandle Eastern Corp.............................................. 441,875
6,000 Repsol SA, ADR...................................................... 177,750
4,000 Schlumberger, Ltd................................................... 249,000
7,500 Texaco, Inc......................................................... 510,938
10,500 USX-Marathon Group.................................................. 186,375
11,000 Williams Companies.................................................. 424,875
----------
3,554,812
----------
FINANCE 14.7%
10,000 Ahmanson (H.F.) & Co................................................ 250,000
6,500 American Express Co................................................. 264,062
3,500 American International Group, Inc................................... 295,312
14,300 Bank Of Boston Corp................................................. 636,350
5,700 Bank of New York, Inc............................................... 239,400
4,300 BankAmerica Corp.................................................... 247,250
8,500 Bankers Trust New York Corp......................................... 541,875
7,500 BayBanks, Inc....................................................... 607,500
3,000 Chase Manhattan Corp................................................ 171,000
3,000 Chemical Banking Corp............................................... 170,625
7,000 CoreStates Financial Corp........................................... 254,625
*900 Donaldson, Lufkin & Jenrette, Inc................................... 26,775
7,000 Federal National Mortgage Association............................... 734,125
13,000 Greenpoint Financial Corp........................................... 351,000
18,000 Green Tree Financial Corp........................................... 479,250
5,000 Merrill Lynch & Co., Inc............................................ 277,500
2,500 Morgan Stanley Group, Inc........................................... 217,500
5,700 Morgan (J.P.) & Co., Inc............................................ 439,613
147,311 Van Kampen American Capital Small Capitalization Fund (see Note 2).. 1,792,776
----------
7,996,538
----------
HEALTH CARE 11.7%
3,000 American Home Products Corp......................................... 265,875
*4,800 Amgen, Inc.......................................................... 230,400
5,500 Astra, AB, Series A, ADR............................................ 202,125
4,500 Baxter International, Inc........................................... 173,812
3,500 Becton Dickinson & Co............................................... 227,500
15,000 Caremark International, Inc......................................... 309,375
*1,500 Cordis Corp......................................................... 165,750
*10,000 Genzyme Corp........................................................ 582,500
4,300 Lilly (Eli) & Co.................................................... 415,488
5,000 Mallinckrodt Group, Inc............................................. 173,750
6,000 Medtronic, Inc...................................................... 346,500
4,600 Merck & Co., Inc.................................................... 264,500
*3,000 Nellcor Puritan Bennett, Inc........................................ 172,500
10,000 Pfizer, Inc......................................................... 573,750
</TABLE>
F-38
<PAGE> 160
GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE-continued
12,000 Schering-Plough Corp........................... $ 643,500
12,500 SmithKline Beecham, ADR........................ 648,438
1,600 St. Jude Medical, Inc.......................... 85,200
10,000 U. S. Healthcare, Inc.......................... 385,000
5,500 Warner Lambert Co.............................. 468,188
----------
6,334,151
----------
PRODUCER MANUFACTURING 6.0%
3,200 Fluor Corp..................................... 180,800
5,500 General Electric Co............................ 347,875
8,000 Honeywell, Inc................................. 336,000
3,000 Illinois Tool Works, Inc....................... 174,375
6,000 ITT Corp....................................... 735,000
3,300 Rockwell International Corp.................... 146,850
*12,000 Thermo Fibertek, Inc........................... 189,000
2,000 TRW, Inc....................................... 131,500
9,000 United Technologies Corp....................... 798,750
7,000 WMX Technologies, Inc.......................... 196,875
----------
3,237,025
----------
RAW MATERIALS/PROCESSING INDUSTRIES 3.1%
4,200 Champion International Corp.................... 224,700
5,800 Freeport-McMoRan, Copper Gold, Series B........ 131,950
4,200 Grace (W.R.) & Co.............................. 234,150
18,000 James River Corp............................... 578,250
5,000 Monsanto Co.................................... 523,750
----------
1,692,800
----------
TECHNOLOGY 17.3%
3,000 Adobe Systems, Inc............................. 171,000
*6,000 Bay Networks, Inc.............................. 397,500
5,000 Boeing Co...................................... 328,125
*8,000 Cisco Systems, Inc............................. 620,000
*11,500 Compaq Computer Corp........................... 641,125
12,000 Computer Associates International, Inc......... 660,000
*12,700 Dell Computer Corp............................. 592,138
*11,500 Digital Equipment Corp......................... 622,437
3,200 DST Systems, Inc............................... 67,200
7,000 General Motors Corp., Class H.................. 294,000
6,000 Hewlett-Packard Co............................. 555,750
10,000 Intel Corp..................................... 698,750
7,000 International Business Machines Corp........... 680,750
9,000 Loral Corp..................................... 266,625
*6,000 LSI Logic Corp................................. 282,750
3,500 McDonnell Douglas Corp......................... 286,125
*5,000 Microsoft Corp................................. 500,000
2,500 Motorola, Inc.................................. 164,063
*4,000 National Semiconductor Corp.................... 97,500
3,000 Northrop Grumman Corp.......................... 171,750
</TABLE>
F-39
<PAGE> 161
GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY-continued
*3,000 Oracle System Corp.................................................................... $ 130,875
*1,200 Parametric Technology Corp............................................................ 80,400
*8,500 Symantec Corp......................................................................... 206,656
3,800 Texas Instruments, Inc................................................................ 259,350
*11,000 3Com Corp............................................................................. 517,000
2,800 Varian Associates, Inc................................................................ 143,850
-----------
9,435,719
-----------
TRANSPORTATION 1.5%
3,000 Burlington Northern Santa Fe, Inc..................................................... 251,625
8,000 Conrail, Inc.......................................................................... 550,000
-----------
801,625
-----------
UTILITIES 5.9%
3,000 Ameritech Corp........................................................................ 162,000
10,000 AT&T Corp............................................................................. 640,000
*10,000 Cellular Communications, Inc., Class A................................................ 536,250
14,000 Frontier Corp......................................................................... 378,000
26,000 MCI Communications Corp............................................................... 648,375
3,000 SBC Communications, Inc............................................................... 167,625
*21,000 WorldCom, Inc......................................................................... 685,125
-----------
3,217,375
-----------
TOTAL COMMON STOCK (Cost $43,295,733)............................................... 47,034,344
-----------
Principal
Amount Short-Term Investments 14.4%
- -------------
REPURCHASE AGREEMENT 11.7%
**$6,380,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due 11/01/95 (Collateralized by
U.S. Government obligations in a pooled cash account)
repurchase proceeds $6,381,040...................................................... 6,380,000
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 2.7%
**1,500,000 United States Treasury Bills, 5.46%, 2/1/96........................................... 1,479,390
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $7,859,326)...................................... 7,859,390
-----------
TOTAL INVESTMENTS (Cost $51,155,059) 100.9%.......................................... 54,893,734
Other assets and liabilities, net (0.9)%............................................. (469,946)
-----------
NET ASSETS, equivalent to $14.57 per share for Class A
and $14.41 per share for Class B shares 100%....................................... $54,423,788
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,447,190 Class A and 2,313,448 Class B shares outstanding... $ 37,606
Capital surplus..................................................................................... 47,981,929
Undistributed net realized gain on securities....................................................... 2,593,885
Net unrealized appreciation of securities
Investments....................................................................................... 3,738,675
Futures contracts................................................................................. 71,693
-----------
NET ASSETS.......................................................................................... $54,423,788
===========
</TABLE>
* Non-income producing security
**Securities with a market value of approximately $5.9 million were placed as
collateral for futures contracts (see Note 1D)
See Notes to Financial Statements.
F-40
<PAGE> 162
GROWTH II FUND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations Year Ended
October 31, 1995
----------------
<S> <C>
INVESTMENT INCOME
Dividends.................................................... $ 391,376
Interest..................................................... 206,534
----------
Investment income.......................................... 597,910
----------
EXPENSES
Advisory fees................................................ 189,060
Shareholder service agent's fees and expenses................ 376,333
Accounting services.......................................... 47,314
Service fees--Class A........................................ 28,641
Distribution and service fees--Class B....................... 176,297
Trustees' fees and expenses.................................. 24,084
Audit fees................................................... 11,883
Legal fees................................................... 1,364
Reports to shareholders...................................... 28,200
Registration and filing fees................................. 90,032
Miscellaneous................................................ 1,344
Expense reimbursement........................................ (42,461)
----------
Total expenses............................................. 932,091
----------
Net investment loss........................................ (334,181)
---------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities
Investments................................................ 2,897,521
Futures contracts.......................................... 226,423
Net unrealized appreciation of securities during the period
Investments................................................ 3,467,222
Futures contracts.......................................... 55,205
----------
Net realized and unrealized gain on securities............... 6,646,371
----------
Increase in net assets resulting from operations............. $6,312,190
==========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
May 3, 1994*
Year Ended through
October 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period.............................. $10,163,636 $ 200
----------- -----------
OPERATIONS
Net investment loss........................................ (334,181) (8,840)
Net realized gain (loss) on securities..................... 3,123,944 (195,878)
Net unrealized appreciation of securities during the period 3,522,427 287,941
----------- ----------
Increase in net assets resulting from operations.......... 6,312,190 83,223
----------- ----------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.................................................. 17,139,771 4,406,808
Class B.................................................. 25,723,932 5,848,735
----------- -----------
42,863,703 10,255,543
----------- -----------
Cost of shares redeemed
Class A.................................................. (2,973,033) (63,815)
Class B.................................................. (1,942,708) (111,515)
----------- -----------
(4,915,741) (175,330)
----------- -----------
Increase in net assets resulting from capital transactions. 37,947,962 10,080,213
----------- -----------
INCREASE IN NET ASSETS....................................... 44,260,152 10,163,436
----------- -----------
NET ASSETS, end of period.................................... $54,423,788 $10,163,636
=========== ===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements.
F-41
<PAGE> 163
GROWTH & INCOME II FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------
<S> <C> <C>
Common Stock 87.3%
CONSUMER DISTRIBUTION 5.3%
*3,500 Ann Taylor Stores, Inc............ $ 38,500
2,300 Dayton Hudson Corp................ 158,125
*11,500 Federated Department Stores, Inc.. 291,812
3,900 Fleming Companies, Inc............ 88,238
3,900 Gap, Inc.......................... 153,563
900 Interstate Bakeries Co............ 19,238
11,000 May Department Stores Co.......... 431,750
*3,200 Nine West Group, Inc.............. 142,400
5,300 Nordstrom, Inc.................... 196,431
8,900 Sears, Roebuck & Co............... 302,600
----------
1,822,657
----------
CONSUMER DURABLES 1.3%
3,200 Eastman Kodak Co.................. 200,399
3,300 General Motors Corp............... 144,375
6,300 Sunbeam-Oster, Inc................ 94,500
----------
439,274
----------
CONSUMER NON-DURABLES 8.1%
4,900 Coca-Cola Co...................... 352,187
3,300 CPC International, Inc............ 219,038
2,500 General Mills, Inc................ 143,438
5,500 Gillette Co....................... 266,062
2,000 Kellogg Co........................ 144,500
16,800 Nabisco Holdings Corp., Class A... 451,500
2,200 Nike, Inc., Class B............... 124,850
5,900 Procter & Gamble Co............... 477,900
5,900 Quaker Oats Co.................... 201,337
7,500 Ralston Purina Group.............. 445,313
----------
2,826,125
----------
CONSUMER SERVICES 4.3%
2,200 Capital Cities ABC, Inc........... 260,974
4,800 Disney (Walt) Co.................. 276,600
6,700 McDonald's Corp................... 274,700
3,100 Omnicom Group, Inc................ 198,013
*5,700 Viacom, Inc., Class B............. 285,000
9,100 Wendy's International, Inc........ 180,863
----------
1,476,150
----------
</TABLE>
F-42
<PAGE> 164
GROWTH & INCOME II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 9.0%
3,700 British Petroleum Co., PLC, ADR.......................... $ 326,525
9,300 Exxon Corp............................................... 710,288
4,900 Mobil Corp............................................... 493,675
15,400 Pacific Enterprises...................................... 381,150
5,400 Panhandle Eastern Corp................................... 136,350
5,700 Royal Dutch Petroleum Co., ADR........................... 700,387
5,600 Texaco, Inc.............................................. 381,500
----------
3,129,875
----------
FINANCE 14.4%
2,800 Ahmanson (H.F.) & Co..................................... 70,000
3,450 American International Group, Inc........................ 291,094
6,400 Banc One Corp............................................ 216,000
4,800 Bank Of Boston Corp...................................... 213,600
8,000 Bankers Trust New York Corp.............................. 510,000
3,300 BayBanks, Inc............................................ 267,300
2,300 Beacon Properties Corp................................... 50,025
5,200 Chemical Banking Corp.................................... 295,750
3,100 Chubb Corp............................................... 278,613
6,900 CoreStates Financial Corp................................ 250,988
5,500 Debartolo Realty Corp.................................... 71,500
1,300 Duke Realty Investments, Inc............................. 39,812
7,700 Federal National Mortgage Association.................... 807,538
1,200 Health Care Property Investors, Inc...................... 40,650
8,400 Horace Mann Educators Corp............................... 223,649
6,500 Morgan (J.P.) & Co., Inc................................. 501,312
14,100 Prudential Reinsurance Holdings.......................... 287,288
3,500 St. Paul Companies, Inc.................................. 177,625
9,400 State Street Boston Corp................................. 365,425
300 Vornado Realty Trust..................................... 10,763
1,100 Weingarten Realty Investors.............................. 37,950
----------
5,006,882
----------
HEALTH CARE 11.4%
5,200 Abbott Laboratories, Inc................................. 206,700
4,300 American Home Products Corp.............................. 381,087
*7,800 Amgen, Inc............................................... 374,400
4,000 Astra, AB, Series A, ADR................................. 147,000
6,000 Baxter International, Inc................................ 231,750
*9,000 Charter Medical Corp..................................... 162,000
5,300 Mallinckrodt Group, Inc.................................. 184,175
9,900 Merck & Co., Inc......................................... 569,250
6,200 Pfizer, Inc.............................................. 355,725
7,200 Pharmacia Aktiebolag, ADR................................ 252,000
9,100 Schering-Plough Corp..................................... 487,988
9,200 Tenet Healthcare Corp.................................... 164,450
3,600 Teva Pharmaceutical, Ltd., ADR........................... 141,300
*4,600 Vencor, Inc.............................................. 127,650
3,100 Zeneca Group PLC, ADR.................................... 174,763
----------
3,960,238
----------
</TABLE>
F-43
<PAGE> 165
GROWTH & INCOME II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ----------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 6.1%
7,800 Allied-Signal, Inc....................... $ 331,500
7,100 Fluor Corp............................... 401,150
5,000 General Electric Co...................... 316,250
10,600 Honeywell, Inc........................... 445,200
4,800 Illinois Tool Works, Inc................. 279,000
4,300 Stewart & Stevenson Services, Inc........ 97,825
8,200 WMX Technologies, Inc.................... 230,625
----------
2,101,550
----------
RAW MATERIALS/PROCESSING INDUSTRIES 6.2%
3,700 Air Products & Chemicals, Inc........... 191,013
4,400 Aluminum Co. of America................. 224,400
8,100 Bemis, Inc.............................. 210,600
4,800 Champion International Corp............. 256,800
4,400 Grace (W.R.) & Co....................... 245,300
5,400 James River Corp........................ 173,475
4,400 Monsanto Co............................. 460,900
4,400 Scott Paper Co.......................... 234,300
3,100 Sigma-Aldrich Corp...................... 147,250
----------
2,144,038
----------
TECHNOLOGY 10.5%
3,600 Adobe Systems, Inc....................... 205,200
4,800 Alcatel Alsthom, ADR..................... 81,000
4,600 Boeing Co................................ 301,875
*5,400 Compaq Computer Corp..................... 301,050
8,000 Computer Associates International, Inc... 440,000
*5,000 Digital Equipment Corp................... 270,625
3,000 Hewlett-Packard Co....................... 277,874
1,300 International Business Machines Corp..... 126,425
9,700 Loral Corp............................... 287,362
3,100 McDonnell Douglas Corp................... 253,425
*2,200 Microsoft Corp........................... 220,000
1,100 Motorola, Inc............................ 72,187
1,700 Nokia Corp., ADS......................... 94,775
3,200 Northrop Grumman Corp.................... 183,200
*4,300 Symantec Corp............................ 104,544
3,300 Xerox Corp............................... 428,175
----------
3,647,717
----------
TRANSPORTATION 0.9%
4,800 Union Pacific Corp...................... 313,800
----------
UTILITIES 9.8%
4,300 Ameritech Corp.......................... 232,200
8,000 AT&T Corp............................... 512,000
6,900 Cincinnati Bell, Inc.................... 202,688
6,400 Duke Power Co........................... 286,400
</TABLE>
F-44
<PAGE> 166
GROWTH & INCOME II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--continued
14,100 Frontier Corp................................... $ 380,700
18,000 MCI Communications Corp......................... 448,875
7,100 National Power, PLC, ADR........................ 88,750
19,000 Pacificorp...................................... 358,624
4,400 Peco Energy Co.................................. 128,700
6,500 PowerGen, PLC, ADR.............................. 108,062
5,100 Southern New England Telecommunications Corp.... 184,238
11,500 Telefonos de Mexico, S.A., ADR.................. 316,250
2,800 U. S. West, Inc................................. 133,350
----------
3,380,837
----------
TOTAL COMMON STOCK (Cost $28,102,546)......... 30,249,143
----------
Convertible Preferred Stock 2.9%
5,000 Browning-Ferris, ACES, $7.25.................... 164,375
3,000 Corning Glassworks, MIPS, 6%.................... 135,000
5,800 James River Corp., DECS, $1.55.................. 176,900
2,000 SCI Finance, NV, LLC, 6.25%..................... 141,000
4,500 Time Warner, Inc., $1.24, PERCS................. 144,000
3,700 Williams Companies, Inc. $3.50.................. 251,600
----------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost $950,093)............................. 1,012,875
----------
Principal
Amount
- --------- Convertible Corporate Obligations 4.8%
CONSUMER DISTRIBUTION 0.6%
$145,000 Federated Department Stores, Inc., 5.00%,
10/01/03...................................... 140,650
160,000 Rite Aid Corp., LYON, Zero Coupon, 7/24/06...... 79,600
----------
220,250
----------
CONSUMER SERVICES 1.7%
600,000 ADT Operations, Inc., LYON, Zero Coupon,
7/06/10........................................ 270,000
300,000 News America Holdings, Inc., LYON, Zero Coupon,
3/11/13........................................ 133,500
Time Warner, Inc.
54,850 8.75%, 1/10/15................................. 57,113
300,000 LYON, Zero Coupon, 6/22/13..................... 120,000
----------
580,613
----------
HEALTH CARE 1.6%
100,000 Ciba-Geigy, 6.25%, 3/15/16....................... 100,000
500,000 Roche Holdings, Inc., LYON, Zero Coupon, 4/20/10. 206,250
90,000 Sandoz, Ltd. 2.00%, 10/06/02..................... 78,975
150,000 United Technologies Corp., PEN, Zero Coupon,
9/08/97........................................ 178,500
----------
563,725
----------
UTILITIES 0.9%
4,000 Sprint Corp., DECS, 8.25%, 3/30/00............... 145,104
500,000 U. S. Cellular Corp., LYON, Zero Coupon, 6/15/15. 170,000
----------
315,104
----------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS
(Cost $1,551,702).............................. 1,679,692
----------
</TABLE>
F-45
<PAGE> 167
GROWTH & INCOME II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 9.3%
REPURCHASE AGREEMENT 9.0%
**$ 3,125,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due
11/1/95 (Collateralized by U.S. Government obligations
in a pooled cash account) repurchase proceeds $3,125,510. $ 3,125,000
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 0.3%
**100,000 United States Treasury Bills, 5.33%, 2/8/96................ 98,525
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $3,223,550)............. 3,223,525
-----------
TOTAL INVESTMENTS (Cost $33,827,891) 104.3%................ 36,165,235
Other assets and liabilities, net (4.3%)................... (1,498,311)
-----------
NET ASSETS, equivalent to $13.92 per share for
Class A and $13.88 per share for Class B shares 100%...... $34,666,924
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 970,197 Class A and 1,525,260 Class B
shares outstanding..................................................................... $ 24,955
Capital surplus......................................................................... 31,524,800
Undistributed net realized gain on securities........................................... 784,850
Net unrealized appreciation (depreciation) of securities
Investments........................................................................... 2,337,344
Futures contracts..................................................................... (5,025)
----------
NET ASSETS.............................................................................. $34,666,924
===========
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $600,000 were placed as
collateral for futures contracts (see Note 1D)
ACES--Automatically convertible equity stock
DECS--Dividend enhanced convertible stock
LYON--Liquid yield option note, zero coupon
MIPS--Monthly income paying security
PEN--Pharmaceutical exchange note
PERCS--Preferred equity redeemable cumulative stock
See Notes to Financial Statements.
F-46
<PAGE> 168
GROWTH AND INCOME II FUND STATEMENT OF OPERATIONS
Year Ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends........................................................................................................... $ 390,874
Interest............................................................................................................ 179,223
----------
Investment income................................................................................................. 570,097
----------
EXPENSES
Advisory fees...................................................................................................... 115,168
Shareholder service agent's fees and expenses...................................................................... 111,024
Accounting services................................................................................................ 46,448
Service fees--Class A.............................................................................................. 18,742
Distribution and service fees--Class B............................................................................. 102,215
Trustees' fees and expenses........................................................................................ 23,354
Audit fees......................................................................................................... 12,633
Legal fees......................................................................................................... 1,119
Reports to shareholders............................................................................................ 12,870
Registration and filing fees....................................................................................... 86,375
Miscellaneous...................................................................................................... 873
Expense reimbursement.............................................................................................. (26,000)
----------
Total expenses................................................................................................... 504,821
----------
Net investment income............................................................................................ 65,276
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain on securities
Investments..................................................................................................... 794,752
Futures contracts............................................................................................... 127,864
Net unrealized appreciation (depreciation) of securities during the period
Investments..................................................................................................... 2,256,207
Futures contracts............................................................................................... (900)
----------
Net realized and unrealized gain on securities.................................................................... 3,177,923
----------
Increase in net assets resulting from operations.................................................................. $3,243,199
==========
</TABLE>
See Notes to Financial Statements.
F-47
<PAGE> 169
GROWTH AND INCOME II FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
May 3, 1994*
Year Ended through
October 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period................................... $ 7,111,500 $ 200
----------- ----------
Operations
Net investment income........................................... 65,276 54,709
Net realized gain (loss) on securities.......................... 922,616 (121,393)
Net unrealized appreciation of securities during the period..... 2,255,307 77,012
----------- ----------
Increase in net assets resulting from operations.............. 3,243,199 10,328
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (see Note 1H)
Net investment income
Class A....................................................... (60,588) (11,970)
Class B....................................................... (4,688) (6,840)
----------- ----------
(65,276) (18,810)
----------- ----------
Excess of book-basis net investment income
Class A....................................................... (19,387) --
Class B....................................................... (32,885) --
----------- ----------
(52,272) --
----------- ----------
Total distributions........................................... (117,548) (18,810)
----------- ----------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A....................................................... 11,271,055 3,526,516
Class B....................................................... 17,102,298 3,654,518
----------- ----------
28,373,353 7,181,034
----------- ----------
Proceeds from shares issued for distributions reinvested
Class A....................................................... 78,007 11,544
Class B....................................................... 37,331 6,749
----------- ----------
115,338 18,293
----------- ----------
Cost of shares redeemed
Class A....................................................... (2,680,200) (56,689)
Class B....................................................... (1,378,718) (22,856)
----------- ----------
(4,058,918) (79,545)
----------- ----------
Increase in net assets resulting from capital transactions.... 24,429,773 7,119,782
----------- ----------
INCREASE IN NET ASSETS............................................ 27,555,424 7,111,300
----------- ----------
NET ASSETS, end of period......................................... $34,666,924 $7,111,500
=========== ==========
</TABLE>
*Commencement of operations.
See Notes to Financial Statements.
F-48
<PAGE> 170
GOVERNMENT II FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Treasury Notes 54.2%
$ 800,000 6.50%, 8/15/97............................................................ $ 811,504
**400,000 7.25%, 11/15/96........................................................... 406,376
400,000 7.50%, 12/31/96........................................................... 408,312
600,000 7.75%, 12/31/99........................................................... 642,468
800,000 7.875%, 7/31/96........................................................... 812,752
**1,200,000 7.875%, 1/15/98........................................................... 1,254,000
**1,900,000 8.50%, 11/15/95........................................................... 1,901,482
**3,280,000 8.875%, 2/15/96........................................................... 3,308,700
400,000 9.00%, 5/15/98............................................................ 430,752
**500,000 9.25%, 1/15/96............................................................ 503,440
-----------
TOTAL UNITED STATES TREASURY NOTES (Cost $10,514,718)................... 10,479,786
-----------
United States Government Agencies 39.7%
Federal Home Loan Mortgage Corp.
184,606 7.00%, pool, 10/01/24..................................................... 183,164
737,647 7.50%, pools, 7/01/24 to 6/01/25.......................................... 745,946
957,996 8.00%, pools, 4/01/23 to 10/01/25......................................... 981,352
Federal National Mortgage Association
385,582 7.00%, pool, 5/01/24...................................................... 382,328
712,679 7.50%, pools, 8/01/24 to 11/01/24......................................... 720,027
793,750 8.00%, pools, 8/01/24 to 8/01/25.......................................... 813,102
Government National Mortgage Association
170,969 7.00%, pool, 6/15/22...................................................... 169,795
2,144,680 7.50%, pools, 10/15/22 to 6/15/24......................................... 2,172,839
1,453,332 8.00%, pools, 2/15/23 to 6/15/25.......................................... 1,495,115
-----------
TOTAL UNITED STATES GOVERNMENT AGENCIES (Cost $7,275,810)............... 7,663,668
-----------
Forward Purchase Commitments 19.6%
*100,000 Federal Home Loan Mortgage Corp., 7.50%, settling 1/96...................... 100,838
Federal National Mortgage Association
*600,000 7.50%, settling 12/95..................................................... 605,304
*200,000 7.50%, settling 1/96...................................................... 201,484
Government National Mortgage Association
*2,500,000 7.00%, settling 1/96...................................................... 2,476,575
*400,000 7.50%, settling 12/95..................................................... 404,676
-----------
TOTAL FORWARD PURCHASE COMMITMENTS (Cost $3,770,500).................... 3,788,877
-----------
Repurchase Agreement 1.7%
330,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due 11/1/95
(collateralized by U.S. Government obligations in a pooled cash account)
repurchase proceeds $330,054 (Cost $330,000)............................. 330,000
-----------
TOTAL INVESTMENTS (Cost $21,891,028) 115.2%............................... 22,262,331
Other assets and liabilities, net 4.7%.................................... 913,372
Receivable for investments sold 2.6%...................................... 496,563
Payable for investments purchased (22.5%)................................. (4,353,063)
-----------
NET ASSETS, equivalent to $12.14 per share for Class A
and $12.14 per share for Class B shares 100%............................ $19,319,203
===========
</TABLE>
F-49
<PAGE> 171
GOVERNMENT II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
<S> <C>
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 809,931 Class A and 780,836 Class B shares outstanding...... $ 15,908
Capital surplus.................................................................................... 18,879,404
Accumulated net realized loss on securities........................................................ (22,577)
Net unrealized appreciation of securities:
Investments...................................................................................... 371,303
Forward commitments.............................................................................. 13,313
Futures contracts................................................................................ 61,852
-----------
NET ASSETS......................................................................................... $19,319,203
===========
</TABLE>
*Non-income producing security
**Securities with a market value of approximately $7.6 million were placed as
collateral for forwards commitments and futures contracts (see Note 1D)
See Notes to Financial Statements.
F-50
<PAGE> 172
GOVERNMENT II FUND STATEMENT OF OPERATIONS
Year Ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest...................................................... $ 933,882
----------
EXPENSES
Advisory fees................................................. 71,599
Shareholder service agent's fees and expenses................. 39,267
Accounting services........................................... 50,709
Service fees--Class A......................................... 16,075
Distribution and service fees--Class B........................ 55,032
Trustees' fees and expenses................................... 23,241
Audit fees.................................................... 14,883
Legal fees.................................................... 1,165
Reports to shareholders....................................... 7,212
Registration and filing fees.................................. 87,812
Miscellaneous................................................. 683
----------
Total expenses.............................................. 367,678
----------
Net investment income....................................... 566,204
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments................................................. 42,159
Forward commitments......................................... 17,172
Futures contracts........................................... (33,004)
Net unrealized appreciation of securities during the period
Investments................................................. 518,081
Forward commitments......................................... 13,313
Futures contracts........................................... 61,852
----------
Net realized and unrealized gain on securities................ 619,573
----------
Increase in net assets resulting from operations.............. $1,185,777
==========
</TABLE>
See Notes to Financial Statements.
F-51
<PAGE> 173
GOVERNMENT II FUND STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended May 3, 1994*
October 31, through October 31,
1995 1994
------------- -------------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $ 7,342,156 $ 200
----------- -----------
OPERATIONS
Net investment income....................................................... 566,204 89,214
Net realized gain (loss) on securities...................................... 26,327 (35,179)
Net unrealized appreciation (depreciation) of securities during the period.. 593,246 (146,778)
----------- -----------
Increase (decrease) in net assets resulting from operations............... 1,185,777 (92,743)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM (see Note 1H)
Net investment income
Class A.................................................................... (328,298) (66,280)
Class B.................................................................... (237,906) (17,949)
----------- -----------
(566,204) (84,229)
----------- -----------
Excess of book-basis net investment income
Class A.................................................................... (10,291) --
Class B.................................................................... (8,419) --
----------- -----------
(18,710) --
----------- -----------
Total distributions...................................................... (584,914) (84,229)
----------- -----------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.................................................................... 6,491,908 5,138,916
Class B.................................................................... 7,373,364 2,976,454
----------- -----------
13,865,272 8,115,370
----------- -----------
Proceeds from shares issued for distributions reinvested
Class A.................................................................... 331,815 60,050
Class B.................................................................... 237,404 17,072
----------- -----------
569,219 77,122
----------- -----------
Cost of shares redeemed
Class A.................................................................... (1,866,580) (516,794)
Class B.................................................................... (1,191,727) (156,770)
----------- -----------
(3,058,307) (673,564)
----------- -----------
Increase in net assets resulting from capital transactions................. 11,376,184 7,518,928
----------- -----------
INCREASE IN NET ASSETS....................................................... 11,977,047 7,341,956
----------- -----------
NET ASSETS, end of period.................................................... $19,319,203 $ 7,342,156
=========== ===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements
F-52
<PAGE> 174
EMERGING GROWTH II FUND Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 94.9%
CONSUMER DISTRIBUTION 7.4%
2,500 Alco Standard Corp...................................... $ 221,250
*1,000 Baby Superstore, Inc.................................... 47,250
*1,000 Boise Cascade Office Products Corp...................... 36,125
3,500 Casey's General Stores, Inc............................. 80,500
*1,500 CDW Computer Centers, Inc............................... 72,750
*5,000 CompUSA, Inc............................................ 191,250
*4,000 Consolidated Stores Corp................................ 92,500
*4,000 Corporate Express, Inc.................................. 104,500
*1,000 Creative Computer, Inc.................................. 29,000
3,000 Fastenal Co............................................. 104,437
*2,000 Garden Ridge Corp....................................... 71,500
*6,000 General Nutrition Companies, Inc........................ 149,250
2,500 Just For Feet, Inc...................................... 59,062
*4,000 Kroger Co............................................... 133,500
*2,000 Micro Warehouse, Inc.................................... 89,000
*1,000 Petco Animal Supplies................................... 28,000
2,500 Richfood Holdings, Inc.................................. 62,500
*2,500 Safeway, Inc............................................ 118,125
*3,500 Staples Inc............................................. 93,188
*7,500 Sunglass Hut International, Inc......................... 204,375
----------
1,988,062
----------
CONSUMER DURABLES 1.3%
2,000 Black & Decker Corp..................................... 67,750
2,500 Clayton Homes, Inc...................................... 65,625
2,000 Harman International Industries, Inc.................... 92,250
*4,000 Toll Brothers, Inc...................................... 71,500
*500 TransPro, Inc........................................... 5,500
*2,000 Ultralife Batteries, Inc................................ 40,500
----------
343,125
----------
CONSUMER NON-DURABLES 3.3%
2,000 Coca-Cola Enterprises, Inc.............................. 53,250
2,000 Fila Holdings, ADR...................................... 86,250
2,500 First Brands Corp....................................... 114,375
*3,000 Nu-Kote Holding, Inc., Class A.......................... 62,250
*2,500 Quiksilver, Inc......................................... 77,500
2,000 St. John Knits, Inc..................................... 95,750
2,000 Starbucks Corp.......................................... 78,500
*5,500 Tommy Hilfiger Corp..................................... 209,688
*500 USA Detergents, Inc..................................... 12,750
3,500 Wolverine World Wide, Inc............................... 105,000
----------
895,313
----------
CONSUMER SERVICES 8.8%
*2,000 Alternative Resources Corp.............................. 62,000
2,000 American Radio Systems Corp............................. 45,000
3,500 Applebees International, Inc............................ 98,437
*4,000 Boston Chicken, Inc..................................... 135,250
</TABLE>
F-53
<PAGE> 175
EMERGING GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES--continued
*2,000 Clear Channel Communications, Inc......................... $ 164,000
*3,500 Corrections Corp. of America.............................. 190,750
3,500 Equifax, Inc.............................................. 136,500
*2,500 Evergreen Media Corp., Class A............................ 68,125
*2,500 Gartner Group, Inc........................................ 109,062
2,000 Hospitality Franchise System, Inc......................... 122,500
*4,000 Infinity Broadcasting Corp................................ 130,000
2,000 Interpublic Group Companies, Inc.......................... 77,500
4,000 La Quinta Inns, Inc....................................... 103,000
*3,500 Lone Star Steakhouse & Saloon, Inc........................ 135,187
3,000 Meredith Corp............................................. 107,250
*5,000 Mirage Resorts, Inc....................................... 163,750
3,000 National Data Corp........................................ 79,500
*700 Outback Steakhouse, Inc................................... 21,963
*2,000 Regal Cinemas, Inc........................................ 78,500
3,000 Reynolds & Reynolds Co.................................... 106,875
*2,000 Scientific Games Holdings Corp............................ 65,500
*1,500 Sinclair Broadcast Group, Class A......................... 31,125
3,000 V-Tel Corp................................................ 54,000
1,000 Wallace Computer Services, Inc............................ 56,375
500 Wendy's International, Inc................................ 9,938
----------
2,352,087
----------
ENERGY 4.5%
2,000 Apache Corp............................................... 51,000
*3,448 BJ Services Co. (includes 60 warrants, expiring 4/13/00).. 79,888
*1,500 Cairn Energy USA, Inc..................................... 18,000
2,000 Camco International, Inc.................................. 45,750
*3,000 Chesapeake Energy Corp.................................... 87,750
*2,000 Diamond Offshore Drilling................................. 49,750
500 Enron Oil & Gas Co........................................ 10,000
*7,500 Global Marine, Inc........................................ 48,750
*4,000 Input/Output, Inc......................................... 149,500
2,500 Kerr McGee Corp........................................... 137,813
*2,500 Newfield Exploration Co................................... 73,750
1,000 Phoenix Resource Co....................................... 17,750
4,500 Pogo Producing Co......................................... 90,563
*6,500 Pride Petroleum Services, Inc............................. 56,875
*4,500 Smith International, Inc.................................. 72,000
4,500 Sonat Offshore Drilling, Inc.............................. 142,875
2,500 Tidewater, Inc............................................ 65,938
1,000 Varco International, Inc.................................. 9,125
----------
1,207,077
----------
FINANCE 10.3%
2,000 AAMES Financial Corp...................................... 50,000
4,000 Bank of New York, Inc..................................... 168,000
6,500 Bank of Boston Corp....................................... 289,250
2,500 BayBanks, Inc............................................. 202,500
3,000 City National Corp........................................ 39,750
1,200 CMAC Investment Corp...................................... 57,000
</TABLE>
F-54
<PAGE> 176
EMERGING GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------
<S> <C> <C>
FINANCE--continued
*2,500 Credit Acceptance Corp............................... $ 58,750
2,500 Cullen Frost Bankers, Inc............................ 127,500
2,500 EXEL Limited......................................... 133,750
3,000 FINOVA Group, Inc.................................... 135,750
2,500 First American Corp.................................. 109,687
2,000 First Bank System, Inc............................... 99,500
7,000 Green Tree Financial Corp............................ 186,375
1,000 Household International, Inc......................... 56,250
2,000 MBNA Corp............................................ 73,750
2,500 Mercantile Bancorporation, Inc....................... 110,000
3,500 Mercury Financial Co................................. 67,375
2,500 Mercury General Corp................................. 105,000
1,500 Meridian Bancorp, Inc................................ 64,125
2,000 Money Store, Inc..................................... 80,000
*3,500 Oxford Resources Corp., Class A...................... 91,875
2,000 Peoples Heritage Financial Group, Inc................ 38,000
1,500 Star Banc Corp....................................... 83,063
3,000 TCF Financial Corp................................... 176,250
3,500 United Companies Financial Corp...................... 98,875
1,500 Vesta Insurance Group, Inc........................... 60,563
----------
2,762,938
----------
HEALTH CARE 15.2%
*500 American Oncology Resources.......................... 17,500
*3,500 AMSCO International, Inc............................. 56,000
*5,000 Boston Scientific Corp............................... 210,625
*1,000 Coherent, Inc........................................ 28,250
*1,200 Community Health Systems, Inc........................ 38,100
*2,000 CompDent, Corp....................................... 62,250
*2,500 Cycare System, Inc................................... 77,500
*4,000 Dura Pharmaceuticals, Inc............................ 117,000
*1,500 Genzyme Corp......................................... 87,375
5,000 Guidant Corp......................................... 160,000
*2,500 Gulf South Medical Supply, Inc....................... 51,875
6,000 HBO & Co............................................. 424,500
*8,000 Health Management Associates, Inc., Class A.......... 172,000
*1,500 Health Management Systems, Inc....................... 48,000
*3,500 Healthsouth Rehabilitation........................... 91,438
*1,000 HPR, Inc............................................. 26,000
4,000 Invacare Corp........................................ 101,000
*1,500 Medaphis Corp........................................ 47,625
*2,000 Medpartners, Inc..................................... 56,000
7,000 Medtronic, Inc....................................... 404,250
4,000 Mentor Corp.......................................... 88,000
*2,000 Nellcor Puritan Bennett, Inc......................... 115,000
*3,000 OccuSystems, Inc..................................... 62,062
5,000 OmniCare, Inc........................................ 181,250
*1,500 Oxford Health Plans, Inc............................. 117,375
*7,000 Phycor, Inc.......................................... 257,250
*1,500 Physician Reliance Network........................... 49,875
</TABLE>
F-55
<PAGE> 177
EMERGING GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE--continued
*4,500 Physician Sales & Service, Inc.................. $ 73,125
*1,000 Quintiles Transnational Corp.................... 64,250
*2,000 Renal Treatment Centers, Inc.................... 72,000
*2,500 Research Industries Corp........................ 68,750
1,500 Respironics, Inc................................ 32,712
2,000 St. Jude Medical, Inc........................... 106,500
*3,000 Steris Corp..................................... 101,250
*1,500 Sybron Corp..................................... 63,750
*1,000 Target Therapeutics, Inc........................ 77,500
*2,000 Thermedics, Inc................................. 36,750
*1,500 United Dental Care, Inc......................... 45,750
*467 Vencor, Inc..................................... 12,959
*3,500 Watsons Pharmaceuticals, Inc.................... 156,625
----------
4,060,021
----------
PRODUCER MANUFACTURING 6.2%
2,500 BMC Industries, Inc............................. 96,563
2,500 Case Corp....................................... 95,312
*1,500 Cognex Corp..................................... 89,625
4,500 Danaher Corp.................................... 139,500
2,500 Dover Corp...................................... 98,750
2,500 Duriron, Inc.................................... 66,875
*1,000 FMC Corp........................................ 71,625
*4,500 Glenayre Technologies........................... 289,125
2,000 Greenfield Industries, Inc...................... 60,000
1,000 Helix Technology Corp........................... 37,500
*1,500 Kent Electronics Corp........................... 73,125
3,000 Measurex Corp................................... 92,250
*2,500 Mueller Industries, Inc......................... 58,750
1,500 Precision Castparts Co.......................... 53,625
*3,000 Robotic Vision Systems, Inc..................... 68,625
*3,500 Sanifill, Inc................................... 110,250
*3,000 United Waste Systems, Inc....................... 118,500
*2,000 USA Waste Services, Inc......................... 42,000
----------
1,662,000
----------
RAW MATERIALS/PROCESSING INDUSTRIES 4.5%
5,000 Albemarle Corp.................................. 93,125
1,150 Eastman Chemical Co............................. 68,425
1,500 Goodrich B. F. Co............................... 98,813
1,500 Hercules, Inc................................... 80,062
3,500 IMC Global, Inc................................. 245,000
2,500 Millipore Corp.................................. 88,437
3,000 Mineral Technologies, Inc....................... 119,625
3,000 Potash Corp. Sask, Inc.......................... 208,875
1,500 Rayonier, Inc................................... 56,250
*2,000 Sealed Air Corp................................. 52,750
2,000 Sonoco Products Co.............................. 49,500
*1,500 UCAR International, Inc......................... 42,750
----------
1,203,612
----------
</TABLE>
F-56
<PAGE> 178
EMERGING GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 28.4%
2,000 Allen Group, Inc................................ $ 49,000
*5,500 Altera Corp..................................... 332,750
1,500 America Online, Inc............................. 120,000
*5,000 Analog Devices, Inc............................. 180,625
*3,000 Applied Materials, Inc.......................... 150,375
*7,000 Ascend Communications, Inc...................... 455,000
*1,500 Aspect Telecommunications Corp.................. 51,562
*1,500 Aspen Technology, Inc........................... 41,250
*9,000 Atmel Corp...................................... 281,250
*3,000 Bay Networks, Inc............................... 198,750
*500 C P Clare Corp.................................. 12,938
*2,500 Cabletron Systems, Inc.......................... 196,562
*7,250 Cadence Design Systems, Inc..................... 233,812
*1,500 Cambridge Technology Partners, Inc.............. 85,125
*2,000 C-Cube Microsystems, Inc........................ 138,250
3,000 Ceridian Corp................................... 130,500
*2,000 Credence Systems Corp........................... 74,750
*2,000 Cyberoptics Corp................................ 66,000
*5,500 Dell Computer Corp.............................. 256,438
*6,000 Informix Corp................................... 174,750
*3,000 International Rectifier Corp.................... 135,375
*4,000 Kemet Corp...................................... 138,000
*3,500 KLA Instruments Corp............................ 149,625
*2,000 Komag, Inc...................................... 114,000
*1,500 Kronos, Inc..................................... 69,000
7,000 Linear Technology Corp.......................... 306,250
*5,500 LSI Logic Corp.................................. 259,187
*2,500 Macromedia, Inc................................. 92,500
*2,500 McAfee Associations, Inc........................ 145,625
*4,000 Medic Computer Systems, Inc..................... 213,000
2,000 Micron Technology, Inc.......................... 141,250
*2,500 Mylex Corp...................................... 46,563
*3,000 National Semiconductor Corp..................... 73,125
*2,500 Network General Corp............................ 103,750
*2,000 Parametric Technology Corp...................... 134,000
*1,500 Peoplesoft, Inc................................. 129,000
*2,000 PRI Automation.................................. 74,000
1,500 Project Software & Development, Inc............. 39,750
*5,000 SCI Systems, Inc................................ 175,625
*2,000 Sierra On-Line, Inc............................. 74,500
*4,000 Sierra Semiconductor Corp....................... 71,500
2,000 Sundstrand Corp................................. 122,500
*3,000 Sunguard Data Systems, Inc...................... 82,500
1,500 Tektronix, Inc.................................. 88,875
*2,000 Tencor Instruments.............................. 85,250
*1,000 Teradyne, Inc................................... 33,375
*500 Thermolase Corp................................. 10,188
*500 Thermospectra Corp.............................. 8,125
*7,000 3Com Corp....................................... 329,000
*4,500 U.S. Robotics Corp.............................. 416,250
*5,000 Ultratech Stepper, Inc.......................... 200,000
*4,500 Vicor Corp...................................... 91,969
</TABLE>
F-57
<PAGE> 179
EMERGING GROWTH II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY--continued
*3,000 Vishay Intertechnology, Inc........................................................... $ 105,750
2,000 Watkins Johnson Co.................................................................... 96,250
-----------
7,585,344
-----------
TRANSPORTATION 3.0%
2,500 Airborne Freight Corp................................................................. 65,625
4,000 Comair Holdings, Inc.................................................................. 112,250
2,000 Conrail, Inc.......................................................................... 137,500
*2,500 Continental Airlines, Inc., Class B................................................... 89,062
*2,000 Fritz Companies, Inc.................................................................. 70,000
*3,500 Northwest Airlines, Inc., Class A..................................................... 140,437
*1,000 UAL Corp.............................................................................. 175,875
-----------
790,749
-----------
UTILITIES 2.0%
2,500 AT&T Capital Corp..................................................................... 100,000
*1,000 Cellular Communications Inc., Class A................................................. 53,625
4,000 Cincinnati Bell, Inc.................................................................. 117,500
4,500 Frontier Corp......................................................................... 121,500
*6,000 LCI International, Inc................................................................ 108,000
*1,000 Midcom Communications, Inc............................................................ 15,000
*1,000 Palmer Wireless, Inc.................................................................. 22,750
-----------
538,375
-----------
TOTAL COMMON STOCK (Cost $23,221,938)............................................... 25,388,703
-----------
<CAPTION>
Principal
Amount Repurchase Agreement 9.7%
- ----------
$2,585,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due 11/1/95
(collateralized by U.S. Government obligations in a pooled
cash account) repurchase proceeds $2,585,421 (Cost $2,585,000)....................... 2,585,000
-----------
TOTAL INVESTMENTS (Cost $25,806,938) 104.6%.......................................... 27,973,703
Other assets and liabilities, net (4.6%) (1,230,130)
-----------
NET ASSETS, equivalent to $15.12 per share for Class A and
$15.04 per share for Class B shares 100%............................................ $26,743,573
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,054,794 Class A and 717,720 Class B shares outstanding.. $ 17,725
Capital surplus.................................................................................. 24,589,075
Accumulated net realized loss on securities...................................................... (29,992)
Net unrealized appreciation of securities........................................................ 2,166,765
-----------
NET ASSETS ...................................................................................... $26,743,573
===========
</TABLE>
*Non-income producing security.
See Notes to Financial Statements.
F-58
<PAGE> 180
EMERGING GROWTH II FUND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
INVESTMENT INCOME
Dividends...................................................... $ 35,352
Interest....................................................... 44,084
----------
Investment income............................................ 79,436
----------
EXPENSES
Advisory fees.................................................. 47,662
Shareholder service agent's fees and expenses.................. 104,742
Accounting services............................................ 6,365
Service fees--Class A.......................................... 11,480
Distribution and service fees--Class B......................... 27,405
Trustees' fees and expenses.................................... 7,196
Audit fees..................................................... 10,300
Legal fees..................................................... 1,336
Reports to shareholders........................................ 4,434
Registration and filing fees................................... 43,600
Organization................................................... 2,805
Miscellaneous.................................................. 369
Expense reimbursement.......................................... (45,493)
----------
Total expenses............................................... 222,201
----------
Net investment loss.......................................... (142,765)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized loss on securities................................ (29,992)
Net unrealized appreciation of securities during the period.... 2,166,765
----------
Net realized and unrealized gain on securities............... 2,136,773
----------
Increase in net assets resulting from operations............. $1,994,008
==========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
NET ASSETS, beginning of period................................ $ 200
-----------
OPERATIONS
Net investment loss.......................................... (142,765)
Net realized loss on securities.............................. (29,992)
Net unrealized appreciation of securities during the period.. 2,166,765
-----------
Increase in net assets resulting from operations........... 1,994,008
-----------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.................................................... 15,664,882
Class B.................................................... 10,338,125
-----------
26,003,007
-----------
Cost of shares redeemed
Class A.................................................... (1,038,319)
Class B.................................................... (215,323)
-----------
(1,253,642)
-----------
Increase in net assets resulting from capital transactions... 24,749,365
-----------
INCREASE IN NET ASSETS......................................... 26,743,373
-----------
NET ASSETS, end of period...................................... $26,743,573
===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements.
F-59
<PAGE> 181
INTERNATIONAL EQUITY II FUND STATEMENT OF NET ASSETS
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock 85.7%
AUSTRALIA 2.3%
10,000 Burns Philp & Co...................................... $ 22,395
25,000 Coca-Cola Amatil...................................... 193,480
--------
215,875
--------
AUSTRIA 6.0%
1,500 Austria Micro System.................................. 277,988
1,200 Baumax, AG............................................ 48,841
1,500 Burgenland Holding.................................... 60,900
*1,000 Va Stahl, AG.......................................... 30,601
1,200 Va Technologie, AG.................................... 139,130
--------
557,460
--------
CANADA 2.1%
2,500 Loewen Group, Inc..................................... 100,295
*18,000 Wescam, Inc........................................... 92,364
--------
192,659
--------
CHILE 1.7%
2,500 Embotelladora Andina, ADR............................. 83,125
3,000 Madeco, SA, ADR....................................... 74,625
--------
157,750
--------
DENMARK 3.4%
2,000 Kobenhavn Lufthave.................................... 150,073
*7,000 Scandinav Mobility.................................... 166,545
--------
316,618
--------
FINLAND 1.2%
1,600 Nokia (AB) OY, Series A............................... 91,534
400 Nokia (AB) OY, Series K............................... 23,354
--------
114,888
--------
FRANCE 4.5%
1,214 Castorama Dubois...................................... 108,321
1,000 Ecco, SA.............................................. 155,007
440 Sidel, SA............................................. 152,782
--------
416,110
--------
GERMANY 4.1%
200 Bayer Motoren Werk.................................... 107,275
2,000 Fielmann, AG.......................................... 110,117
2,500 SGL Carbon............................................ 163,931
--------
381,323
--------
</TABLE>
F-60
<PAGE> 182
INTERNATIONAL EQUITY II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG 3.4%
40,000 Hong Kong Electric................................... $136,063
20,000 Hutchison Whampoa.................................... 110,196
10,000 Swire Pacific........................................ 75,016
--------
321,275
--------
IRELAND 4.9%
30,248 Bank of Ireland...................................... 201,751
12,000 CRH.................................................. 79,262
30,000 Independent News..................................... 179,699
--------
460,712
--------
ISRAEL 0.7%
*3,000 Gilat Satellite Networks, Ltd........................ 66,750
--------
ITALY 6.3%
5,000 Alleanza Assicuraz................................... 34,661
*10,000 De Rigo, ADS......................................... 206,250
*5,000 Gucci Group, NV...................................... 150,000
50,000 Telecom Italia....................................... 75,910
70,000 Telecom Italia, Mobile............................... 117,472
--------
584,293
--------
JAPAN 7.3%
3,000 Bunkyodo Co.......................................... 67,745
10,000 Hitachi.............................................. 102,644
1,000 Kyocera Corp......................................... 81,920
2,000 Mabuchi Motor Co..................................... 121,023
4,000 Ohmoto Gumi Co....................................... 89,936
5,000 Sato Corp............................................ 102,645
2,000 Trans Cosmos, Inc.................................... 111,051
--------
676,964
--------
MALAYSIA 3.6%
20,000 Gamuda Berhad........................................ 83,432
20,000 Leader Univ Holdings................................. 53,916
20,000 Sungei Way Holdings.................................. 67,295
25,000 Sunway Building Tech................................. 66,903
25,000 UMW Holding Berhad................................... 59,524
--------
331,070
--------
MEXICO 4.2%
60,000 Cifra SA, DE CV...................................... 61,137
30,400 Gruma................................................ 89,600
*15,000 Grupo Carso.......................................... 78,526
7,000 Kimberly Clark, Mexico............................... 91,369
2,500 Telefonos de Mexico, SA, ADR......................... 68,750
--------
389,382
--------
</TABLE>
F-61
<PAGE> 183
INTERNATIONAL EQUITY II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
NETHERLANDS 6.7%
3,500 Getronics, NV.......................................... $167,036
500 Heineken, NV........................................... 88,731
4,000 IHC Caland, NV......................................... 113,829
2,000 Philips Electronics, NV................................ 77,250
4,000 Randstad Holdings...................................... 180,505
--------
627,351
--------
NEW ZEALAND 0.7%
1,000 Telecom Corp of New Zealand, ADR....................... 66,375
--------
NORWAY 2.6%
3,000 Petroleum Geo Service.................................. 56,849
30,000 Tomra Systems, AS...................................... 189,337
--------
246,186
--------
PHILIPPINES 1.3%
*300,000 Bankard, Inc........................................... 123,991
--------
SINGAPORE 4.8%
10,000 Cerebos Pacific........................................ 62,279
6,000 Fraser & Neave......................................... 70,913
75,000 QAF.................................................... 90,764
15,000 Sembawang Maritime..................................... 50,743
100,000 Steamers Maritime...................................... 74,310
20,000 Van Der Horst.......................................... 102,619
--------
451,628
--------
SWEDEN 5.7%
2,500 Astra, AB, Series A.................................... 91,859
1,500 Autoliv, AB............................................ 86,061
400 Ericsson (LM) Telephone................................ 8,493
4,000 Ericsson (LM) Telephone, Series B...................... 84,932
1,000 Hennes & Mauritz....................................... 65,356
5,000 Hoganas, AG............................................ 134,777
2,000 Kinnerik Investment, Series B.......................... 55,417
--------
526,895
--------
SWITZERLAND 2.3%
20 Roche Holdings, AG..................................... 145,336
1,000 Roche Holdings, Ltd, ADR............................... 71,875
--------
217,211
--------
THAILAND 1.5%
20,000 Quality Houses Co...................................... 88,218
4,000 UTD Communications Industries.......................... 50,546
--------
138,764
--------
</TABLE>
F-62
<PAGE> 184
INTERNATIONAL EQUITY II FUND STATEMENT OF NET ASSETS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM 4.4%
15,000 British Biotech.................................................................... $ 211,541
5,000 Carlton Communications............................................................. 76,166
25,000 Rentokil Group..................................................................... 124,506
----------
412,213
----------
TOTAL COMMON STOCKS (Cost $7,387,128)............................................ 7,993,743
----------
<CAPTION>
Principal
Amount Repurchase Agreement 14.0%
- -----------
$1,303,000 State Street Bank & Trust Co., dated 10/31/95, 4.50%, due 11/01/95
(collateralized by U.S. Government Bond, 8.75%, 5/15/17)
repurchase proceeds $1,303,163 (Cost $1,303,000).................................. 1,303,000
----------
TOTAL INVESTMENTS (Cost $8,690,128) 99.7%......................................... 9,296,743
Foreign currency (Cost $364,109) 3.9%............................................. 363,565
Other assets and liabilities, net (3.6%).......................................... (338,579)
----------
NET ASSETS, equivalent to $13.86 per share for Class A and $13.79
per share for Class B shares 100%................................................ $9,321,729
==========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 474,025 Class A, 199,498 Class B shares outstanding...... $ 6,735
Capital surplus................................................................................. 8,709,504
Net unrealized appreciation (depreciation) of securities
Investments................................................................................... 606,615
Foreign currency.............................................................................. (544)
Other foreign denominated assets and liabilities.............................................. (581)
----------
NET ASSETS...................................................................................... $9,321,729
==========
</TABLE>
*Non-income producing security
See Notes to Financial Statements.
F-63
<PAGE> 185
INTERNATIONAL EQUITY II FUND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations
February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
INVESTMENT INCOME
Dividends (net of $7,178 of foreign taxes withheld at source)......................... $ 51,723
Interest.............................................................................. 21,913
----------
Investment Income.................................................................. 73,636
----------
EXPENSES
Advisory fees......................................................................... 35,227
Shareholder service agent's fees and expenses......................................... 28,604
Accounting services................................................................... 4,807
Service fees--Class A................................................................. 6,920
Distribution and service fees--Class B................................................ 7,546
Trustees' fees and expenses........................................................... 6,987
Audit fees............................................................................ 17,300
Custodian fees........................................................................ 66,374
Legal fees............................................................................ 1,260
Reports to shareholders............................................................... 2,932
Registration and filing fees.......................................................... 34,696
Organization.......................................................................... 2,805
Miscellaneous......................................................................... 226
Expense reimbursement................................................................. (82,201)
----------
Total expenses..................................................................... 133,483
----------
Net investment loss................................................................ (59,847)
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments........................................................................ 13,300
Foreign currency................................................................... (75)
Net unrealized appreciation (depreciation) of securities during the period
Investments........................................................................ 606,615
Foreign currency................................................................... (544)
Other foreign denominated assets and liabilities................................... (581)
----------
Net realized and unrealized gain on securities........................................ 618,715
----------
Increase in net assets resulting from operations...................................... $ 558,868
==========
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
NET ASSETS, beginning of period....................................................... $ 200
----------
OPERATIONS
Net investment loss.................................................................. (59,847)
Net realized gain on securities...................................................... 13,225
Net unrealized appreciation of securities during the period.......................... 605,490
----------
Increase in net assets resulting from operations.................................... 558,868
----------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.............................................................................. 6,176,592
Class B.............................................................................. 2,722,626
----------
8,899,218
----------
Cost of shares redeemed
Class A.............................................................................. (94,421)
Class B.............................................................................. (42,136)
----------
(136,557)
----------
Increase in net assets resulting from capital transactions........................... 8,762,661
----------
Increase in Net Assets................................................................ 9,321,529
----------
NET ASSETS, end of period............................................................. $9,321,729
==========
</TABLE>
*Commencement of operations
See Notes to Financial Statements
F-64
<PAGE> 186
NOTES TO FINANCIAL STATEMENTS
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"). 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.
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
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 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.
F-65
<PAGE> 187
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.
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 the period, 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 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. 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.
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.
F-66
<PAGE> 188
NOTES TO FINANCIAL STATEMENTS, continued
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 II, Growth & Income II, and Emerging Growth II was
voluntary. For International Equity II, $26,302 of the expense reduction was
voluntary and $55,899 was reimbursed due to the contractual expense limitation.
The Adviser prepaid the Trust's initial registration and filing expenses. The
Trust amortized such expenses over a ten month period ended April 1995 for
Growth II, Growth and Income II, and Government II and ending in December 1995
for Emerging Growth II and International Equity II, respectively.
At the end of the period, the Adviser owned approximately 17.9% of International
Equity II's Class A outstanding shares.
Accounting services include the salaries and overhead expenses of the Trust's
Treasurer 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. During the period, the Trust paid brokerage commissions of $406,044 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.
F-67
<PAGE> 189
NOTES TO FINANCIAL STATEMENTS, continued
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............................ $ 5,674 $ 5,525 $ 5,450 $ 687 $ --
Sales of Fund shares, Distributor commissions.. 115,963 67,581 37,676 47,949 11,149
Class B unreimbursed expenses (approximately).. 1,100,000 720,000 360,000 320,000 90,000
</TABLE>
At the end of the period, Growth II owned approximately .89% of the Van Kampen
American Capital Small Capitalization Fund ("Small Cap"), an investment company
managed by the Adviser. Small Cap comprised approximately 3% of Growth II's
total net assets. Small Cap's portfolio consisted of the following securities:
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------
<S> <C> <C>
Common Stock
CONSUMER DISTRIBUTION
22,000 Big B, Inc. $ 316,250
22,000 Books-A-Million, Inc. 280,500
11,000 Cardinal Health, Inc. 577,500
3,000 Carson Pirie Scott & Co. 50,625
4,000 CDW Computer Centers, Inc. 195,000
21,000 Circuit City Stores, Inc. 698,250
42,000 Claire's Stores, Inc. 834,750
12,000 CompUSA, Inc. 481,500
14,000 Consolidated Stores Corp. 327,250
1,000 Dole Food, Inc. 38,000
9,800 Eckerd Corp. 390,775
52,000 Fingerhut Companies, Inc. 695,500
46,000 General Nutrition Companies, Inc. 1,115,500
1,000 Great Atlantic & Pacific 20,375
29,000 Gymboree Corp. 659,750
11,000 Health Management, Inc. 126,500
2,000 Hills Stores Co. 15,250
10,000 Lear Seating Corp. 290,000
14,000 MacFrugals Bargains Closeouts 164,500
9,000 Medicine Shoppe International, Inc. 389,250
6,000 Mens Wearhouse, Inc. 235,500
15,000 Micro Wharehouse, Inc. 678,750
38,000 OfficeMax, Inc. 940,500
83,900 Pier 1 Imports, Inc. 818,025
5,000 Proffitts, Inc. 118,750
6,000 Rexel, Inc. 69,000
3,000 Richfood Holdings, Inc. 74,625
7,000 Ross Stores, Inc. 110,250
25,000 Staples, Inc. 668,750
42,800 Stop & Shop Companies, Inc. 877,400
40,000 Sunglass Hut International, Inc. 1,090,000
4,000 Tiffany & Co. 174,500
25,000 Viking Office Products, Inc. 1,109,375
43,000 Waban, Inc. 661,125
6,000 Whole Foods Market, Inc. 72,750
3,000 Younkers, Inc. 66,375
32,000 Zale Corp. 472,000
-----------
15,904,700
-----------
CONSUMER DURABLES
3,000 Borg Warner Automotive, Inc. 86,625
50,000 Breed Technologies, Inc. 925,000
47,000 Brunswick Corp. 922,375
21,000 Champion Enterprises, Inc. 546,000
35,000 Clayton Homes, Inc. 936,250
23,000 Cobra Golf, Inc. 621,000
4,000 Department 56, Inc. 182,500
24,000 Echlin, Inc. 864,000
5,000 Fleetwood Enterprises, Inc. 103,125
14,000 Gencorp, Inc. 148,750
8,400 Harman International Industries, Inc. 389,550
46,000 Leggett & Platt, Inc. 1,115,500
7,000 Lennar Corp. 161,875
14,000 Outboard Marine Corp. 297,500
7,000 Smith (A. O.) Corp. 146,125
6,000 Snap-On Tools, Inc. 254,250
22,000 Toro Co. 632,500
-----------
8,332,925
-----------
CONSUMER NON-DURABLES
1,000 Alberto Culver Co., Class B 31,625
34,000 American Greetings Corp., Class A 1,079,500
29,000 Barefoot, Inc. 337,125
7,000 Fieldcrest Cannon, Inc. 134,750
9,000 Fossil, Inc. 96,750
2,000 Hormel (G. A.) & Co. 46,000
13,000 IBP, Inc. 781,625
41,000 Liz Claiborne, Inc. 1,158,250
23,000 Nautica Enterprises, Inc. 787,750
10,000 Nu-Kote Holdings, Inc., Class A 198,750
11,000 Phillips-Van Heusen Corp. 111,375
3,000 Scotts Co., Class A 60,000
9,000 Smithfield Foods, Inc. 236,250
15,000 Springs Industries, Inc. 643,125
8,000 St. John Knits, Inc. 382,000
21,000 Starbucks Corp. 834,750
56,000 Topps, Inc. 343,000
1,000 Unifi, Inc. 22,750
9,000 Universal Foods Corp. 309,375
18,000 Westpoint Stevens, Inc. 382,500
25,000 Whitman Corp. 534,375
18,000 Wolverine World Wide, Inc. 549,000
-----------
9,060,625
-----------
</TABLE>
F-68
<PAGE> 190
NOTES TO FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------
<S> <C> <C>
CONSUMER SERVICES
4,000 Advo, Inc. $ 102,500
10,000 Banta Corp. 427,500
12,000 Belo (A. H.) Corp. 414,000
14,000 Boston Chicken, Inc. 476,000
26,000 Bowne & Co., Inc. 481,000
11,000 Boyd Gaming Corp. 148,500
1,000 Casino America, Inc. 7,000
19,000 Equifax, Inc. 722,000
9,000 HFS, Inc. 559,125
30,000 Kelly Services, Inc. 765,000
25,000 King World Productions, Inc. 865,625
21,000 Lone Star Steakhouse Saloon, Inc. 813,750
9,000 Media General, Inc., Class A 250,875
21,000 Mirage Resorts, Inc. 695,625
19,000 New York Times Co., Class A 529,625
27,760 Ogden Corp. 635,010
16,000 Olsten Corp. 612,000
17,000 Omnicom Group 1,088,000
26,000 Outback Steakhouse, Inc. 809,250
3,000 Papa John's International, Inc. 116,625
13,200 PHH Corp. 580,800
31,500 Players International, Inc. 342,563
1,000 Pulitzer Publishing Co. 45,375
19,000 Regal Cinemas, Inc. 741,000
17,000 Reynolds & Reynolds Co. 603,500
23,000 Rio Hotel & Casino, Inc. 293,250
28,000 Robert Half International, Inc. 1,029,000
26,000 Sbarro, Inc. 549,250
12,500 Scientific Games Holdings Corp. 415,625
6,000 Sonic Corp. 132,000
13,500 Spelling Entertainment Group, Inc. 173,813
24,000 Wendys International, Inc. 480,000
32,000 Westcott Communications, Inc. 444,000
-----------
16,349,186
-----------
ENERGY
17,000 BJ Services Co. 401,625
13,000 Brooklyn United Gas Co. 326,625
24,100 Eastern Enterprises 716,975
38,000 El Paso Natural Gas Co. 1,026,000
25,000 KCS Energy, Inc. 246,875
12,000 K.N. Energy, Inc. 307,500
25,000 Mesa, Inc. 106,250
91,000 Nabors Industries, Inc. 784,875
14,000 NACCO Industries, Inc., Class A 805,000
2,500 National Fuel Gas Co. 75,000
24,000 NICOR, Inc. 648,000
15,000 Nuevo Energy Co. 333,750
16,000 Offshore Logistics, Inc. 198,000
14,400 ONEOK, Inc. 356,400
28,000 Pacific Enterprises 693,000
48,000 Smith International, Inc. 768,000
1,000 Tidewater, Inc. 26,375
25,000 Union Texas Petroleum Holdings, Inc. 459,375
12,000 United Meridian Corp. 202,500
24,000 Valero Energy Corp. 567,000
30,000 Varco International, Inc. 277,500
6,000 Washington Gas & Light Co. 115,500
500 Weatherford Enterra, Inc. 12,250
3,000 Western Atlas, Inc. 133,500
12,400 WICOR, Inc. 370,450
188 Williams Companies 7,285
-----------
9,965,610
-----------
FINANCE
12,000 Advanta Corp., Class A $ 468,000
25,000 Ahmanson (H. F.) & Co. 634,375
15,000 AMBAC, Inc. 643,125
34,000 American Financial Group, Inc. 956,250
25,000 American Re Corp. 956,250
29,000 Bankers Life Holding Corp. 525,625
33,000 Bear Stearns Companies, Inc. 660,000
24,000 California Federal Bank 357,000
4,000 CCB Financial Corp. 196,000
26,000 Charter One Financial, Inc. 737,750
58,000 City National Corp. 783,000
10,000 CMAC Investment Corp. 475,000
23,000 Commercial Federal Corp. 750,375
1,500 Countrywide Credit Industries, Inc. 33,188
23,000 Crestar Financial Corp. 1,319,625
41,000 Edwards (A.G.), Inc. 1,040,375
22,000 Finova Group, Inc. 1,001,000
7,000 First American Corp. 306,250
10,000 First Financial Corp. 210,000
18,000 First Tennessee National Corp. 972,000
13,000 First USA, Inc. 606,125
20,300 Fremont General Corp. 596,313
19,000 GATX Corp. 909,625
49,000 Mercury Financial Co. 943,250
7,300 MGIC Investment Corp. 415,188
9,000 North American Mtg., Co. 185,625
21,000 North Fork Bancorporation 459,375
22,000 Northern Trust Corp. 1,050,500
12,880 Norwest Corp. 388,010
2,000 Ohio Casualty Corp. 71,500
10,000 Penncorp Financial Group, Inc. 238,750
32,000 Peoples Heritage Financial 620,000
25,000 Protective Life Corp. 712,500
18,000 Regions Financial Corp. 720,000
109,000 Reliance Group Holding 803,875
17,000 Reliastar Financial Corp. 716,125
3,000 Roosevelt Financial Group, Inc. 48,375
38,000 Southtrust Corp. 959,500
5,000 Sovereign Bancorp, Inc. 50,000
19,300 Star Banc Corp. 1,061,500
16,000 TCF Financial Corp. 936,000
6,000 TIG Holdings, Inc. 151,500
6,000 Transatlantic Holdings, Inc. 405,750
28,000 Union Planters Corp. 854,000
5,000 Vesta Insurance Group, Inc. 203,125
38,000 Washington Mutual, Inc. 980,875
15,000 Webb Del Corp. 313,125
9,000 Zions Bancorporation 623,250
-----------
29,048,949
-----------
HEALTH CARE
25,000 Amsco International, Inc. 409,375
24,000 Bausch & Lomb, Inc. 840,000
5,000 Bio Rad Labs, Inc., Class A 190,625
19,000 CNS, Inc. 199,500
11,000 Community Health Systems, Inc. 349,250
52,000 Cor Therapeutics, Inc. 533,000
1,000 Cordis Corp. 110,625
4,000 Dentsply International, Inc. 138,000
29,000 Foundation Health Corp. 1,236,125
2,000 HBO & Co. 143,250
20,000 Healthcare Compare Corp. 770,000
8,000 Healthsouth Rehabilitation 211,000
</TABLE>
F-69
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------
<S> <C> <C>
39,000 Horizon/CMS Healthcare $ 784,875
37,073 ICN Pharmaceuticals, Inc. 759,997
24,000 Integrated Health Services, Inc. 519,000
29,000 Lincare Holdings, Inc. 725,000
3,000 Manor Care, Inc. 98,625
1,000 Maxicare Health Plans 17,625
32,000 Medisense, Inc. 716,000
47,500 Mylan Labs, Inc. 890,625
16,000 Nellcor Puritan Bennett, Inc. 924,000
8,000 North American Biological 65,000
2,000 Orthofix International, NV 19,500
16,000 Oxford Health Plans, Inc. 1,260,000
6,000 Pacific Physician Services 94,500
3,000 Quintiles Transnational Corp. 192,750
17,000 Renal Treatment Centers, Inc. 612,000
6,000 Rexall Sundown, Inc. 90,000
3,000 Target Therapeutics, Inc. 229,500
18,000 Thermo Cardiosystems, Inc. 877,500
2,000 United American Healthcare Corp. 22,250
12,000 Universal Health Services, Inc., Class B 448,500
20,000 Vivra, Inc. 660,000
25,320 Watsons Pharmaceuticals, Inc. 1,145,730
-----------
16,283,727
-----------
PRODUCER MANUFACTURING
16,000 Agco Corp. 754,000
3,000 Alliant Techsystems, Inc. 139,500
5,000 Ametek, Inc. 88,750
14,600 Aptar Group, Inc. 501,875
7,000 Blount, Inc., Class A 305,375
21,000 Briggs & Stratton Corp. 847,875
6,000 Cognex Corp. 363,000
22,000 Cummins Engine Co., Inc. 792,000
26,000 Danaher Corp. 812,500
22,000 Detroit Diesel Corp. 396,000
11,000 Duracraft Corp. 239,250
6,000 Granite Construction, Inc. 171,750
18,500 IDEX Corp. 698,375
7,000 INDRESCO, Inc. 120,750
1,000 Johnson Controls, Inc. 58,500
20,000 Juno Lighting, Inc. 292,500
2,000 Kent Electrics Corp. 97,750
16,000 Kulicke & Sofa Industries, Inc. 560,000
24,000 Mueller Industries, Inc. 561,000
4,000 National Service Industries, Inc. 119,500
9,000 Navistar International Corp. 93,375
19,000 PACCAR, Inc. 798,000
30,000 Southdown, Inc. 495,000
90,000 Sterling Chemicals, Inc. 731,250
11,000 Teledyne, Inc. 275,000
28,300 Thermo Instrument Systems, Inc. 856,075
26,000 Timken Co. 1,036,750
8,000 United Waste Systems, Inc. 316,000
31,000 Varity Corp. 1,108,250
6,000 Watts Industries, Inc., Class A 123,750
32,000 Wellman, Inc. 752,000
9,000 Wolverine Tube, Inc. 319,500
-----------
14,825,200
-----------
RAW MATERIALS/PROCESSING INDUSTRIES
17,000 Cleveland Cliffs, Inc. 641,750
16,000 Cyprus Amax Minerals 428,000
4,000 Cytec Industries, Inc. 218,000
6,000 First Mississippi Corp. 123,750
14,000 Geon Co. 346,500
24,000 Georgia Gulf Corp. 801,000
15,000 Goodrich (B. F.) Co. 990,000
46,000 Handy & Harman 644,000
8,000 Inland Steel Industries, Inc. 186,000
2,000 International Specialty Products, Inc. 17,500
62,000 Jefferson Smurfit Corp. 759,500
40,000 J&L Specialty Steel, Inc. 660,000
44,000 Longview Fibre Co. 643,500
15,000 Lubrizol Corp. 435,000
41,000 Lyondell Petrochemical Co. 881,500
46,000 Magma Copper Co., Class B 770,500
6,000 Medusa Corp. 149,250
3,000 NCH Corp. 163,125
14,000 Olin Corp. 904,750
51,000 Owens-Illinois, Inc. 643,875
12,000 Potlatch Corp. 505,500
3,000 Quanex Corp. 58,875
11,000 Rayonier, Inc. 418,000
69,000 Rexene Corp. 621,000
20,000 Sealed Air Corp. 522,500
5,000 Sigma-Aldrich Corp. 240,000
33,000 Sonoco Products Co. 833,250
43,000 Stone Container Corp. 736,375
46,000 Terra Industries, Inc. 580,750
1,000 Texas Industries, Inc. 52,875
23,000 USG Corp. 669,875
15,000 Vigoro Corp. 652,500
5,000 Vulcan Materials Co. 277,500
43,500 Worthington Industries, Inc. 744,938
-----------
17,321,438
-----------
TECHNOLOGY
6,000 Adaptec, Inc. 264,000
20,000 Alantec Corp. 710,000
4,000 Altera Corp. 244,000
15,000 America Online, Inc. 1,215,000
3,000 Analysts International Corp. 90,000
28,000 Aspect Telecommunications Corp. 973,000
19,000 Atmel Corp. 594,936
1,000 Auspex Systems, Inc. 14,812
27,000 Autodesk, Inc. 911,250
21,400 Avnet, Inc. 1,080,700
10,000 BMC Industries, Inc. 386,250
18,000 BMC Software, Inc. 641,250
56,000 Borland International, Inc. 777,000
36,000 Cadence Design Systems, Inc. 1,174,500
19,000 Cascade Communications 1,344,250
21,000 Cidco, Inc. 588,000
2,000 Computer Network Technology 13,125
60,000 Conner Peripherals, Inc. 1,095,000
22,000 Credence Systems Corp. 825,000
1,000 Dallas Semiconductor Co. 21,250
13,000 Dovatron International, Inc. 399,750
22,000 Dynatech Corp. 335,500
12,000 Electroglas, Inc. 867,000
13,000 Electronics For Imaging, Inc. 1,082,250
4,000 FTP Software, Inc. 108,188
34,000 Gateway 2000, Inc. 1,160,250
9,000 Harris Corp. 525,375
23,000 In Focus Systems, Inc. 730,250
44,000 Integrated Device Technology, Inc. 844,250
22,000 International Rectifier Corp. 1,009,250
37,000 Intervoice, Inc. 689,125
24,000 KLA Instruments Corp. 1,050,000
</TABLE>
F-70
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
3,000 Komag, Inc.................................. $ 172,875
13,000 Lam Research Corp........................... 809,250
3,000 Littelfuse, Inc............................. 98,625
17,000 McAfee Associates, Inc...................... 998,750
10,000 Microchip Technology, Inc................... 397,500
26,000 Netmanage, Inc.............................. 542,750
14,000 Network Equipment Technologies.............. 465,500
22,000 Network General Corp........................ 907,500
12,500 Novellus Systems, Inc....................... 857,812
8,000 Peoplesoft, Inc............................. 688,000
4,500 Pioneer Standard Electronics, Inc........... 62,438
9,000 Policy Management Systems Corp.............. 426,375
5,000 Quantum Corp................................ 86,250
23,000 Read-Rite Corp.............................. 819,375
4,000 Recoton Corp................................ 89,000
38,000 S3, Inc..................................... 650,750
14,000 Seagate Technology.......................... 638,750
30,000 Sequent Computer Systems, Inc............... 525,000
25,000 Solectron Corp.............................. 1,018,750
9,000 Sterling Software, Inc...................... 416,250
19,000 Symbol Technologies, Inc.................... 665,000
20,000 Teradyne, Inc............................... 670,000
12,000 3Com Corp................................... 582,000
11,474 U.S. Robotics Corp.......................... 1,067,080
19,000 Unitrode Corp............................... 513,000
8,500 Varian Associates, Inc...................... 437,750
27,000 Vishay Intertechnology, Inc................. 972,000
19,000 Wyle Electronics, Inc....................... 814,625
21,000 Xilinx, Inc................................. 1,000,125
------------
39,157,591
------------
TRANSPORTATION
49,000 Arkansas Best Corp.......................... 453,250
32,000 Comair Holdings, Inc........................ 896,000
10,800 Consolidated Freightways, Inc............... 252,450
1,000 Continental Airlines, Inc., Class B......... 35,625
24,000 Fritz Companies, Inc........................ 846,000
26,000 Illinois Central Corp....................... 1,001,000
22,000 MS Carriers, Inc............................ 341,000
12,000 Northwest Airlines, Inc., Class A........... 486,000
19,000 Pittston Company Services Group............. 520,125
6,000 Stolt Nielsen, S.A.......................... 182,250
11,000 TNT Freightways Corp........................ 203,500
------------
5,217,200
------------
UTILITIES
29,000 AES Corp.................................... 572,750
26,000 AT&T Corp................................... 1,040,000
34,100 Boston Edison Co............................ 937,750
4,500 C-Tec Corp.................................. 94,500
12,000 California Energy, Inc...................... 216,000
27,000 Centerior Energy Corp....................... 273,375
4,300 Central Hudson Gas & Electric Corp.......... 131,688
1,000 Colorado Public Service Co.................. 34,000
10,000 Commnet Cellular, Inc....................... 252,500
38,000 Delmarva Power & Light Co................... 845,500
17,000 DQE, Inc.................................... 469,625
8,000 Eastern Utilities Association............... 187,000
4,251 Firstmiss Gold, Inc......................... 77,049
42,000 Frontier Corp............................... 1,139,250
36,000 Illinova Corp............................... 1,026,000
41,000 Long Island Lighting Co..................... 707,250
33,000 New Mexico Public Service Co................ 556,875
24,000 NIPSCO Industries, Inc...................... 879,000
9,500 Oklahoma Gas & Electric Co.................. 380,000
3,000 Orange & Rockland Utilities................. 105,375
27,000 Pinnacle West Capital Corp.................. 742,500
32,000 Portland General Corp....................... 872,000
14,200 Southern New England Telecommunications..... 514,750
23,000 U.S. Cellular Corp.......................... 790,625
1,000 U.S. Long Distance Corp..................... 13,000
------------
12,858,362
------------
TOTAL COMMON STOCK........................ 194,325,513
------------
Convertible Preferred Stock
1,600 FHP International, $1.25, Series A.......... 38,000
------------
<CAPTION>
Principal
Amount
(000)
---------
Repurchase Agreement
$ 5,805 Lehman Government Securities, Inc.,
5.75%, 11/01/95........................... 5,805,000
------------
TOTAL INVESTMENTS........................... 200,168,513
Other assets and liabilities, net........... 176,308
------------
NET ASSETS.................................. $200,344,821
============
</TABLE>
F-71
<PAGE> 193
NOTES TO FINANCIAL STATEMENTS, continued
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............................. $83,144,346 $41,958,082 $23,733,799 $29,403,570 $8,126,934
Sales................................. $50,888,482 $17,696,039 $13,098,839 $ 6,151,590 $ 753,105
</TABLE>
At the end of the period, the Trust held the following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Number of Market Appreciation
Fund Description Contracts Value (Depreciation)
----------------------------- --------------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Growth II Standard & Poor's 500 Index
expiring 12/95 (long) 16 $4,670,800 $ 76,343
expiring 3/96 (long) 4 1,177,400 (4,650)
---------- ----------
$5,848,200 $ 71,693
========== ==========
Growth & Income II Standard & Poor's 500 Index
expiring 3/96 (long) 2 $ 588,700 $ (5,025)
========== ==========
Government II U.S. Treasury Bond,
expiring 12/95 (short) 6 $ (702,375) $ (1,388)
U.S. Treasury Bond,
expiring 12/95 (long) 23 2,692,438 42,836
U.S. Treasury Note, five years
expiring 12/95 (short) 5 (541,641) (1,970)
U.S. Treasury Note, five years
expiring 12/95 (long) 8 866,625 8,024
U.S. Treasury Note, ten years
expiring 12/95 (long) 10 1,115,313 14,562
U.S. Treasury Bond,
expiring 3/96 (long) 2 233,438 (212)
---------- ----------
$3,663,798 $ 61,852
========== ==========
</TABLE>
At the end of the period, Government II held the following forward commitments
for which delivery is not intended:
<TABLE>
<CAPTION>
Unrealized
Principal Market Appreciation
Amount Security Value (Depreciation)
- --------- ---------------------------------------- -------- --------------
<S> <C> <C> <C>
Government National Mortgage Association
$500,000 7.00%, settling 11/95 (sale)............ $(496,565) $ (2)
600,000 7.00%, settling 11/95 (purchase)........ 595,878 13,315
--------- -------
(Net obligation $86,000).............. $ 99,313 $13,313
========= =======
</TABLE>
F-72
<PAGE> 194
NOTES TO FINANCIAL STATEMENTS, continued
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.
<TABLE>
<CAPTION>
Growth Emerging International
Growth II & Income II Government II Growth II Equity II
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Identified cost................ $51,263,560 $33,845,311 $21,895,632 $25,817,140 $9,054,237
=========== =========== =========== =========== ==========
Gross unrealized appreciation.. $ 4,388,657 $ 2,927,593 $ 418,009 $ 2,782,612 $ 923,978
Gross unrealized depreciation.. (758,483) (607,669) (51,310) (626,049) (317,907)
----------- ----------- ----------- ----------- ----------
Net unrealized appreciation.... $ 3,630,174 $ 2,319,924 $ 366,699 $ 2,156,563 $ 606,071
=========== =========== =========== =========== ==========
</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 (the
Class A shares) or at the time of redemption on a contingent deferred basis (the
Class B shares). 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 Emerging International
------------------------ ------------------------ ------------------------ Growth II Equity II
Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended --------- -------------
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Feb. 21 1995
1995 1994 1995 1994 1995 1994 through Oct. 31, 1995
---------- ------------ ---------- ------------ ---------- ------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
Class A............ 1,296,305 373,998 870,371 300,262 545,888 433,958 1,125,630 480,871
Class B............ 1,972,519 497,430 1,317,260 312,434 618,905 253,982 732,333 202,578
--------- ------- --------- --------- --------- --------- --------- -------
3,268,824 871,428 2,187,631 612,696 1,164,793 687,940 1,857,963 683,449
--------- ------- --------- --------- --------- --------- --------- -------
Shares reinvested
Class A............ -- -- 6,227 999 27,873 5,134 -- --
Class B............ -- -- 3,076 584 19,868 1,471 -- --
--------- ------- --------- --------- --------- --------- --------- -------
-- -- 9,303 1,583 47,741 6,605 -- --
--------- ------- --------- --------- --------- --------- --------- -------
Shares redeemed
Class A............ (217,699) (5,414) (202,866) (4,796) (158,374) (44,548) (70,836) (6,846)
Class B............ (146,988) (9,513) (106,128) (1,966) (99,822) (13,568) (14,613) (3,080)
--------- ------- --------- --------- --------- --------- --------- -------
(364,687) (14,927) (308,994) (6,762) (258,196) (58,116) (85,449) (9,926)
--------- ------- --------- --------- --------- --------- --------- -------
Increase in shares
outstanding........ 2,904,137 856,501 1,887,940 607,517 954,338 636,429 1,772,514 673,523
========= ======= ========= ========= ========= ========= ========= =======
</TABLE>
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.. $22,505 $21,775 $21,662 $6,800 $6,460
======= ======= ======= ====== ======
</TABLE>
F-73
<PAGE> 195
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated.
<TABLE>
<CAPTION>
Class A(2) Class B(2)
------------------------------------ ------------------------------------
Year May 3, 1994(1) Year May 3, 1994(1)
Ended through Ended through
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Growth II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $11.89 $11.81 $11.85 $11.81
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income.............................. .28 .29 .27 .28
Expenses(4).................................... (.37) (.29) (.46) (.32)
------ ------ ------ ------
Net investment income (loss).................... (.09) .00 (.19) (.04)
Net realized and unrealized gain on securities.. 2.77 .08 2.75 .08
------ ------ ------ ------
Total from investment operations................ 2.68 .08 2.56 .04
------ ------ ------ ------
Net asset value, end of period.................. $14.57 $11.89 $14.41 $11.85
====== ====== ====== ======
TOTAL RETURN(3)................................. 22.44% .76% 21.50% .42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............ $ 21.1 $ 4.4 $ 33.3 $ 5.8
Average net assets (millions)................... $ 11.5 $ 2.1 $ 17.6 $ 2.1
Ratios to average net assets (annualized)(4)
Expenses....................................... 2.75% 4.89% 3.50% 5.79%
Expenses, without expense reimbursement........ 2.90% -- 3.65% --
Net investment loss............................ (.68%) (.05%) (1.45%) (.78%)
Net investment loss, without expense
reimbursement................................. (.83%) -- (1.60%) --
Portfolio turnover rate......................... 193% 151% 193% 151%
- -------------------------------------------------------------------------------------------------------------------------------
Growth & Income II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $11.71 $11.81 $11.70 $11.81
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income.............................. .41 .42 .42 .42
Expenses(4).................................... (.31) (.21) (.41) (.25)
------ ------ ------ ------
Net investment income........................... .10 .21 .01 .17
Net realized and unrealized gains or losses on
securities..................................... 2.255 (.26) 2.234 (.251)
------ ------ ------ ------
Total from investment operations................ 2.355 (.05) 2.244 (.081)
------ ------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment income.......................... (.10) (.05) (.01) (.029)
Excess of book-basis net investment income..... (.045) -- (.054) --
------ ------ ------ ------
Total distributions............................. (.145) (.05) (.064) (.029)
------ ------ ------ ------
Net asset value, end of period.................. $13.92 $11.71 $13.88 $11.70
====== ====== ====== ======
TOTAL RETURN(3)................................. 20.20% (.42%) 19.19% (.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............ $ 13.5 $ 3.5 $ 21.2 $ 3.6
Average net assets (millions)................... $ 7.5 $ 1.9 $ 10.2 $ 1.5
Ratios to average net assets (annualized)(4)
Expenses....................................... 2.44% 3.37% 3.15% 4.42%
Expenses, without expense reimbursement........ 2.59% 3.40% 3.30% 4.45%
Net investment income.......................... .81% 3.38% .05% 3.00%
Net investment income (loss), without expense
reimbursement................................. .66% 3.35% (.10%) 2.97%
Portfolio turnover rate......................... 108% 215% 108% 215%
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges.
(4) See Note 2
See Notes to Financial Statements.
F-74
<PAGE> 196
FINANCIAL HIGHLIGHTS, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Class A(2) Class B(2)
---------------------------------- ----------------------------------
Year May 3, 1994(1) Year May 3, 1994(1)
Ended through Ended through
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Government II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 11.54 $11.91 $ 11.54 $11.91
------- ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................................ .93 .38 .93 .38
Expenses......................................... (.32) (.15) (.42) (.18)
------- ------ ------- ------
Net investment income............................ .61 .23 .51 .20
Net realized and unrealized gains or losses on
securities...................................... .6366 (.40) .6523 (.41)
------- ------ ------- ------
Total from investment operations................. 1.2466 (.17) 1.1623 (.21)
LESS DISTRIBUTIONS FROM
Net investment income............................ (.61) (.20) (.51) (.16)
Excess of book-basis net investment income....... (.0366) - (.0523) -
------- ------ ------- ------
Total distributions.............................. (.6466) (.20) (.5623) (.16)
------- ------ ------- ------
Net asset value, end of period................... $ 12.14 $11.54 $ 12.14 $11.54
======= ====== ======= ======
TOTAL RETURN(3).................................. 11.20% (1.53%) 10.42% (1.83%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $ 9.8 $ 4.6 $ 9.5 $ 2.8
Average net assets (millions).................... $ 6.4 $ 3.9 $ 5.5 $ 1.1
Ratios to average net assets (annualized)
Expenses........................................ 2.74% 2.32% 3.48% 3.25%
Net investment income........................... 5.11% 3.54% 4.32% 3.49%
Portfolio turnover rate.......................... 113% 155% 113% 155%
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
F-75
<PAGE> 197
FINANCIAL HIGHLIGHTS, continued
Selected data for a share of beneficial interest outstanding throughout the
periods indicated.
<TABLE>
<CAPTION>
Class A(2) Class B(2)
-------------------- --------------------
February 21, 1995(1) February 21, 1995(1)
through through
October 31, 1995 October 31, 1995
-------------------- --------------------
<S> <C> <C>
Emerging Growth II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $11.81 $11.81
------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income........................................................ .15 .15
Expenses(4).............................................................. (.39) (.50)
------ ------
Net investment loss........................................................ (.24) (.35)
Net realized and unrealized gain on securities............................. 3.55 3.58
------ ------
Total from investment operations........................................... 3.31 3.23
------ ------
Net asset value, end of period............................................. $15.12 $15.04
====== ======
TOTAL RETURN(3)............................................................ 28.11% 27.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)....................................... $ 15.9 $ 10.8
Average net assets (millions).............................................. $ 6.1 $ 3.7
Ratios to average net assets (annualized)(4)
Expenses.................................................................. 2.75% 3.49%
Expenses, without expense reimbursement................................... 3.37% 4.11%
Net investment loss....................................................... (1.65%) (2.45%)
Net investment loss, without expense reimbursement........................ (2.27%) (3.07%)
Portfolio turnover rate.................................................... 83% 83%
- ----------------------------------------------------------------------------------------------------------------------------
International Equity II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $11.81 $11.81
------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income........................................................ .19 .19
Expenses(4).............................................................. (.33) (.40)
------ ------
Net investment loss........................................................ (.14) (.21)
Net realized and unrealized gain on securities............................. 2.19 2.19
------ ------
Total from investment operations........................................... 2.05 1.98
------ ------
Net asset value, end of period............................................. $13.86 $13.79
====== ======
TOTAL RETURN(3)............................................................ 16.28%/(5) 15.69%/(5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)....................................... $ 6.6 $ 2.7
Average net assets (millions).............................................. $ 3.7 $ 1.0
Ratios to average net assets (annualized)(4)
Expenses.................................................................. 3.64% 4.33%
Expenses, without expense reimbursement................................... 5.97% 6.67%
Net investment loss....................................................... (1.40%) (2.80%)
Net investment loss, without expense reimbursement........................ (3.73%) (5.13%)
Portfolio turnover rate................................................... 17% 17%
/(1)/ Commencement of operations
/(2)/ Based on average shares outstanding
/(3)/ Total return has not been annualized and does not consider the effect of sales charges.
/(4)/ See Note 2
/(5)/ Total return from March 17, 1995 (date the Fund's investment strategy was implemented) through October 31, 1995.
</TABLE>
See Notes to Financial Statements.
F-76
<PAGE> 198
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Common Sense Trust
We have audited the accompanying statements of net assets of Common Sense II
Growth Fund, Common Sense II Growth and Income Fund, Common Sense II Government
Fund, Common Sense II Emerging Growth Fund, and Common Sense II International
Equity Fund, (cumulatively the "Funds"), five of ten portfolios constituting the
series of the Common Sense Trust (the "Trust"), as of October 31, 1995. For
Common Sense II Emerging Growth Fund and Common Sense II International Equity
Fund we have audited the related statements of operations, the statements of
changes in net assets and the financial highlights for the period from inception
(February 21, 1995) through October 31, 1995. For Common Sense II Growth Fund,
Common Sense II Growth and Income Fund and Common Sense II Government Fund we
have audited the related statements of operations, the statements of changes in
net assets and the financial highlights for the period from inception (May 3,
1994) through October 31, 1994 and for the year ended October 31, 1995. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds of the Common Sense Trust listed above at October 31,
1995, the results of their operations, the changes in their net assets, and the
financial highlights for the periods identified above, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
December 1, 1995
F-77
<PAGE> 199
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
<TABLE>
<CAPTION>
INCLUDED IN PART B FOR
COMMON SENSE EMERGING GROWTH FUND
COMMON SENSE INTERNATIONAL EQUITY FUND
COMMON SENSE GOVERNMENT FUND
COMMON SENSE GROWTH FUND
COMMON SENSE GROWTH AND INCOME FUND
COMMON SENSE MONEY MARKET FUND
COMMON SENSE MUNICIPAL BOND FUND
--------------------------------------
<S> <C>
Statement of Net Assets X
Year ended October 31, 1995
Statement of Operations X
Year ended October 31, 1995
Statement of Changes in Net Assets X
Year ended October 31, 1994
Year ended October 31, 1995
May 3, 1994 (commencement of operations) through
October 31, 1994
Notes to Financial Statements X
Financial Highlights X
Report of Independent Auditors X
</TABLE>
C-1
<PAGE> 200
(b) Exhibits
<TABLE>
<S> <C>
1.1 -- Agreement and Declaration of Trust dated January 29, 1987.
(Incorporated by reference to respective exhibit filed with original
Registration Statement.)
1.2 -- Certificate of Designation of Common Sense Money Market Fund.
(Incorporated by reference to Exhibit 1.1 filed with Post-Effective
Amendment No. 1 filed December 9, 1987.)
1.3 -- Certificate of Designation of Common Sense Municipal Bond Fund.
(Incorporated by reference to Exhibit 1.2 filed with Post-Effective
Amendment No. 3, filed May 6, 1988.)
1.4 -- Certificate of Amendment of Common Sense Trust. (Incorporated herein
by reference to Exhibit 1.4 filed with Post-Effective Amendment No.
11, filed March 2, 1994.)
1.5 -- Certificate of Designation of Common Sense II Growth Fund.
(Incorporated herein by reference to Exhibit 1.6 filed with
Post-Effective Amendment No. 11, filed March 2, 1994.)
1.6 -- Certificate of Designation of Common Sense II Growth and Income Fund.
(Incorporated herein by reference to Exhibit 1.7 filed with
Post-Effective Amendment No. 11, filed March 2, 1994.)
1.7 -- Certificate of Designation of Common Sense II Government Fund.
(Incorporated herein by reference to Exhibit 1.8 filed with
Post-Effective Amendment No. 11, filed March 2, 1994.)
1.8 -- Certificate of Designation of Common Sense II Emerging Growth Fund
(Incorporated herein by reference to Exhibit 1.9 filed with
Post-Effective Amendment No. 15, filed August 11, 1995).
1.9 -- Certificate of Designation of Common Sense II International Equity
Fund (Incorporated herein by reference to Exhibit 1.10 filed with
Post-Effective Amendment No. 15, filed August 11, 1995).
1.10 -- Form of Amended and Restated Certificate of Designation for Common
Sense Emerging Growth Fund.
1.11 -- Form of Amended and Restated Certificate of Designation for Common
Sense International Equity Fund.
1.12 -- Form of Amended and Restated Certificate of Designation for Common
Sense Municipal Bond Fund.
1.13 -- Form of Amended and Restated Certificate of Designation for Common
Sense Money Market Fund.
1.14 -- Form of Certificate of Amendment of the Declaration of Trust for
Common Sense Trust (Growth Fund, Growth and Income Fund and
Government Fund).
2 -- Bylaws. (Incorporated by reference to respective exhibit filed with
original Registration Statement.)
3 -- Inapplicable.
4.1 -- Specimen copy of Share of Beneficial Interest in Common Sense
Government Fund. (Incorporated by reference to Exhibit 4.3 filed with
Pre-Effective Amendment No. 2, filed March 31, 1987.)
4.2 -- Specimen copy of Share of Beneficial Interest in Common Sense Growth
Fund. (Incorporated by reference to Exhibit 4.2 filed with
Pre-Effective Amendment No. 2, filed March 31, 1987.)
</TABLE>
C-2
<PAGE> 201
<TABLE>
<S> <C>
4.3 -- Specimen copy of Share of Beneficial Interest in Common Sense Growth
and Income Fund. (Incorporated by reference to Exhibit 4.1 filed with
Pre-Effective Amendment No. 2, filed March 31, 1987.)
4.4 -- Specimen copy of Share of Beneficial Interest in Common Sense Money
Market Fund. (Incorporated by reference to Exhibit 4.4 filed with
Post-Effective Amendment No. 1, filed December 9, 1987.)
4.5 -- Specimen copy of Share of Beneficial Interest in Common Sense
Municipal Bond Fund. (Incorporated by reference to Exhibit 4.5 filed
with Post-Effective Amendment No. 3, filed May 6, 1988.)
4.6 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust
II for Class A shares. (Incorporated herein by reference to Exhibit
4.6 filed with Post-Effective Amendment No. 11, filed March 2, 1994.)
4.7 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust
II for Class B shares. (Incorporated herein by reference to Exhibit
4.7 filed with Post-Effective Amendment No. 11, filed March 2, 1994.)
4.8 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust
for Class A shares.
4.9 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust
for Class B shares.
4.10 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust
for Class 1 shares.
5.1 -- Investment Advisory Agreement for Common Sense Growth Fund, dated
December 20, 1994. (Incorporated herein by reference to Exhibit 5.1
filed with Post-Effective Amendment No. 14, filed January 26, 1995.)
5.2 -- Investment Advisory Agreement for Common Sense Growth and Income
Fund, dated December 20, 1994. (Incorporated herein by reference to
Exhibit 5.2 filed with Post-Effective Amendment No. 14, filed January
26, 1995.)
5.3 -- Investment Advisory Agreement for Common Sense Government Fund, dated
December 20, 1994. (Incorporated herein by reference to Exhibit 5.3
filed with Post-Effective Amendment No. 14, filed January 26, 1995.)
5.4 -- Investment Advisory Agreement for Common Sense Money Market Fund,
dated December 20, 1994. (Incorporated herein by reference to Exhibit
5.4 filed with Post-Effective Amendment No. 14, filed January 26,
1995.)
5.5 -- Investment Advisory Agreement for Common Sense Municipal Bond Fund,
dated December 20, 1994. (Incorporated herein by reference to Exhibit
5.5 filed with Post-Effective Amendment No. 14, filed January 26,
1995.)
5.6 -- Investment Advisory Agreement for Common Sense II Growth Fund dated
December 20, 1994. (Incorporated herein by reference to Exhibit 5.7
filed with Post-Effective Amendment No. 14, filed January 26, 1995.)
5.7 -- Investment Advisory Agreement for Common Sense II Growth and Income
Fund dated December 20, 1994. (Incorporated herein by reference to
Exhibit 5.8 filed with Post-Effective Amendment No. 14, filed January
26, 1995.)
5.8 -- Investment Advisory Agreement for Common Sense II Government Fund
dated December 20, 1994. (Incorporated herein by reference to Exhibit
5.9 filed with Post-Effective Amendment No. 14, filed January 26,
1995.)
5.9 -- Investment Advisory Agreement for Common Sense II Emerging Growth
Fund (Incorporated herein by reference to Exhibit 5.10 filed with
Post-Effective Amendment No. 15, filed August 11, 1995).
</TABLE>
C-3
<PAGE> 202
<TABLE>
<S> <C>
5.10 -- Investment Advisory Agreement for Common Sense II International
Equity Fund (Incorporated herein by reference to Exhibit 5.11 filed
with Post-Effective Amendment No. 15, filed August 11, 1995).
5.11 -- Investment Sub-Advisory Agreement for Common Sense II International
Equity Agreement (Incorporated herein by reference to Exhibit 5.12
filed with Post-Effective Amendment No. 15, filed August 11, 1995).
5.12 -- Form of Investment Advisory Agreement for Common Sense Growth Fund.
5.13 -- Form of Investment Advisory Agreement for Common Sense Growth and
Income Fund.
5.14 -- Form of Investment Advisory Agreement for Common Sense Government
Fund.
5.15 -- Form of Investment Advisory Agreement for Common Sense Municipal Bond
Fund.
5.16 -- Form of Investment Advisory Agreement for Common Sense Money Market
Fund.
5.17 -- Notification of Additional Portfolio -- Common Sense Money Market
Fund. (Incorporated by reference to Exhibit 5.2 with Post-Effective
Amendment No. 1 filed on November 27, 1987.)
5.18 -- Notification of Additional Portfolio (Common Sense Money Market Fund)
amending the Sub-Advisory Agreement. (Incorporated by reference to
Exhibit 5.3 filed with Post-Effective Amendment No. 1, filed on
November 27, 1987.)
5.19 -- Notification of Additional Portfolio -- Common Sense Municipal Bond
Fund. (Incorporated by reference to Exhibit 5.4 filed with
Post-Effective Amendment No. 3, filed May 6, 1988.)
5.20 -- Notification of Additional Portfolio (Common Sense Municipal Bond
Fund) amending the Sub-Advisory Agreement. (Incorporated by reference
to Exhibit 5.5 filed with Post-Effective Amendment No. 3, filed May
6, 1988.)
5.21 -- Notification of Additional Portfolio (Common Sense II Growth Fund)
amending the Sub-Advisory Agreement. (Incorporated herein by
reference to Exhibit 5.15 filed with Post-Effective Amendment No. 11,
filed March 2, 1994.)
5.22 -- Notification of Additional Portfolio (Common Sense II Growth and
Income Fund) amending the Sub-Advisory Agreement. (Incorporated
herein by reference to Exhibit 5.16 filed with Post-Effective
Amendment No. 11, filed March 2, 1994.)
5.23 -- Notification of Additional Portfolio (Common Sense II Government
Fund) amending the Sub-Advisory Agreement. (Incorporated herein by
reference to Exhibit 5.17 filed with Post-Effective Amendment No. 11,
filed March 2, 1994.)
6.1 -- Underwriting Agreement for Common Sense Trust (Common Sense
Government Fund, Common Sense Growth Fund, Common Sense Growth and
Income Fund, Common Sense Money Market Fund and Common Sense
Municipal Bond Fund) dated October 1, 1993. (Incorporated herein by
reference to Exhibit 6.1 filed with Post-Effective Amendment No. 12,
filed October 28, 1994.)
6.2 -- Underwriting Agreement for Common Sense II Government Fund, Common
Sense II Growth Fund and Common Sense II Growth & Income Fund dated
May 2, 1994. (Incorporated herein by reference to Exhibit 6.2 filed
with Post-Effective Amendment No. 12, filed October 28, 1994.)
6.3 -- Underwriting Agreement for Common Sense II Emerging Growth Fund
(Incorporated herein by reference to Exhibit 6.3 filed with
Post-Effective Amendment No. 15, filed August 11, 1995).
</TABLE>
C-4
<PAGE> 203
<TABLE>
<S> <C>
6.4 -- Underwriting Agreement for Common Sense II International Equity Fund
(Incorporated herein by reference to Exhibit 6.4 filed with
Post-Effective Amendment No. 15, filed August 11, 1995).
6.5 -- Form of Underwriting Agreement for Common Sense Trust.
6.6 -- Selling Agreement between Common Sense Distributors and First
American National Securities, Inc. (Incorporated by reference to
Exhibit 6.2 filed with Pre-Effective Amendment No. 2, filed March 31,
1987.)
6.7 -- Selling Agreement for Common Sense II Funds dated May 2, 1994.
(Incorporated herein by reference to Exhibit 6.4 filed with
Post-Effective Amendment No. 12, filed October 28, 1994.)
6.8 -- Selling Agreement with PFS Investments Inc. (Incorporated herein by
reference to Exhibit 6.7 filed with Post-Effective Amendment No. 16,
filed January 26, 1996.)
6.9 -- Form of Selling Agreement with PFS Investments, Inc.
7 -- Inapplicable.
8.1 -- Custodian Agreement. (Incorporated by reference to Exhibit 8.1 filed
with Pre-Effective Amendment No. 2, filed March 31, 1987.)
8.2 -- Amendment to Custodian Agreement dated March 14, 1990. (Incorporated
by reference to Exhibit 8.1b filed with Post-Effective Amendment No.
6, filed January 23, 1991.)
8.3 -- Letter of notification to State Street Bank, as custodian, to the
addition of the following funds: Common Sense II Growth Fund, Common
Sense II Growth and Income Fund, and Common Sense II Government Fund.
(Incorporated herein by reference to Exhibit 8.3 filed with
Post-Effective Amendment No. 12, filed October 28, 1994.)
8.4 -- Transfer Agency Agreement. (Incorporated by reference to Exhibit 8.2
filed with Pre-Effective Amendment No. 2, filed March 31, 1987.)
8.5 -- Addendum to Transfer Agency Agreement for Common Sense Money Market
Fund dated December 15, 1987. (Incorporated herein by reference to
Exhibit 8.5 filed with Post-Effective Amendment No. 12, filed October
28, 1994.)
8.6 -- Addendum to Transfer Agency Agreement for Common Sense Municipal Bond
Fund dated July 13, 1988. (Incorporated herein by reference to
Exhibit 8.6 filed with Post-Effective Amendment No. 12, filed October
28, 1994.)
8.7 -- Addendum to Transfer Agency Agreement for Common Sense II Growth Fund
dated May 2, 1994. (Incorporated herein by reference to Exhibit 8.8
filed with Post-Effective Amendment No. 12, filed October 28, 1994.)
8.8 -- Addendum to Transfer Agency Agreement for Common Sense II Growth &
Income Fund dated May 2, 1994. (Incorporated herein by reference to
Exhibit 8.9 filed with Post-Effective Amendment No. 12, filed October
28, 1994.)
8.9 -- Addendum to Transfer Agency Agreement for Common Sense II Government
Fund dated May 2, 1994. (Incorporated herein by reference to Exhibit
8.10 filed with Post-Effective Amendment No. 12, filed October 28,
1994.)
8.10 -- Addendum to Transfer Agency and Service Agreement for Common Sense II
Emerging Growth Fund (Incorporated herein by reference to Exhibit
8.11 filed with Post-Effective Amendment No. 15, filed August 11,
1995).
8.11 -- Addendum to Transfer Agency and Service Agreement for Common Sense II
International Equity Fund (Incorporated herein by reference to
Exhibit 8.12 filed with Post-Effective Amendment No. 15, filed August
11, 1995).
</TABLE>
C-5
<PAGE> 204
<TABLE>
<S> <C>
8.12 -- Letter of notification to State Street Bank, as custodian, to the
addition of the following funds: Common Sense II Emerging Growth Fund
and Common Sense II International Equity Fund (Incorporated herein by
reference to Exhibit 8.13 filed with Post-Effective Amendment No. 15,
filed August 11, 1995).
9 -- Inapplicable.
10 -- Inapplicable.
11 -- Consent of Independent Auditors.
12 -- Inapplicable.
13.1 -- Investment Letter for Common Sense Funds. (Incorporated by reference
to Exhibit 13 filed with Pre-Effective Amendment No. 2, filed March
31, 1987.)
13.2 -- Investment Letter for Common Sense II Funds dated May 2, 1994.
(Incorporated herein by reference to Exhibit 13.2 filed with
Post-Effective Amendment No. 12, filed October 28, 1994.)
13.3 -- Investment Letter for Common Sense II Emerging Growth Fund and Common
Sense II International Equity Fund (Incorporated herein by reference
to Exhibit 13.3 filed with Post-Effective Amendment No. 15, filed
August 11, 1995).
14.1 -- Individual Retirement Account Application. (Incorporated by reference
to Exhibit 14.1 with Post-Effective Amendment No. 9, filed November
10, 1993.)
14.2 -- 403(b)(7) Custodial Account Application. (Incorporated by reference
to Exhibit 14.2 with Post-Effective Amendment No. 9, filed November
10, 1993.)
14.3 -- Simplified Employee Pension Account Application. (Incorporated by
reference to Exhibit 14.3 filed with Post-Effective Amendment No. 9,
filed November 10, 1993.)
15.1 -- Class A Distribution Plan dated May 2, 1994. (Incorporated herein by
reference to Exhibit 15.1 filed with Post-Effective Amendment No. 12,
filed October 28, 1994.)
15.2 -- Class B Distribution Plan dated May 2, 1994. (Incorporated herein by
reference to Exhibit 15.2 filed with Post-Effective Amendment No. 12,
filed October 28, 1994.)
15.3 -- Addendum to the Class A Distribution Plan for Common Sense II
Emerging Growth Fund (Incorporated herein by reference to Exhibit
15.3 filed with Post-Effective Amendment No. 15, filed August 11,
1995).
15.4 -- Addendum to the Class B Distribution Plan for Common Sense II
Emerging Growth Fund (Incorporated herein by reference to Exhibit
15.4 filed with Post-Effective Amendment No. 15, filed August 11,
1995).
15.5 -- Addendum to the Class A Distribution Plan for Common Sense II
International Equity Fund (Incorporated herein by reference to
Exhibit 15.5 filed with Post-Effective Amendment No. 15, filed August
11, 1995).
15.6 -- Addendum to the Class B Distribution Plan for Common Sense II
International Equity Fund (Incorporated herein by reference to
Exhibit 15.6 filed with Post-Effective Amendment No. 15, filed August
11, 1995).
15.7 -- Servicing Agreement for Class A shares dated May 2, 1994.
(Incorporated herein by reference to Exhibit 15.3 filed with
Post-Effective Amendment No. 12, filed October 28, 1994.)
15.8 -- Servicing Agreement for Class B shares dated May 2, 1994.
(Incorporated herein by reference to Exhibit 15.4 filed with
Post-Effective Amendment No. 12, filed October 28, 1994.)
15.9 -- Servicing Agreement for Class A shares of Common Sense Trust.
(Incorporated herein by reference to Exhibit 15.9 filed with
Post-Effective Amendment No. 16, filed January 26, 1996.)
</TABLE>
C-6
<PAGE> 205
<TABLE>
<S> <C>
15.10 -- Servicing Agreement for Class B shares of certain Common Sense Trust
Mutual Funds. (Incorporated herein by reference to Exhibit 15.10
filed with Post-Effective Amendment No. 16, filed January 26, 1996.)
15.11 -- Form of Servicing Agreement for Class A shares of Common Sense Trust.
15.12 -- Form of Servicing Agreement for Class B shares of Common Sense Trust.
15.13 -- Form of Class A Distribution Plan.
15.14 -- Form of Class B Distribution Plan.
16 -- Computation Measure for Performance Information.
17.1 -- List of certain investment companies in response to Item 29(a).
17.2 -- List of officers and directors of Van Kampen American Capital
Distributors, Inc. in response to Item 29(b).
18 -- Form of Rule 18f-3 plan.
19.1 -- Power-of-Attorney for Mr. Lane. (Incorporated by reference to Exhibit
17 filed with Post-Effective Amendment No. 7, filed January 23,
1992.)
19.2 -- Power-of-Attorney for Mr. Merten. (Incorporated by reference to
Exhibit 17.1 filed with Post-Effective Amendment No. 6, filed January
23, 1991.)
19.3 -- Powers-of-Attorney for Messrs. Cocanougher, Gross, Pettit, Paulsen
and Shepard. (Incorporated by reference to Exhibit 17 filed with
Post-Effective Amendment No. 5, filed June 1, 1990.)
19.4 -- Powers-of-Attorney for Messrs. Carlton, Hackerman, Muller, Upton,
Woodson. (Incorporated by reference to Exhibit 18.4 filed with
Post-Effective Amendment No. 10, filed January 6, 1994.)
19.5 -- Power-of-Attorney for Mr. Harvey. (Incorporated herein by reference
to Exhibit 18.5 filed with Post-Effective Amendment No. 11, filed
March 2, 1994.)
27 -- Financial Data Schedules.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF FEBRUARY 29, 1996
<TABLE>
<CAPTION>
CLASS CLASS CLASS
A B 1
------- ------- --------
<S> <C> <C> <C>
Common Sense Government Fund
Shares of Beneficial Ownership.......... -- -- 30,087
Common Sense Growth Fund
Shares of Beneficial Ownership.......... -- -- 560,831
Common Sense Growth and Income Fund
Shares of Beneficial Ownership.......... -- -- 124,676
Common Sense Emerging Growth Fund
Shares of Beneficial Ownership.......... 13,346 10,972 --
Common Sense International Equity Fund
Shares of Beneficial Ownership.......... 2,554 1,979 --
</TABLE>
C-7
<PAGE> 206
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
-----------------------------
CLASS A CLASS B CLASS 1
------- ------- -------
<S> <C> <C> <C>
Common Sense Money Market Fund
Shares of Beneficial Ownership........................... -- -- 25,201
Common Sense Municipal Bond Fund
Shares of Beneficial Ownership........................... -- -- 11,965
</TABLE>
ITEM 27. INDEMNIFICATION.
Item 27 is incorporated herein by reference to Form N-1A of Registrants
Registration No. 33-11716, Post Effective Amendment No. 11, filed on March 2,
1994.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "The Trust and Its Management" in the Prospectus and "Trustees and
Executive Officers" in the Statement of Additional Information for information
regarding the business of the Adviser. For information as to the business,
profession, vocation and employment of a substantial nature of directors and
officers of the Adviser, reference is made to the Adviser's current Form ADV
(File No. 801-1669) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) None.
(b) The following information is furnished with respect to each officer of
PFS Distributors, Inc.:
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH OFFICES
BUSINESS ADDRESS PRINCIPAL UNDERWRITER WITH REGISTRANT
- ---------------------- ------------------------------------------- ---------------
<S> <C> <C>
Richard W. Atcheson(1) Assistant Secretary --
Gordon K. Barber Vice President --
Cynthia E. Mitchell Vice President --
Ellen W. Montgomery Vice President --
Michael R. Snider Vice President --
Allen F. Coleman Assistant Secretary --
Gerald L. Baxter(1) Secretary --
Paul D. Burner(1) Senior Vice President and Treasurer --
Daniel D. McConnell(1) Senior Vice President and Chief Compliance --
Officer
Gregory C. Pitts(1) Senior Vice President, Operations Vice President
Josie V. Chief Financial Officer --
VanderZanden(1)
D. Richard Williams(1) Chief Executive Officer, General Manager Vice President
and Executive Committee Member
</TABLE>
- ---------------
(1) 3120 Breckinridge Boulevard, Duluth, Georgia 30199-0001.
(c) Commissions and other compensation received by each principal
underwriter who is not an affiliated person of the Registrant or an affiliated
person of such an affiliated person, directly or indirectly, from the Registrant
during the Registrant's last fiscal year.
Inapplicable.
C-8
<PAGE> 207
ITEM 30. LOCATION OF BOOKS AND RECORDS.
Unless otherwise stated below, the books or other documents required to be
maintained by Section 3l(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are in the physical possession of:
Fund Treasurer
Mutual Fund Accounting
2800 Post Oak Blvd
Houston, Texas 77056
<TABLE>
<CAPTION>
RULE LOCATION OF REQUIRED RECORDS
- ------- ------------------------------------------------------------------
<S> <C> <C>
31a-1 (b)(2) Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
PFS Shareholder Services
3120 Breckinridge Blvd.
Duluth, Georgia 30199-0062
(b)(4)-(6) Van Kampen American Capital Asset Management, Inc.
(b)(9)-(11) Van Kampen American Capital Asset Management, Inc.
</TABLE>
ITEM 31. MANAGEMENT SERVICES.
There are no management related services contracts not discussed in Part A.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-9
<PAGE> 208
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Houston, and State of Texas, on the 21st day of
March, 1996.
COMMON SENSE TRUST
/s/ DON G. POWELL
------------------------------------------
(Don G. Powell, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 21, 1996:
<TABLE>
<S> <C>
Principal Executive Officer and Trustee:
/s/ DON G. POWELL President and Trustee
-------------------------------------------
(Don G. Powell)
Principal Financial Officer and Accounting
Officer:
/s/ CURTIS W. MORELL Vice President and Treasurer
-------------------------------------------
(Curtis W. Morell)
Trustees:
*DONALD M. CARLTON Trustee
(Donald M. Carlton)
*A. BENTON COCANOUGHER Trustee
(A. Benton Cocanougher)
*STEPHEN R. GROSS Trustee
(Stephen R. Gross)
*NORMAN HACKERMAN Trustee
(Norman Hackerman)
*ROBERT D. H. HARVEY Trustee
(Robert D. H. Harvey)
*JEFFREY B. LANE Trustee
(Jeffrey B. Lane)
*ALAN G. MERTEN Trustee
(Alan G. Merten)
*STEVEN MULLER Trustee
(Steven Muller)
*F. ROBERT PAULSEN Trustee
(F. Robert Paulsen)
*R. RICHARDSON PETTIT Trustee
(R. Richardson Pettit)
*DON G. POWELL Trustee
(Don G. Powell)
*ALAN B. SHEPARD, JR. Trustee
(Alan B. Shepard, Jr.)
*MILLER UPTON Trustee
(Miller Upton)
*BENJAMIN N. WOODSON Trustee
(Benjamin N. Woodson)
</TABLE>
- ---------------
* Signed by the undersigned pursuant to a Power-of-Attorney filed with the
Commission.
/s/ DON G. POWELL
-------------------------------------
Don G. Powell
Attorney-in-Fact
<PAGE> 209
COMMON SENSE TRUST
INDEX TO EXHIBITS TO FORM N-1A REGISTRATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ---------------------------------------------------------------------------------------------
<S> <C>
1.10 -- Form of Amended and Restated Certificate of Designation for Common Sense
Emerging Growth Fund.
1.11 -- Form of Amended and Restated Certificate of Designation for Common Sense
International Equity Fund.
1.12 -- Form of Amended and Restated Certificate of Designation for Common Sense
Municipal Bond Fund.
1.13 -- Form of Amended and Restated Certificate of Designation for Common Sense Money
Market Fund.
1.14 -- Form of Certificate of Amendment of the Declaration of Trust for Common Sense
Trust (Growth Fund, Growth and Income Fund and Government Fund).
4.8 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust for Class A
shares.
4.9 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust for Class B
shares.
4.10 -- Specimen copy of Share of Beneficial Interest in Common Sense Trust for Class 1
shares.
5.12 -- Form of Investment Advisory Agreement for Common Sense Growth Fund.
5.13 -- Form of Investment Advisory Agreement for Common Sense Growth and Income Fund.
5.14 -- Form of Investment Advisory Agreement for Common Sense Government Fund.
5.15 -- Form of Investment Advisory Agreement for Common Sense Municipal Bond Fund.
5.16 -- Form of Investment Advisory Agreement for Common Sense Money Market Fund.
6.5 -- Form of Underwriting Agreement for Common Sense Trust.
6.9 -- Form of Selling Agreement with PFS Investments, Inc.
11 -- Consent of Independent Auditors.
15.11 -- Form of Servicing Agreement for Class A shares of Common Sense Trust.
15.12 -- Form of Servicing Agreement for Class B shares of Common Sense Trust.
15.13 -- Form of Class A Distribution Plan.
15.14 -- Form of Class B Distribution Plan.
16 -- Computation Measure for Performance Information.
17.1 -- List of certain investment companies in response to Item 29(a).
17.2 -- List of officers and directors of Van Kampen American Capital Distributors,
Inc. in response to Item 27(b).
18 -- Form of Rule 18f-3 plan.
27 -- Financial Data Schedules.
</TABLE>
<PAGE> 1
EXHIBIT 1.10
COMMON SENSE(R) TRUST
Amended and Restated Certificate of Designation
of
Common Sense(R) Emerging Growth Fund
(heretofore, the "Common Sense(R) II Emerging Growth Fund")
The undersigned, being the Secretary of Common Sense(R) Trust
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated
January 29, 1987 (the "Original Declaration", and as amended October 26, 1987,
April 8, 1988, February 24, 1992, January 24, 1994, February 2, 1994 and
January 27, 1995, the "Existing Declaration", and as further amended hereby,
the "Declaration"), and by the affirmative vote of a Majority of the Trustees
at a meeting duly called and held on March __, 1996, the Certificate of
Designation effective January 27, 1995, amending the Declaration of Trust to
establish the Common Sense(R) II Emerging Growth Fund (the "Fund") as a
separate Portfolio of the Trust (the "Certificate"), is hereby amended to
change the name of the Fund to "Common Sense(R) Emerging Growth Fund",and is
further amended and restated in its entirety to read as follows (and as so
amended, is herein referred to as this "Amended Certificate"):
1. Pursuant to Section 6.1(b) of the Declaration of Trust, there is
hereby established and designated the Common Sense(R) Emerging Growth Fund
(hereinafter referred to as the "Fund"), as a separate Portfolio of the Trust.
The beneficial interest in the Fund shall be divided into Shares having a
nominal or par value of one cent ($.01) per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Shares of the Fund shall initially be divided into three Classes, designated as
Class A Shares, Class B Shares and Class 1 Shares, and an unlimited number of
each of such Classes may be issued. The Class A and Class B Shares of the Fund
outstanding on the date on which this Amended Certificate is filed with the
Secretary of State of The Commonwealth of Massachusetts shall continue as Class
A and Class B Shares, respectively, of the Fund, with the preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, provided for by the
Certificate of Designation effective January 27, 1995, modified as provided
hereby. The Trustees shall have authority from time to time to authorize
additional Classes of Shares of the Fund, with such preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations and restrictions thereof, as they may deem necessary and
desirable. The Shares of the Classes provided for hereby have, and except as
the Trustees may otherwise provide with respect to a particular Class at the
time of authorizing the same, the Shares of any such Classes shall have, the
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, set forth in Section 6.2 of
the Declaration of Trust, in each case modified only in the following respects:
(a) Charges and Loads; Characteristics of Shares. The Trustees
shall have authority to adopt for the Shares of the several Classes of
the Fund one or more distribution plans pursuant to Rule 12b-1 under
the 1940 Act (each such plan, a "Plan"), and to provide that a
particular Class or particular Classes of Shares shall be sold with or
without a sales charge, that
1
<PAGE> 2
outstanding Shares of such Classes shall bear distribution fees or service fees
in amounts which vary from Class to Class, or no such fees, and that they may
be subject to a contingent deferred sales charge upon the redemption thereof
established pursuant to Section 6.2(g) of the Declaration (a "CDSC"), or no
such charge, all as shall be established by the Trustees without any breach of
existing law, including without limitation the 1940 Act, and set forth in the
Trust's Prospectus for Shares of the Fund, as the same may be amended from time
to time (hereinafter, the "Prospectus"). Without limitation of the authority of
the Trustees to provide that any additional Classes hereafter authorized by
them shall bear such sales charges, fees and CDSCs, or no such charges, fees or
CDSCs, as they shall determine, the Classes authorized hereby shall be subject
to sales charges, fees and CDSCs as follows:
(i) Class A Shares shall bear a sales charge and a service
fee, but shall not be subject to a CDSC (other than a CDSC payable
with respect to redemptions of Shares for which the sales charge has
previously been waived pursuant to procedures approved by the
Trustees).
(ii) Class B Shares shall be sold without a sales charge,
but shall be subject to a distribution fee and a service fee, and
the proceeds of the redemption of such Shares may be subject to a
CDSC.
(iii) Class 1 Shares shall be sold with a sales charge, but
shall not be subject to a service fee, a distribution fee or a
CDSC, other than a CDSC payable with respect to redemptions of
Shares for which the sales charge has previously been waived
pursuant to procedures approved by the Trustees.
(b) Liquidation. Notwithstanding the provisions of Section 6.2(e)
of the Declaration, if the Fund shall liquidate or dissolve (whether or not in
connection with the liquidation or dissolution of the Trust), the assets
distributable to the Shareholders of the Fund in such event shall be allocated
among the several Classes of the Fund in proportion to the respective
aggregate net asset value of the respective outstanding Shares thereof, and
shall be distributed to the Shareholders of each such Class in proportion to
the number of Shares of that Class held by them and recorded on the books of
the Trust.
(c) Voting. Without limiting the generality of Section 6.2(f) or
of Section 7.1 of the Declaration, and except as otherwise required by the 1940
Act, the Shareholders of each Class of the Fund shall have exclusive voting
rights with respect to the provisions of any Plan adopted by the Trustees as
applying to such Class and no voting rights with respect to provisions of any
Plan applicable to any other Class.
(d) Net Asset Value. At any time at which the Fund shall have only
one Class of Shares outstanding, the net asset value per Share of the Fund
shall be the quotient obtained by dividing the value of the net assets of the
Fund at such time (being the current value of the assets belonging to the Fund,
less its then existing liabilities) by the total number of Shares of the Fund
then outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time. At any time at which the Fund shall have more than
one Class of Shares outstanding, the net asset value of the several Classes of
the Fund shall be sepa-
2
<PAGE> 3
rately computed, and may vary from one another. In any such case, the Trustees
shall establish procedures for the allocation of investment income or capital
gains and expenses and liabilities of the Fund among the several Classes of the
Fund (including without limitation the Class A Shares, Class B Shares and Class
1 Shares), and the net asset value of the Shares of each Class shall be the
quotient obtained by dividing the value of the net assets allocable to such
Class at such time (being the current value of the assets allocable to such
Class, less its share of the then existing liabilities of the Fund) by the
total number of Shares of such Class then outstanding, all determined in
accordance with the methods and procedures, including without limitation those
with respect to rounding, established by the Trustees from time to time.
(e) Rights of Fractional Shares. Without limitation of the generality of
the provisions of Section 6.2(f) of the Declaration, any fractional Share of
any Class shall carry proportionately all the rights and obligations of a whole
Share of that Class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Shares, and liquidation
of the Trust or of the Fund.
(f) Conversion Rights; Conversion of Class B Shares. (i) Subject to
compliance with the requirements of the 1940 Act, the Trustees shall have the
authority to provide (A) that holders of Shares of any Class of the Fund shall
have the right to convert such Shares into shares of any other investment
company registered as such under the 1940 Act and designated for that purpose in
the Prospectus (an "Eligible Investment Company"), (B) that holders of any
Class of Shares of the Fund, shall have the right to convert such Shares into
Shares of one or more other Classes of the Fund, and (C) that Shares of any
Class of the Fund shall be automatically converted into Shares of another
Class of the Fund, in each case in accordance with such requirements and
procedures as the Trustees may establish.
(ii) Without limitation of the foregoing, no Class A Share or
Class 1 Share of the Fund shall be convertible into Shares of any other Class
of the Fund. Each Class B Share of the Fund, other than a Share purchased
through the automatic reinvestment of a dividend or a distribution with respect
to the Class B Shares of the Fund, shall be converted automatically, and
without any action or choice on the part of the Shareholder thereof, into Class
A Shares of the Fund on the Conversion Date thereof, established as provided in
the next succeeding sentence. The term "Conversion Date", as to any Class B
Share, shall mean either (i) the date that is the first business day in the
month following the month which includes the sixth anniversary of the Original
Purchase Date (as hereinafter defined) of such Class B Share, determined as
provided in the next succeeding sentence, or (ii) any such other date that may
be determined by the Trustees and set forth in the Prospectus; provided, that
any such other date determined by the Trustees with respect to Class B Shares
already outstanding is one that will occur prior to both (A) the date
determined as provided in clause (i) of this sentence and (B) any other date
theretofore determined by the Trustees pursuant to this clause (ii). The
"Original Purchase Date" of a Class B Share shall be the date on which such
Share was first subscribed and paid for by the holder thereof; provided, that
if such Share was obtained by the holder through an exchange of shares of
another Eligible Investment Company, the Original Purchase Date shall be the
Original Purchase Date of the Class B Shares of such other Eligible
3
<PAGE> 4
Investment Company, or if the Shares of such other Eligible Investment Company
were held as the result of a series of exchanges, the Original Purchase Date of
the Class B Shares of the Eligible Investment Company to which the holder
originally subscribed. Class B Shares of the Fund purchased through the
automatic reinvestment of a dividend or a distribution with respect to the
Class B Shares of the Fund shall be segregated in a separate sub-account on the
Share records of the Fund for each of the Shareholders of record thereof. On
any Conversion Date, a number of the Class B Shares held in the sub-account of
the Shareholder of record of the Share or Shares being converted, calculated in
accordance with the next following sentence, shall be converted automatically,
and without any action or choice on the part of the Shareholder, into Class A
Shares of the Fund. The number of Shares in the Shareholder's sub-account so
converted shall bear the same relation to the total number of Shares maintained
in the sub-account on the Class B Conversion Date (immediately prior to
conversion) as the number of Shares of the Shareholder converted on such
Conversion Date pursuant to this paragraph (ii) bears to the total number of
Class B Shares held by the Shareholder on the Conversion Date (immediately
prior to conversion) not purchased through the automatic reinvestment of
dividends or distributions with respect to the Class B Shares.
(iii) The number of Class A Shares of the Fund into which a Class B
Share is converted pursuant to paragraphs (f)(i) and (f)(ii) of this Amended
Certificate shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share of the Class B
Shares for purposes of sales and redemptions thereof on the Conversion Date by
the net asset value per Share of the Class A Shares for purposes of sales and
redemptions thereof on the Conversion Date.
(iv) Class B Shares of the Fund that are converted into Class A
Shares on any Conversion Date will cease to accrue dividends and will no longer
be deemed outstanding and the rights of the holders thereof (except the right
to receive (A) the number of Class A Shares into which such Class B Shares have
been converted and (B) declared but unpaid dividends to the Conversion Date)
will cease. Certificates representing Class A Shares resulting from the
conversion need not be issued until certificates representing Class B Shares
converted, if issued, have been received by the Trust or its agent duly
endorsed for transfer.
(v) The Trust will appropriately reflect the conversion of Class B
Shares of the Fund into Class A Shares on the first periodic statements of
account sent to Shareholders of record affected which provide account
information with respect to a reporting period which includes the Conversion
Date.
(g) Amendment, etc. Subject to the provisions and limitations of Section
9.3 of the Declaration of Trust and applicable law, this Amended Certificate
may be amended by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees); provided, that, if any amendment adversely affects the rights of the
Shareholders of the Fund, or of any Class of Shares of the Fund, such amendment
may be adopted by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.1
of the Declaration of
4
<PAGE> 5
Trust of the holders of a majority of all the Shares of the Fund, or of
such Class, as the case may be, outstanding and entitled to vote.
(h) Incorporation of Defined Terms. All capitalized terms used in
this Amended Certificate which are not otherwise defined herein shall have
the same meanings as are assigned to those terms in the Existing
Declaration, as on file with the Secretary of State of The Commonwealth of
Massachusetts.
2. The Trustees further direct that, upon the execution of this Amended
and Restated Certificate of Designation, the Trust take all necessary action to
file a copy hereof with the Secretary of State of The Commonwealth of
Massachusetts and at any other place required by law or by the Existing
Declaration.
IN WITNESS WHEREOF, the undersigned has set her hand and the seal of the
Trust, this ___ day of ________, 1996.
_______________________________
Nori L. Gabert, Secretary
[TRUST SEAL]
5
<PAGE> 6
ACKNOWLEDGMENT
STATE OF TEXAS )
:
HARRIS COUNTY ) ss. ______________, 1996
Then personally appeared the above-named Nori L. Gabert and
acknowledged the foregoing instrument to be her free act and deed.
Before me,
__________________
Notary Public
6
<PAGE> 1
EXHIBIT 1.11
COMMON SENSE(R) TRUST
Amended and Restated Certificate of Designation
of
Common Sense(R) International Equity Fund
(heretofore, the "Common Sense(R) II International Equity Fund")
The undersigned, being the Secretary of Common Sense(R) Trust
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated
January 29, 1987 (the "Original Declaration", and as amended October 26, 1987,
April 8, 1988, February 24, 1992, January 24, 1994, February 2, 1994 and
January 27, 1995, the "Existing Declaration", and as further amended hereby,
the "Declaration"), and by the affirmative vote of a Majority of the Trustees
at a meeting duly called and held on March __, 1996, the Certificate of
Designation effective January 27, 1995, amending the Declaration of Trust to
establish the Common Sense(R) II International Growth Fund (the "Fund") as a
separate Portfolio of the Trust (the "Certificate"), is hereby amended to
change the name of the Fund to "Common Sense(R) International Equity Fund", and
is further amended and restated in its entirety to read as follows (and as so
amended, is herein referred to as this "Amended Certificate"):
1. Pursuant to Section 6.1(b) of the Declaration of Trust, there is
hereby established and designated the Common Sense(R) International Equity Fund
(hereinafter referred to as the "Fund"), as a separate Portfolio of the Trust.
The beneficial interest in the Fund shall be divided into Shares having a
nominal or par value of one cent ($.01) per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Shares of the Fund shall initially be divided into three Classes, designated as
Class A Shares, Class B Shares and Class 1 Shares, and an unlimited number of
each of such Classes may be issued. The Class A and Class B Shares of the Fund
outstanding on the date on which this Amended Certificate is filed with the
Secretary of State of The Commonwealth of Massachusetts shall continue as Class
A and Class B Shares, respectively, of the Fund, with the preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations, and restrictions, thereof, provided for by the
Certificate of Designation effective January 27, 1995, modified as provided
hereby. The Trustees shall have authority from time to time to authorize
additional Classes of Shares of the Fund, with such preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations and restrictions thereof, as they may deem necessary and desirable.
The Shares of the Classes provided for hereby have, and except as the Trustees
may otherwise provide with respect to a particular Class at the time of
authorizing the same, the Shares of any such Classes shall have, the
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, set forth in Section 6.2 of
the Declaration of Trust, in each case modified only in the following respects:
(a) Charges and Loads; Characteristics of Shares. The Trustees
shall have authority to adopt for the Shares of the several Classes of
the Fund one or more distribution plans pursuant to Rule 12b-1 under
the 1940 Act (each such plan, a "Plan"), and to provide that a
particular Class or particular Classes of Shares shall be sold with or
without a sales charge, that
1
<PAGE> 2
outstanding Shares of such Classes shall bear distribution fees or service fees
in amounts which vary from Class to Class, or no such fees, and that they may
be subject to a contingent deferred sales charge upon the redemption thereof
established pursuant to Section 6.2(g) of the Declaration (a "CDSC"), or no
such charge, all as shall be established by the Trustees without any breach of
existing law, including without limitation the 1940 Act, and set forth in the
Trust's Prospectus for Shares of the Fund, as the same may be amended from time
to time (hereinafter, the "Prospectus"). Without limitation of the authority of
the Trustees to provide that any additional Classes hereafter authorized by
them shall bear such sales charges, fees and CDSCs, or no such charges, fees or
CDSCs, as they shall determine, the Classes authorized hereby shall be subject
to sales charges, fees and CDSCs as follows:
(i) Class A Shares shall bear a sales charge and a service
fee, but shall not be subject to a CDSC (other than a CDSC payable
with respect to redemptions of Shares for which the sales charge has
previously been waived pursuant to procedures approved by the
Trustees).
(ii) Class B Shares shall be sold without a sales charge,
but shall be subject to a distribution fee and a service fee, and
the proceeds of the redemption of such Shares may be subject to a
CDSC.
(iii) Class 1 Shares shall be sold with a sales charge, but
shall not be subject to a service fee, a distribution fee or a
CDSC, other than a CDSC payable with respect to redemptions of
Shares for which the sales charge has previously been waived
pursuant to procedures approved by the Trustees.
(b) Liquidation. Notwithstanding the provisions of Section 6.2(e)
of the Declaration, if the Fund shall liquidate or dissolve (whether or not in
connection with the liquidation or dissolution of the Trust), the assets
distributable to the Shareholders of the Fund in such event shall be allocated
among the several Classes of the Fund in proportion to the respective
aggregate net asset value of the respective outstanding Shares thereof, and
shall be distributed to the Shareholders of each such Class in proportion to
the number of Shares of that Class held by them and recorded on the books of
the Trust.
(c) Voting. Without limiting the generality of Section 6.2(f) or
of Section 7.1 of the Declaration, and except as otherwise required by the 1940
Act, the Shareholders of each Class of the Fund shall have exclusive voting
rights with respect to the provisions of any Plan adopted by the Trustees as
applying to such Class and no voting rights with respect to provisions of any
Plan applicable to any other Class.
(d) Net Asset Value. At any time at which the Fund shall have only
one Class of Shares outstanding, the net asset value per Share of the Fund
shall be the quotient obtained by dividing the value of the net assets of the
Fund at such time (being the current value of the assets belonging to the Fund,
less its then existing liabilities) by the total number of Shares of the Fund
then outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time. At any time at which the Fund shall have more than
one Class of Shares outstanding, the net asset value of the several Classes of
the Fund shall be sepa-
2
<PAGE> 3
rately computed, and may vary from one another. In any such case, the Trustees
shall establish procedures for the allocation of investment income or capital
gains and expenses and liabilities of the Fund among the several Classes of the
Fund (including without limitation the Class A Shares, Class B Shares and Class
I Shares), and the net asset value of the Shares of each Class shall be the
quotient obtained by dividing the value of the net assets allocable to such
Class at such time (being the current value of the assets allocable to such
Class, less its share of the then existing liabilities of the Fund) by the
total number of Shares of such Class then outstanding, all determined in
accordance with the methods and procedures, including without limitation those
with respect to rounding, established by the Trustees from time to time.
(e) Rights of Fractional Shares. Without limitation of the generality of
the provisions of Section 6.2(f) of the Declaration, any fractional Share of
any Class shall carry proportionately all the rights and obligations of a whole
Share of that Class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Shares, and liquidation
of the Trust or of the Fund.
(f) Conversion Rights: Conversion of Class B Shares. (i) Subject to
compliance with the requirements of the 1940 Act, the Trustees shall have the
authority to provide (A) that holders of Shares of any Class of the Fund shall
have the right to convert such Shares into shares of any other investment
company registered as such under the 1940 Act and designated for that purpose in
the Prospectus (an "Eligible Investment Company"), (B) that holders of any
Class of Shares of the Fund shall have the right to convert such Shares into
Shares of one or more other Classes of the Fund, and (C) that Shares of any
Class of the Shares of the Fund shall be automatically converted into Shares of
another Class of the Fund, in each case in accordance with such requirements
and procedures as the Trustees may establish.
(ii) Without limitation of the foregoing, no Class A Share or
Class 1 Share of the Fund shall be convertible into Shares of any other Class
of the Fund. Each Class B Share of the Fund, other than a Share purchased
through the automatic reinvestment of a dividend or a distribution with respect
to the Class B Shares of the Fund, shall be converted automatically, and
without any action or choice on the part of the Shareholder thereof, into Class
A Shares of the Fund on the Conversion Date thereof, established as provided in
the next succeeding sentence. The term "Conversion Date", as to any Class B
Share, shall mean either (i) the date that is the first business day in the
month following the month which includes the sixth anniversary of the Original
Purchase Date (as hereinafter defined) of such Class B Share, determined as
provided in the next succeeding sentence, or (ii) any such other date that may
be determined by the Trustees and set forth in the Prospectus; provided, that
any such other date determined by the Trustees with respect to Class B Shares
already outstanding is one that will occur prior to both (A) the date
determined as provided in clause (i) of this sentence and (B) any other date
theretofore determined by the Trustees pursuant to this clause (ii). The
"Original Purchase Date" of a Class B Share shall be the date on which such
Share was first subscribed and paid for by the holder thereof; provided, that
if such Share was obtained by the holder through an exchange of shares of
another Eligible Investment Company, the Original Purchase Date shall be the
Original Purchase Date of the Class B Shares of such other Eligible
3
<PAGE> 4
Investment Company, or if the Shares of such other Eligible Investment Company
were held as the result of a series of exchanges, the Original Purchase Date of
the Class B Shares of the Eligible Investment Company to which the holder
originally subscribed. Class B Shares of the Fund purchased through the
automatic reinvestment of a dividend or a distribution with respect to the
Class B Shares of the Fund shall be segregated in a separate sub-account on the
Share records of the Fund for each of the Shareholders of record thereof. On
any Conversion Date, a number of the Class B shares held in the sub-account of
the Shareholder of record of the Share or Shares being converted, calculated in
accordance with the next following sentence, shall be converted automatically,
and without any action or choice on the part of the Shareholder, into Class A
shares of the Fund. The number of shares in the Shareholder's sub-account so
converted shall bear the same relation to the total number of Shares maintained
in the sub-account on the Class B Conversion Date (immediately prior to
conversion) as the number of Shares of the Shareholder converted on such
Conversion Date pursuant to this paragraph (ii) bears to the total number of
Class B Shares held by the Shareholder on the Conversion Date (immediately
prior to conversion) not purchased through the automatic reinvestment of
dividends or distributions with respect to the Class B Shares.
(iii) The number of Class A Shares of the Fund into which a Class B
Share is converted pursuant to paragraphs (f)(i) and (f)(ii) of this Amended
Certificate shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share of the Class B
Shares for purposes of sales and redemptions thereof on the Conversion Date
by the net asset value per Share of the Class A Shares for purposes of sales and
redemptions thereof on the Conversion Date.
(iv) Class B Shares of the Fund that are converted into Class A
Shares on any Conversion Date will cease to accrue dividends and will no longer
be deemed outstanding and the rights of the holders thereof (except the right
to receive (A) the number of Class A Shares into which such Class B Shares have
been converted and (B) declared but unpaid dividends to the Conversion Date)
will cease. Certificates representing Class A Shares resulting from the
conversion need not be issued until certificates representing Class B Shares
converted, if issued, have been received by the Trust or its agent duly
endorsed for transfer.
(v) The Trust will appropriately reflect the conversion of Class B
Shares of the Fund into Class A Shares on the first periodic statements of
account sent to Shareholders of record affected which provide account
information with respect to a reporting period which includes the Conversion
Date.
(g) Amendment, etc. Subject to the provisions and limitations of Section
9.3 of the Declaration of Trust and applicable law, this Amended Certificate
may be amended by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees); provided, that, if any amendment adversely affects the rights of the
Shareholders of the Fund, or of any Class of Shares of the Fund, such amendment
nay be adopted by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.1
of the Declaration of
4
<PAGE> 5
Trust of the holders of a majority of all the Shares of the Fund, or of
such Class, as the case may be, outstanding and entitled to vote.
(h) Incorporation of Defined Terms. All capitalized terms used in
this Amended Certificate which are not otherwise defined herein shall have
the same meanings as are assigned to those terms in the Existing
Declaration, as on file with the Secretary of State of The Commonwealth of
Massachusetts.
2. The Trustees further direct that, upon the execution of this Amended
and Restated Certificate of Designation, the Trust take all necessary action to
file a copy hereof with the Secretary of State of The Commonwealth of
Massachusetts and at any other place required by law or by the Existing
Declaration.
IN WITNESS WHEREOF, the undersigned has set her hand and the seal of the
Trust, this ___ day of ________, 1996.
_______________________________
Nori L. Gabert, Secretary
[TRUST SEAL]
5
<PAGE> 6
ACKNOWLEDGMENT
STATE OF TEXAS )
:
HARRIS COUNTY ) ss. ______________, 1996
Then personally appeared the above-named Nori L. Gabert and
acknowledged the foregoing instrument to be her free act and deed.
Before me,
__________________
Notary Public
6
<PAGE> 1
EXHIBIT 1.12
COMMON SENSE(R) TRUST
Amended and Restated Certificate of Designation
of
Common Sense(R) Municipal Bond Fund
The undersigned, being the Secretary of Common Sense(R) Trust
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated
January 29, 1987 (the "Original Declaration", and as amended October 26, 1987,
April 8, 1988, February 24, 1992, January 24, 1994, February 2, 1994 and
January 27, 1995, the "Existing Declaration", and as further amended hereby,
the "Declaration"), and by the affirmative vote of a Majority of the Trustees
at a meeting duly called and held on March __, 1996, the Certificate of
Designation effective January 8, 1988, amending the Declaration of Trust to
establish the Common Sense(R) Municipal Bond Fund as a separate Portfolio of the
Trust (the "Certificate"), is hereby amended and restated in its entirety to
read as follows (and as so amended, is herein referred to as this "Amended
Certificate"):
1. Pursuant to Section 6.1(b) of the Declaration of Trust, there is
hereby established and designated the Common Sense(R) Municipal Bond Fund
(hereinafter referred to as the "Fund"), as a separate Portfolio of the Trust.
The beneficial interest in the Fund shall be divided into Shares having a
nominal or par value of one cent ($.01) per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Shares of the Fund shall initially be divided into three Classes, designated as
Class A Shares, Class B Shares and Class 1 Shares, and an unlimited number of
each of such Classes may be issued. The Shares of the Fund outstanding on the
date on which this Amended Certificate is filed with the Secretary of State of
The Commonwealth of Massachusetts are hereby redesignated as Class 1 Shares.
The Trustees shall have authority from time to time to authorize additional
Classes of Shares of the Fund, with such preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations, and restrictions thereof, as they may deem necessary and
desirable. The Shares of the Classes provided for hereby have, and except as
the Trustees may otherwise provide with respect to a particular Class at the
time of authorizing the same, the Shares of any such Classes shall have, the
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, set forth in Section 6.2 of
the Declaration of Trust, in each case modified only in the following respects:
(a) Charges and Loads; Characteristics of Shares. The Trustees
shall have authority to adopt for the Shares of the several Classes of
the Fund one or more distribution plans pursuant to Rule 12b-1 under
the 1940 Act (each such plan, a "Plan"), and to provide that a
particular Class or particular Classes of Shares shall be sold with or
without a sales charge, that outstanding Shares of such Classes shall
bear distribution fees or service fees in amounts which vary from
Class to Class, or no such fees, and that they may be subject to a
contingent deferred sales charge upon the redemption thereof
established pursuant to Section 6.2(g) of the Declaration (a "CDSC"),
or no such charge, all as shall be established by the Trustees without
any breach of existing law, including without limitation the 1940 Act,
and set forth in the Trust's Prospectus for Shares of the Fund, as
the same may be amended from time to
1
<PAGE> 2
time (hereinafter, the "Prospectus"). Without limitation of the authority of
the Trustees to provide that any additional Classes hereafter authorized by
them shall bear such sales charges, fees and CDSCs, or no such charges, fees or
CDSCs, as they shall determine, the Classes authorized hereby shall be subject
to sales charges, fees and CDSCs as follows:
(i) Class A Shares bear a sales charge and a service fee,
but shall not be subject to a CDSC (other than a CDSC payable with
respect to redemptions of Shares for which the sales charge has
previously been waived pursuant to procedures approved by the
Trustees).
(ii) Class B Shares shall be sold without a sales charge,
but shall be subject to a distribution fee and a service fee, and
the proceeds of the redemption of such Shares may be subject to a
CDSC.
(iii) Class 1 Shares shall be sold with a sales charge, but
shall not be subject to a service fee, a distribution fee or a
CDSC, other than a CDSC payable with respect to redemptions of
Shares for which the sales charge has previously been waived
pursuant to procedures approved by the Trustees.
(b) Liquidation. Notwithstanding the provisions of Section 6.2(e)
of the Declaration, if the Fund shall liquidate or dissolve (whether or not in
connection with the liquidation or dissolution of the Trust), the assets
distributable to the Shareholders of the Fund in such event shall be allocated
among the several Classes of the Fund in proportion to the respective
aggregate net asset value of the respective outstanding Shares thereof, and
shall be distributed to the Shareholders of each such Class in proportion to
the number of Shares of that Class held by them and recorded on the books of
the Trust.
(c) Voting. Without limiting the generality of Section 6.2(f) or
of Section 7.1 of the Declaration, and except as otherwise required by the 1940
Act, the Shareholders of each Class of the Fund shall have exclusive voting
rights with respect to the provisions of any Plan adopted by the Trustees as
applying to such Class and no voting rights with respect to provisions of any
Plan applicable to any other Class.
(d) Net Asset Value. At any time at which the Fund shall have only
one Class of Shares outstanding, the net asset value per Share of the Fund
shall be the quotient obtained by dividing the value of the net assets of the
Fund at such time (being the current value of the assets belonging to the Fund,
less its then existing liabilities) by the total number of Shares of the Fund
then outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time. At any time at which the Fund shall have more than
one Class of Shares outstanding, the net asset value of the several Classes of
the Fund shall be separately computed, and may vary from one another. In any
such case, the Trustees shall establish procedures for the allocation of
investment income or capital gains and expenses and liabilities of the Fund
among the several Classes of the Fund (including without limitation the Class A
Shares, Class B Shares and Class 1 Shares), and the net asset value of the
Shares of each Class shall be the quotient obtained by dividing the value of
the net assets allocable to such Class at such time (being the current value of
the assets allocable to such Class, less
2
<PAGE> 3
its share of the then existing liabilities of the Fund) by total number of
Shares of such Class then outstanding, all determined in accordance with the
methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time.
(e) Rights of Fractional Shares. Without limitation of the generality of
the provisions of Section 6.2(f) of the Declaration, any fractional Share of
any Class shall carry proportionately all the rights and obligations of a whole
Share of that Class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Shares, and liquidation
of the Trust or of the Fund.
(f) Conversion Rights; Conversion of Class B Shares. (i) Subject to
compliance with the requirements of the 1940 Act, the Trustees shall have the
authority to provide (A) that holders of Shares of any Class of the Fund shall
have the right to convert such Shares into shares of any other investment
company registered as such under the 1940 Act and designated for that purpose in
the Prospectus (an "Eligible Investment Company"), (B) that holders of any
Class of Shares of the Fund shall have the right to convert such Shares into
Shares of one or more other Classes of the Fund, and (C) that Shares of any
Class of the Fund shall be automatically converted into Shares of another
Class of the Fund, in each case in accordance with such requirements and
procedures as the Trustees may establish.
(ii) Without limitation of the foregoing, no Class A Share or
Class 1 Share of the Fund shall be convertible into Shares of any other Class
of the Fund. Each Class B Share of the Fund, other than a Share purchased
through the automatic reinvestment of a dividend or a distribution with respect
to the Class B Shares of the Fund, shall be converted automatically, and
without any action or choice on the part of the Shareholder thereof, into Class
A Shares of the Fund on the Conversion Date thereof, established as provided in
the next succeeding sentence. The term "Conversion Date", as to any Class B
Share, shall mean either (i) the date that is the first business day in the
month following the month which includes the sixth anniversary of the Original
Purchase Date (as hereinafter defined) of such Class B Share, determined as
provided in the next succeeding sentence, or (ii) any such other date that may
be determined by the Trustees and set forth in the Prospectus; provided, that
any such other date determined by the Trustees with respect to Class B Shares
already outstanding is one that will occur prior to both (A) the date
determined as provided in clause (i) of this sentence and (B) any other date
theretofore determined by the Trustees pursuant to this clause (ii). The
"Original Purchase Date" of a Class B Share shall be the date on which such
Share was first subscribed and paid for by the holder thereof; provided, that
if such Share was obtained by the holder through an exchange of shares of
another Eligible Investment Company, the Original Purchase Date shall be the
Original Purchase Date of the Class B Shares of such other Eligible Investment
Company, or if the Shares of such other Eligible Investment Company were held
as the result of a series of exchanges, the Original Purchase Date of the Class
B Shares of the Eligible Investment Company to which the holder originally
subscribed. Class B Shares of the Fund purchased through the automatic
reinvestment of a dividend or a distribution with respect to the Class B Shares
of the Fund shall be segregated in a separate sub-account on the Share records
of the Fund for each of the Shareholders of
3
<PAGE> 4
record thereof. On any Conversion Date, a number of the Class B Shares held in
the sub-account of the Shareholder of record of the Share or Shares being
converted, calculated in accordance with the next following sentence, shall be
converted automatically, and without any action or choice on the part of the
Shareholder, into Class A Shares of the Fund. The number of Shares in the
Shareholder's sub-account so converted shall bear the same relation to the
total number of Shares maintained in the sub-account on the Class B Conversion
Date (immediately prior to conversion) as the number of Shares of the
Shareholder converted on such Conversion Date pursuant to this paragraph (ii)
bears to the total number of Class B Shares held by the Shareholder on the
Conversion Date (immediately prior to conversion) not purchased through the
automatic reinvestment of dividends or distributions with respect to the Class
B Shares.
(iii) The number of Class A Shares of the Fund into which a Class B
Share is converted pursuant to paragraphs (f)(i) and (f)(ii) of this Amended
Certificate shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share of the Class B
Shares for purposes of sales and redemptions thereof on the Conversion Date by
the net asset value per Share of the Class A Shares for purposes of sales and
redemptions thereof on the Conversion Date.
(iv) Class B Shares of the Fund that are converted into Class A
Shares on any Conversion Date will cease to accrue dividends and will no longer
be deemed outstanding and the rights of the holders thereof (except the right
to receive (A) the number of Class A Shares into which such Class B Shares have
been converted and (B) declared but unpaid dividends to the Conversion Date)
will cease. Certificates representing Class A Shares resulting from the
conversion need not be issued until certificates representing Class B Shares
converted, if issued, have been received by the Trust or its agent duly
endorsed for transfer.
(v) The Trust will appropriately reflect the conversion of Class B
Shares of the Fund into Class A Shares on the first periodic statements of
account sent to Shareholders of record affected which provide account
information with respect to a reporting period which includes the Conversion
Date.
(g) Amendment, etc. Subject to the provisions and limitations of Section
9.3 of the Declaration of Trust and applicable law, this Amended Certificate
may be amended by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees); provided, that, if any amendment adversely affects the rights of the
Shareholders of the Fund, or of any Class of Shares of the Fund, such amendment
may be adopted by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.1
of the Declaration of Trust of the holders of a majority of all the Shares of
the Fund, or of such Class, as the case may be, outstanding and entitled to
vote.
(h) Incorporation of Defined Terms. All capitalized terms used in this
Amended Certificate which are not otherwise defined herein shall have the same
meanings as are
4
<PAGE> 5
assigned to those terms in the Existing Declaration, as on file with the
Secretary of State of The Commonwealth of Massachusetts.
2. The Trustees further direct that, upon the execution of this Amended
and Restated Certificate of Designation, the Trust take all necessary action to
file a copy hereof with the Secretary of State of The Commonwealth of
Massachusetts and at any other place required by law or by the Existing
Declaration.
IN WITNESS WHEREOF, the undersigned has set her hand and the seal of the
Trust, this ___ day of ________, 1996.
_______________________________
Nori L. Gabert, Secretary
[TRUST SEAL]
5
<PAGE> 6
ACKNOWLEDGMENT
STATE OF TEXAS )
:
HARRIS COUNTY ) ss. ______________, 1996
Then personally appeared the above-named Nori L. Gabert and
acknowledged the foregoing instrument to be her free act and deed.
Before me,
__________________
Notary Public
6
<PAGE> 1
EXHIBIT 1.13
COMMON SENSE(R) TRUST
Amended and Restated Certificate of Designation
of
Common Sense(R) Money Market Fund
The undersigned, being the Secretary of Common Sense(R) Trust
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated
January 29, 1987 (the "Original Declaration", and as amended October 26, 1987,
April 8, 1988, February 24, 1992, January 24, 1994, February 2, 1994 and
January 27, 1995, the "Existing Declaration", and as further amended hereby,
the "Declaration"), and by the affirmative vote of a Majority of the Trustees
at a meeting duly called and held on March __, 1996, the Certificate of
Designation effective October 6, 1987, amending the Declaration of Trust to
establish the Common Sense(R) Money Market Fund as a separate Portfolio of the
Trust (the "Certificate"), is hereby amended and restated in its entirety to
read as follows (and as so amended, is herein referred to as this "Amended
Certificate"):
1. Pursuant to Section 6.1(b) of the Declaration of Trust, there is
hereby established and designated the Common Sense(R) Money Market Fund
(hereinafter referred to as the "Fund"), as a separate Portfolio of the Trust.
The beneficial interest in the Fund shall be divided into Shares having a
nominal or par value of one cent ($.01) per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Shares of the Fund shall initially be divided into three Classes, designated as
Class A Shares, Class B Shares and Class 1 Shares, and an unlimited number of
each of such Classes may be issued. The Shares of the Fund outstanding on the
date on which this Amended Certificate is filed with the Secretary of State of
The Commonwealth of Massachusetts are hereby redesignated as Class 1 Shares.
The Trustees shall have authority from time to time to authorize additional
Classes of Shares of the Fund, with such preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations and restrictions thereof, as they may deem necessary and
desirable. The Shares of the Classes provided for hereby have, and except as
the Trustees may otherwise provide with respect to a particular Class at the
time of authorizing the same, the Shares of any such Classes shall have, the
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions, set forth in Section 6.2 of
the Declaration of Trust, in each case modified only in the following respects:
(a) Charges and Loads; Characteristics of Shares. The Trustees
shall have authority to adopt for the Shares of the several Classes of
the Fund one or more distribution plans pursuant to Rule 12b-1 under
the 1940 Act (each such plan, a "Plan"), and to provide that a
particular Class or particular Classes of Shares shall be sold with or
without a sales charge, that outstanding Shares of such Classes shall
bear distribution fees or service fees in amounts which vary from
Class to Class, or no such fees, and that they may be subject to a
contingent deferred sales charge upon the redemption thereof
established pursuant to Section 6.2(g) of the Declaration (a "CDSC"),
or no such charge, all as shall be established by the Trustees without
any breach of existing law, including without limitation the 1940 Act,
and set forth
1
<PAGE> 2
in the Trust's Prospectus for Shares of the Fund, as the same may be amended
from time to time (hereinafter, the "Prospectus"). Without limitation of the
authority of the Trustees to provide that any additional Classes hereafter
authorized by them shall bear such sales charges, fees and CDSCs, or no such
charges, fees or CDSCs, as they shall determine, the Classes authorized hereby
shall be subject to sales charges, fees and CDSCs as follows:
(i) Class A Shares shall be sold without a sales charge
and shall not be subject to a CDSC, but shall be subject a service
fee.
(ii) Class B Shares shall be issued without a sales charge,
but shall be subject to a service fee, and if issued in exchange
for shares of another investment company registered as such under
the 1940 which are themselves subject to a CDSC, the proceeds of
the redemption of such Shares may be subject to a CDSC.
(iii) Class 1 Shares shall be sold without a sales charge,
and shall not be subject to a service fee, a distribution fee or a
CDSC.
(b) Liquidation. Notwithstanding the provisions of Section 6.2(e)
of the Declaration, if the Fund shall liquidate or dissolve (whether or not in
connection with the liquidation or dissolution of the Trust), the assets
distributable to the Shareholders of the Fund in such event shall be allocated
among the several Classes of the Fund in proportion to the respective
aggregate net asset value of the respective outstanding Shares thereof, and
shall be distributed to the Shareholders of each such Class in proportion to
the number of Shares of that Class held by them and recorded on the books of
the Trust.
(c) Voting. Without limiting the generality of Section 6.2(f) or
of Section 7.1 of the Declaration, and except as otherwise required by the 1940
Act, the Shareholders of each Class of the Fund shall have exclusive voting
rights with respect to the provisions of any Plan adopted by the Trustees as
applying to such Class and no voting rights with respect to provisions of any
Plan applicable to any other Class.
(d) Net Asset Value. At any time at which the Fund shall have only
one Class of Shares outstanding, the net asset value per Share of the Fund
shall be the quotient obtained by dividing the value of the net assets of the
Fund at such time (being the current value of the assets belonging to the Fund,
less its then existing liabilities) by the total number of Shares of the Fund
then outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time. At any time at which the Fund shall have more than
one Class of Shares outstanding, the net asset value of the several Classes of
the Fund shall be separately computed, and may vary from one another. In any
such case, the Trustees shall establish procedures for the allocation of
investment income or capital gains and expenses and liabilities of the Fund
among the several Classes of the Fund (including without limitation the Class A
Shares, Class B Shares and Class 1 Shares), and the net asset value of the
Shares of each Class shall be the quotient obtained by dividing the value of
the net assets allocable to such Class at such time (being the current value of
the assets allocable to such Class, less its share of the then existing
liabilities of the Fund) by the total number of Shares of such Class then
outstanding, all determined in accordance with the methods and procedures,
2
<PAGE> 3
including without limitation those with respect to rounding, established by the
Trustees from time to time. The Trustees may determine to maintain the net
asset value per Share of the Fund, or of any Class thereof, at a designated
constant dollar amount and in connection therewith may adopt procedures not
inconsistent with the 1940 Act for the continuing declaration of income
attributable to the Fund as dividends payable in additional Shares of the Fund
at the designated constant dollar amount and for the handling of any losses
attributable to the Fund. Such procedures may provide that in the event of any
loss each Shareholder of the Fund or of such Class, as the case may be, shall
be deemed to have contributed to the shares of beneficial interest account of
the Fund his pro rata portion of the total number of Shares required to be
canceled in order to permit the net asset value per Share of the Fund to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder, by investing in the Fund, shall be deemed to have
expressly agreed to make the contribution referred to in the preceding sentence
in the event of any such loss.
(e) Rights of Fractional Shares. Without limitation of the generality of
the provisions of Section 6.2(f) of the Declaration, any fractional Share of
any Class shall carry proportionately all the rights and obligations of a whole
Share of that Class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Shares, and liquidation
of the Trust or of the Fund.
(f) Conversion Rights; Conversion of Class B Shares. (i) Subject to
compliance with the requirements of the 1940 Act, the Trustees shall have the
authority to provide (A) that holders of Shares of any Class of the Fund shall
have the right to convert such Shares into shares of any other investment
company registered as such under the 1940 Act and designated for that purpose
in the Prospectus (an "Eligible Investment Company"), (B) that holders of any
Class of Shares of the Fund, and (C) that Shares of any Class of the Fund
shall be automatically converted into Shares of another Class of the Fund, in
each case in accordance with such requirements and procedures as the Trustees
may establish.
(ii) Without limitation of the foregoing, no Class A Share or Class
1 Share of the Fund shall be convertible into Shares of any other Class of the
Fund. Each Class B Share of the Fund, other than a Share purchased through the
automatic reinvestment of a dividend or a distribution with respect to the
Class B Shares of the Fund, shall be converted automatically, and without any
action or choice on the part of the Shareholder thereof, into Class A Shares of
the Fund on the Conversion Date thereof, established as provided in the next
succeeding sentence. The term "Conversion Date", as to any Class B Share, shall
mean either (i) the date that is the first business day in the month following
the month which includes the sixth anniversary of the Original Purchase Date
(as hereinafter defined) of such Class B Share, determined as provided in the
next succeeding sentence, or (ii) any such other date that may be determined by
the Trustees and set forth in the Prospectus; provided, that any such other
date determined by the Trustees with respect to Class B Shares already
outstanding is one that will occur prior to both (A) the date determined as
provided in clause (i) of this sentence and (B) any other date theretofore
determined by the Trustees pursuant to this clause (ii). The "Original Purchase
Date" of a Class B Share shall be the date on which such Share was first
subscribed and paid for
3
<PAGE> 4
by the holder thereof; provided, that if such Share was obtained by the holder
through an exchange of shares of another Eligible Investment Company, the
Original Purchase Date shall be the Original Purchase Date of the Class B Shares
of such other Eligible Investment Company, or if the Shares of such other
Eligible Investment Company were held as the result of a series of exchanges,
the Original Purchase Date of the Class B Shares of the Eligible Investment
Company to which the holder originally subscribed. Class B Shares of the Fund
purchased through the automatic reinvestment of a dividend or a distribution
with respect to the Class B Shares of the Fund shall be segregated in a
separate sub-account on the Share records of the Fund for each of the
Shareholders of record thereof. On any Conversion Date, a number of the Class B
Shares held in the sub-account of the Shareholder of record of the Share or
Shares being converted, calculated in accordance with the next following
sentence, shall be converted automatically, and without any action or choice on
the part of the Shareholder, into Class A Shares of the Fund. The number of
Shares in the Shareholder's sub-account so converted shall bear the same
relation to the total number of Shares maintained in the sub-account on the
Class B Conversion Date (immediately prior to conversion) as the number of
Shares of the Shareholder converted on such Conversion Date pursuant to this
paragraph (ii) bears to the total number of Class B Shares held by the
Shareholder on the Conversion Date (immediately prior to conversion) not
purchased through the automatic reinvestment of dividends or distributions with
respect to the Class B Shares.
(iii) The number of Class A Shares of the Fund into which a Class B
Share is converted pursuant to paragraphs (f)(i) and (f)(ii) of this Amended
Certificate shall equal the number (including for this purpose fractions of a
Share) obtained by dividing the net asset value per Share of the Class B Shares
for purposes of sales and redemptions thereof on the Conversion Date by the net
asset value per Share of the Class A Shares for purposes of sales and
redemptions thereof on the Conversion Date.
(iv) Class B Shares of the Fund that are converted into Class A
Shares on any Conversion Date will cease to accrue dividends and will no longer
be deemed outstanding and the rights of the holders thereof (except the right
to receive (A) the number of Class A Shares into which such Class B Shares have
been converted and (B) declared but unpaid dividends to the Conversion Date)
will cease. Certificates representing Class A Shares resulting from the
conversion need not be issued until certificates representing Class B Shares
converted, if issued, have been received by the Trust or its agent duly
endorsed for transfer.
(v) The Trust will appropriately reflect the conversion of Class B
Shares of the Fund into Class A Shares on the first periodic statements of
account sent to Shareholders of record affected which provide account
information with respect to a reporting period which includes the Conversion
Date.
(g) Amendment, etc. Subject to the provisions and limitations of Section
9.3 of the Declaration of Trust and applicable law, this Amended Certificate
may be amended by an instrument signed in writing by a Majority of the Trustees
(or by an officer of the Trust pursuant to the vote of a Majority of the
Trustees); provided, that, if any amendment adversely affects the rights of the
Shareholders of the Fund, or of any Class of Shares of the
4
<PAGE> 5
Fund, such amendment may be adopted by an instrument signed in writing by a
Majority of the Trustees (or by an officer of the Trust pursuant to the
vote of a Majority of the Trustees) when authorized to do so by the vote in
accordance with Section 7.1 of the Declaration of Trust of the holders of a
majority of all the Shares of the Fund, or of such Class, as the case may
be, outstanding and entitled to vote.
(h) Incorporation of Defined Terms. All capitalized terms used in
this Amended Certificate which are not otherwise defined herein shall have
the same meanings as are assigned to those terms in the Existing
Declaration, as on file with the Secretary of State of The Commonwealth of
Massachusetts.
2. The Trustees further direct that, upon the execution of this Amended
and Restated Certificate of Designation, the Trust take all necessary action to
file a copy hereof with the Secretary of State of The Commonwealth of
Massachusetts and at any other place required by law or by the Existing
Declaration.
IN WITNESS WHEREOF, the undersigned has set her hand and the seal of the
Trust, this ___ day of ________, 1996.
_______________________________
Nori L. Gabert, Secretary
[TRUST SEAL]
5
<PAGE> 6
ACKNOWLEDGMENT
STATE OF TEXAS )
:
HARRIS COUNTY ) ss. ______________, 1996
Then personally appeared the above-named Nori L. Gabert and
acknowledged the foregoing instrument to be her free act and deed.
Before me,
__________________
Notary Public
6
<PAGE> 1
EXHIBIT 1.14
COMMON SENSE(R) TRUST
Certificate of Amendment of the
Agreement and Declaration of Trust
of
Common Sense(R) Trust
The undersigned, being the Secretary of Common Sense(R) Trust
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 9.3 of the Agreement and Declaration of Trust, dated January 29, 1987
(the "Original Declaration", and as amended October 26, 1987, April 8, 1988,
February 24, 1992, January 24, 1994, February 2, 1994 and January 27, 1995, the
"Existing Declaration", and as further amended hereby, the "Declaration"), and
by the affirmative vote of a Majority of the Trustees at a meeting duly called
and held on March __, 1996, the Existing Declaration is amended as follows:
1. The provisions of Section 6.2 of the Existing Declaration, as they
apply to the Common Sense(R) Growth Fund, the Common Sense(R) Growth and Income
Fund and the Common Sense(R) Government Fund (each a "Fund", and collectively,
the "Funds"), which were established as separate portfolios of the Trust by the
Original Declaration (but not as to any other portfolio of the Trust), are
hereby amended in the following respects:
(a) The beneficial interest in each Fund shall be divided into
Shares having a nominal or par value of one cent ($.01) per Share, of
which an unlimited number may be issued, which Shares shall represent
interests only in the respective Fund by which they are issued. The
Shares of each Fund shall initially be divided into three Classes,
designated as Class A Shares, Class B Shares and Class 1 Shares, and
each Fund may issue an unlimited number of each of such Classes of its
Shares. The Shares of each Fund outstanding on the date on which this
Certificate of Amendment (this "Certificate") is filed with the
Secretary of State of The Commonwealth of Massachusetts are hereby
redesignated as Class 1 Shares. The Trustees shall have authority from
time to time to authorize additional Classes of Shares of a Fund, with
such preferences and relative, participating, optional and other
special rights, and such qualifications, limitations and restrictions
thereof, as they may deem necessary and desirable.
(b) Charges and Loads; Characteristics of Shares. The Trustees
shall have authority to adopt for the Shares of the several Classes of
a Fund one or more distribution plans pursuant to Rule 12b-1 under
the 1940 Act (each such plan, a "Plan"), and to provide that a
particular Class or particular Classes of Shares of such Fund shall be
sold with or without a sales charge, that outstanding Shares of such
Classes shall bear distribution fees or service fees in amounts which
vary from Class to Class, or no such fees, and that they may be
subject to a contingent deferred sales charge upon the redemption
thereof established pursuant to Section 6.2(g) of the Declaration (a
"CDSC"), or no such charge, all as shall be established by the
Trustees without any breach of existing law, including without
limitation the 1940 Act, and set forth in the Trust's Prospectus for
Shares of the respective Fund, as the same may be amended from time to
time (hereinafter, the "Prospectus"). Without limitation of the
authority of the Trustees to provide that any additional Classes
hereafter authorized by them
1
<PAGE> 2
for any Fund shall bear such sales charges, fees and CDSCs, or no such charges,
fees or CDSCs, as they shall determine, the Classes of the Funds authorized
hereby shall be subject to sales charges, fees and CDSCs as follows:
(i) Class A Shares shall bear a sales charge and a service
fee, but shall not be subject to a CDSC (other than a CDSC payable
with respect to redemptions of Shares for which the sales charge has
previously been waived pursuant to procedures approved by the
Trustees).
(ii) Class B Shares shall be sold without a sales charge,
but shall be subject to a distribution fee and a service fee, and
the proceeds of the redemption of such Shares may be subject to a
CDSC.
(iii) Class 1 Shares shall be sold with a sales charge, but
shall not be subject to a service fee, a distribution fee or a
CDSC, other than a CDSC payable with respect to redemptions of
Shares for which the sales charge has previously been waived
pursuant to procedures approved by the Trustees.
(c) Liquidation. Notwithstanding the provisions of Section 6.2(e)
of the Declaration, if any Fund shall liquidate or dissolve (whether or not in
connection with the liquidation or dissolution of the Trust), the assets
distributable to the Shareholders of such Fund in such event shall be allocated
among the several Classes of such Fund in proportion to the respective
aggregate net asset value of the respective outstanding Shares thereof, and
shall be distributed to the Shareholders of each such Class in proportion to
the number of Shares of that Class held by them and recorded on the books of
the Trust.
(d) Voting. Without limiting the generality of Section 6.2(f) or
of Section 7.1 of the Declaration, and except as otherwise required by the 1940
Act, the Shareholders of each Class of a Fund shall have exclusive voting
rights with respect to the provisions of any Plan adopted by the Trustees as
applying to such Class, and no voting rights with respect to provisions of any
Plan applicable to any other Class of such Fund.
(e) Net Asset Value. At any time at which the Fund shall have only
one Class of Shares outstanding, the net asset value per Share of such Fund
shall be the quotient obtained by dividing the value of the net assets of such
Fund at such time (being the current value of the assets belonging to such Fund,
less its then existing liabilities) by the total number of Shares of such Fund
then outstanding, all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time. At any time at which a Fund shall have more than
one Class of Shares outstanding, the net asset value of the several Classes of
such Fund shall be separately computed, and may vary from one another. In any
such case, the Trustees shall establish procedures for the allocation of
investment income or capital gains and expenses and liabilities of such Fund
among the several Classes of such Fund (including without limitation the Class
A Shares, Class B Shares and Class 1 Shares), and the net asset value of the
Shares of each Class of such Fund shall be the quotient obtained by dividing
the value of the net assets allocable to such Class at such time (being the
current value of the assets allocable to such Class, less its share of the then
existing liabilities of such Fund) by the total number of
2
<PAGE> 3
Shares of such Class then outstanding, all determined in accordance with the
methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time.
(f) Rights of Fractional Shares. Without limitation of the generality
of the provisions of Section 6.2(f) of the Declaration, any fractional Share of
any Class shall carry proportionately all the rights and obligations of a whole
Share of that Class, including rights and obligations with respect to voting,
receipt of dividends and distributions, redemption of Shares, and liquidation of
the Trust or of the Fund to which such Class pertains.
(g) Conversion Rights; Conversion of Class B Shares. (i) Subject to
compliance with the requirements of the 1940 Act, the Trustees shall have the
authority to provide with respect to any Fund (A) that holders of Shares of any
Class of the Fund shall have the right to convert such Shares into shares of
any other investment company registered as such under the 1940 Act and
designated for that purpose in the Prospectus (an "Eligible Investment
Company"), (B) that holders of any Class of Shares of such Fund shall have the
right to convert such Shares into Shares of one or more other Classes of such
Fund, and (C) that Shares of any Class of the Shares of one or more other
Classes of the Fund, and (C) that Shares of any Class of such Fund shall be
automatically converted into Shares of another Class of the Fund, in each case
in accordance with such requirements and procedures as the Trustees may
establish.
(ii) Without limitation of the foregoing, no Class A Share or
Class 1 Share of a Fund shall be convertible into Shares of any other Class of
such Fund. Each Class B Share of a Fund, other than a Share purchased through
the automatic reinvestment of a dividend or a distribution with respect to the
Class B Shares of the Fund, shall be converted automatically, and without any
action or choice on the part of the Shareholder thereof, into Class A Shares of
such Fund on the Conversion Date thereof, established as provided in the next
succeeding sentence. The term "Conversion Date", as to any Class B Share, shall
mean either (i) the date that is the first business day in the month following
the month which includes the sixth anniversary of the Original Purchase Date
(as hereinafter defined) of such Class B Share, determined as provided in the
next succeeding sentence, or (ii) any such other date that may be determined by
the Trustees and set forth in the Prospectus; provided, that any such other
date determined by the Trustees with respect to Class B Shares already
outstanding is one that will occur prior to both (A) the date determined as
provided in clause (i) of this sentence and (B) any other date theretofore
determined by the Trustees pursuant to this clause (ii). The "Original Purchase
Date" of a Class B Share shall be the date on which such Share was first
subscribed and paid for by the holder thereof; provided, that if such Share was
obtained by the holder through an exchange of shares of another Eligible
Investment Company, the Original Purchase Date shall be the Original Purchase
Date of the Class B Shares of such other Eligible Investment Company, or if the
Shares of such other Eligible Investment Company were held as the result of a
series of exchanges, the Original Purchase Date of the Class B Shares of the
Eligible Investment Company to which the holder originally subscribed. Class B
Shares of a Fund purchased through the automatic reinvestment of a dividend or
a distribution with respect to the Class B Shares of such Fund shall be
segregated in a separate sub-account on the Share records of such Fund for each
of the Shareholders of
3
<PAGE> 4
record thereof. On any Conversion Date, a number of the Class B shares held in
the sub-account of the Shareholder of record of the Share or Shares being
converted, calculated in accordance with the next following sentence, shall be
converted automatically, and without any action or choice on the part of the
Shareholder, into Class A shares of such Fund. The number of Shares in the
Shareholder's sub-account so converted shall bear the same relation to the
total number of Shares maintained in the sub-account on the Class B Conversion
Date (immediately prior to conversion) as the number of Shares of the
Shareholder converted on such Conversion Date pursuant to this paragraph (ii)
bears to the total number of Class B Shares held by the Shareholder on the
Conversion Date (immediately prior to conversion) not purchased through the
automatic reinvestment of dividends or distributions with respect to the Class
B Shares.
(iii) The number of Class A Shares of a Fund into which a Class B
Share of such Fund is converted pursuant to paragraphs (f)(i) and (f)(ii) of
this Certificate shall equal the number (including for this purpose fractions
of a Share) obtained by dividing the net asset value per Share of the Class B
Shares of such Fund for purposes of sales and redemptions thereof on the
Conversion Date by the net asset value per Share of the Class A Shares of such
Fund for purposes of sales and redemptions thereof on the Conversion Date.
(iv) Class B Shares of a Fund that are converted into Class A
Shares on any Conversion Date will cease to accrue dividends and will no longer
be deemed outstanding and the rights of the holders thereof (except the right
to receive (A) the number of Class A Shares into which such Class B Shares have
been converted and (B) declared but unpaid dividends to the Conversion Date)
will cease. Certificates representing Class A Shares resulting from the
conversion need not be issued until certificates representing Class B Shares
converted, if issued, have been received by the Trust or its agent duly
endorsed for transfer.
(v) The Trust will appropriately reflect the conversion of Class
B Shares of a Fund into Class A Shares of such Fund on the first periodic
statements of account sent to Shareholders of record affected which provide
account information with respect to a reporting period which includes the
Conversion Date.
(h) Amendment, etc. Without limiting the generality of Section 9.3 of the
Declaration, if any amendment of the Declaration would adversely affect the
rights of the Shareholders of a particular Class of Shares of a Fund, such
amendment may be adopted by an instrument signed in writing by a Majority of
the Trustees (or by an officer of the Trust pursuant to the vote of a Majority
of the Trustees) when authorized to do so by the vote in accordance with
Section 7.1 of the Declaration of the holders of a majority of all the Shares
of such Class outstanding and entitled to vote.
(i) Incorporation of Defined Terms. All capitalized terms used in this
Amended Certificate which are not otherwise defined herein shall have the same
meanings as are assigned to those terms in the Existing Declaration, as on file
with the Secretary of State of The Commonwealth of Massachusetts.
4
<PAGE> 5
2. The Trustees further direct that, upon the execution of this
Certificate of Amendment, the Trust take all necessary action to file a copy
hereof with the Secretary of State of The Commonwealth of Massachusetts and at
any other place required by law or by the Existing Declaration.
IN WITNESS WHEREOF, the undersigned has set her hand and the seal of the
Trust, this ___ day of ________, 1996.
_______________________________
Nori L. Gabert, Secretary
[TRUST SEAL]
5
<PAGE> 6
ACKNOWLEDGMENT
STATE OF TEXAS )
:
HARRIS COUNTY ) ss. ______________, 1996
Then personally appeared the above-named Nori L. Gabert and
acknowledged the foregoing instrument to be her free act and deed.
Before me,
__________________
Notary Public
6
<PAGE> 1
EXHIBIT 4.8
REGISTERED [COMMON SENSE(R) TRUST LOGO] REGISTERED
NUMBER FAMILY OF FUNDS SHARES
[ ] [ ]
CLASS A
ORGANIZED AND EXISTING UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
fully paid and nonassessable shares of beneficial interest of the par
value of one cent per share of Common Sense(R) Trust, transferable on
the books of the Trust by the holder thereof in person or by a duly
authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the
Transfer Agent.
Witness the facsimile seal of the Trust and the facsimile signatures
of its duly authorized officers.
Dated
[COMMON SENSE TRUST SEAL]
/s/ DON S. POWELL /s/ NORI L. GABERT
PRESIDENT SECRETARY
COUNTERSIGNED:
COMMON SENSE(R) SHAREHOLDER SERVICES
3120 Breckinridge Blvd.
Duluth, GA 30199-0001
TRANSFER AGENT
BY
- ------------------------------------------------------
AUTHORIZED OFFICER
<PAGE> 2
94-A
<TABLE>
<S> <C> <C> <C> <C>
*THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY
WERE WRITTEN OUT IN FULL ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
TEN COM - as tenants in common UNIF GIFT MIN. ACT - ...............Custodian................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants .......................................
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING: A BANK OR
TRUST COMPANY; A BROKER/DEALER, A CREDIT UNION; A NATIONAL SECURITIES EXCHANGE,
REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND LOAN
ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
---------------
-----------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE)
-----------------------------------------------------------------------------
Shares
-----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-------------------------------------------
Attorney
---------------------------------------------------------------------
to transfer the said stock on the books of the within-named Trust with full
power of substitution in the premises.
Dated, 19,
------------------------------------------ ----
------------------------------------------------------------
Owner
------------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT {BEFORE SIGNING, READ AND COMPLY CAREFULLY
{WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CSS-207
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.9
REGISTERED [COMMON SENSE(R) TRUST LOGO] REGISTERED
NUMBER FAMILY OF FUNDS SHARES
[ ] [ ]
CLASS B
ORGANIZED AND EXISTING UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
fully paid and nonassessable shares of beneficial interest of the par
value of one cent per share of Common Sense(R) Trust, transferable on
the books of the Trust by the holder thereof in person or by a duly
authorized attorney upon surrender of this certificate properly
endorsed. This certificate is, however, subject (i) to a contingent
deferred sales charge on amounts redeemed within five years of
purchase and (ii) to a conversion feature to CLASS A shares of the
Trust six years from the date of purchase. This certificate is not
valid unless countersigned by the Transfer Agent.
Witness the facsimile seal of the Trust and the facsimile signatures
of its duly authorized officers.
Dated
[COMMON SENSE TRUST SEAL]
/s/ DON S. POWELL /s/ NORI L. GABERT
PRESIDENT SECRETARY
COUNTERSIGNED:
COMMON SENSE(R) SHAREHOLDER SERVICES
3120 Breckinridge Blvd.
Duluth, GA 30199-0001
TRANSFER AGENT
BY
- ------------------------------------------------------
AUTHORIZED OFFICER
<PAGE> 2
94-B
<TABLE>
<S> <C> <C> <C> <C>
*THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY
WERE WRITTEN OUT IN FULL ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
TEN COM - as tenants in common UNIF GIFT MIN. ACT - ...............Custodian................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants .......................................
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING: A BANK OR
TRUST COMPANY; A BROKER/DEALER, A CREDIT UNION; A NATIONAL SECURITIES EXCHANGE,
REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND LOAN
ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
---------------
-----------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE)
-----------------------------------------------------------------------------
Shares
-----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-------------------------------------------
Attorney
---------------------------------------------------------------------
to transfer the said stock on the books of the within-named Trust with full
power of substitution in the premises.
Dated, 19,
------------------------------------------ ----
------------------------------------------------------------
Owner
------------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT {BEFORE SIGNING, READ AND COMPLY CAREFULLY
{WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CSS-208
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 4.10
REGISTERED [COMMON SENSE(R) TRUST LOGO] REGISTERED
NUMBER FAMILY OF FUNDS SHARES
[ ] [ ]
ORGANIZED AND EXISTING UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
fully paid and nonassessable shares of beneficial interest of the par
value of one cent per share of Common Sense(R) Trust, transferable on
the books of the Trust by the holder thereof in person or by a duly
authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the
Transfer Agent.
Witness the facsimile seal of the Trust and the facsimile signatures
of its duly authorized officers.
Dated
[COMMON SENSE TRUST SEAL]
/s/ DON. S. POWELL /s/ NORI L. GABERT
PRESIDENT SECRETARY
COUNTERSIGNED:
COMMON SENSE(R) SHAREHOLDER SERVICES
3120 Breckinridge Blvd.
Duluth, GA 30199-0001
TRANSFER AGENT
BY
- ------------------------------------------------------
AUTHORIZED OFFICER
<PAGE> 2
94-F001
<TABLE>
<S> <C> <C> <C> <C>
*THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF THIS CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY
WERE WRITTEN OUT IN FULL ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
TEN COM - as tenants in common UNIF GIFT MIN. ACT - ...............Custodian................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants .......................................
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
- --------------------------------------------------------------------------------
REQUIREMENTS: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY ONE OF THE FOLLOWING: A BANK OR
TRUST COMPANY; A BROKER/DEALER, A CREDIT UNION; A NATIONAL SECURITIES EXCHANGE,
REGISTERED SECURITIES ASSOCIATION OR CLEARING AGENCY; A SAVINGS AND LOAN
ASSOCIATION; OR A FEDERAL SAVINGS BANK.
- --------------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
---------------
-----------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE)
-----------------------------------------------------------------------------
Shares
-----------------------------------------------------------------------
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-------------------------------------------
Attorney
---------------------------------------------------------------------
to transfer the said stock on the books of the within-named Trust with full
power of substitution in the premises.
Dated, 19,
------------------------------------------ ----
------------------------------------------------------------
Owner
------------------------------------------------------------
Signature of Co-Owner, if any
IMPORTANT {BEFORE SIGNING, READ AND COMPLY CAREFULLY
{WITH REQUIREMENTS PRINTED ABOVE.
SIGNATURE(S) guaranteed by:
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CSS-206
THIS SPACE MUST NOT BE COVERED IN ANY WAY
<PAGE> 1
EXHIBIT 5.12
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of _________, 1996 by and between COMMON SENSE
TRUST, a Massachusetts business trust, hereinafter referred to as the "TRUST,"
and Van Kampen American Capital Asset Management, Inc., a Delaware corporation,
hereinafter referred to as the "Adviser."
The TRUST and the ADVISER agree as follows:
(1.) Appointment
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Common Sense Growth Fund (the "Fund") for the period and on the terms
set forth in this Agreement. The ADVISER accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
b. In the event that the TRUST establishes one or more funds with respect to
which it desires to retain the ADVISER to act as investment adviser hereunder,
it shall notify the ADVISER in writing. If the ADVISER is willing to render
such services it shall notify the TRUST in writing whereupon such fund shall
become a fund hereunder and the compensation payable by such new fund to the
ADVISER will be as agreed in writing at that time.
(2.) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Declaration of
Trust, Bylaws, registration statement, prospectuses and the stated investment
objectives, policies and restrictions of the Fund, shall:
a. manage the investment and reinvestment of the TRUST's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Fund, and formulation and implementation of investment
programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the account of the Fund of the TRUST with brokers or
dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
legal services except for services provided by outside counsel to the TRUST
selected by the Trustees, and the supervision of the TRUST's Treasurer and the
personnel working under his direction; and
<PAGE> 2
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to
demonstrate compliance with this requirement. Subject to prior authorization by
the TRUST's Trustees of appropriate policies and procedures, the ADVISER may,
to the extent authorized by law, cause the TRUST to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of commission
for effecting a fund investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase and sale of fund investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the TRUST which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the TRUST's financial statements, preparation of
such financial statements and other TRUST documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the TRUST selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the TRUST and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and
2
<PAGE> 3
proxy solicitation materials of the TRUST; (xi) all other expenses incidental
to holding meetings of the TRUST's shareholders including proxy solicitations
therefor; (xii) expenses for servicing shareholder accounts; (xiii) insurance
premiums for fidelity coverage and errors and omissions insurance; (xiv) dues
for the TRUST's membership in trade associations approved by the Trustees; and
(xv) such non-recurring expenses as may arise, including those associated with
actions, suits, or proceedings to which the TRUST is a party and the legal
obligation which the TRUST may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
between the TRUST and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
(3.) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
Except as otherwise required by the Investment Company Act of 1940 ("1940 Act")
any of the shareholders, trustees, officers and employees of the TRUST may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the ADVISER, and in any person controlled by or under common control with the
ADVISER, and the ADVISER, and any person controlled by or under common control
with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the
part of the ADVISER, the ADVISER shall not be subject to liability to the
TRUST, or to any shareholder of the TRUST, for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
(4.) Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the
Fund, a monthly fee calculated at the following annual rates:
.65% of the first $1 billion of average daily net assets; .60% of the next $1
billion of average daily net assets; .55% of the next $1 billion of average
daily net assets; .50% of the next $1 billion of average daily net assets; and
.45% of average daily net assets in excess of $4 billion.
Average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given
3
<PAGE> 4
calendar month, made in the manner provided in the TRUST's Declaration of
Trust.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen American Capital, Inc., or its
successor, in connection with the purchase and sale of assets of the TRUST,
less any direct expenses incurred by such person, in connection with obtaining
such commissions, fees, brokerage or similar payments. The ADVISER shall use
its best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the Fund's transactions and shall advise
the Trustees of any other commissions, fees, brokerage or similar payments
which may be possible for the ADVISER or any other direct or indirect majority
owned subsidiary of Van Kampen American Capital, Inc., or its successor, to
receive in connection with the Fund's transactions or other arrangements which
may benefit the TRUST.
In the event that the ordinary business expenses of the Fund, for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the TRUST's shares are qualified for sale, unless waived, the
compensation due to the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the TRUST, and if
such amount should exceed such monthly compensation, the ADVISER shall pay the
Fund an amount sufficient to make up the deficiency, subject to readjustment
during the TRUST's fiscal year. For purposes of this paragraph, all ordinary
business expenses of the Fund include the investment advisory fee and other
operating costs paid by the Fund except for (i) interest and taxes; (ii)
brokerage commissions; (iii) expenses incurred as a result of litigation in
connection with a suit involving a claim for recovery by the Fund; (iv) as a
result of litigation involving a defense against a liability asserted against
the TRUST and the Fund, provided that, if the ADVISER made the decision or took
the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the TRUST to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to PFS
Distributors, Inc., the distributor of the Trust's share, in connection with a
distribution plan adopted by the Trust's Trustees pursuant to Rule 12b-1 under
the 1940 Act.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
4
<PAGE> 5
(5.) Books and Records
In compliance with the requirements of the 1940 Act, the ADVISER hereby agrees
that, to the extent required by law, all records which it maintains for the
TRUST are the property of the TRUST and further agrees to surrender promptly to
the TRUST any of such records upon the TRUST's request. The ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the Act.
(6.) Duration and Termination
This Agreement will become effective with respect to the Fund on the date
hereof, and with respect to any additional funds, on the date of receipt by the
TRUST of notice from the ADVISER in accordance with Section 1(b) hereof that
the ADVISER is willing to serve as investment adviser with respect to such
fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of the Fund subject to this Agreement, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for a period of two
years. Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each, provided
such continuance is specifically approved at least annually, (a) by the vote of
a majority of those members of the TRUST's Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the TRUST's Trustees or by
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to the Fund
at any time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting securities
of the Fund), or by the ADVISER, on sixty days' written notice. This Agreement
will immediately terminate in the event of its assignment.
(7.) Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment of this Agreement shall be effective as to the Fund until approved by
vote of a majority of the outstanding voting securities of the Fund if such
vote is required by the 1940 Act.
5
<PAGE> 6
(8.) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the TRUST by the Securities and
Exchange Commission, or such interpretive positions as may be taken by the
Commission or its staff, under said Act, and the term "brokerage and research
services" shall have the meaning given in the Securities Exchange Act of 1934
and the Rules and Regulations thereunder.
The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of said
TRUST shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of said TRUST, but the Trust Estate only shall
be liable. All obligations of the TRUST under this Agreement shall apply only
on a Fund by Fund basis and the assets of one Fund shall not be liable for the
obligations of any other Fund.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
COMMON SENSE TRUST
By:_____________________________________
Name:___________________________________
Its:____________________________________
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By:_____________________________________
Name:___________________________________
Its:____________________________________
6
<PAGE> 1
EXHIBIT 5.13
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of _________, 1996 by and between COMMON SENSE
TRUST, a Massachusetts business trust, hereinafter referred to as the "TRUST,"
and Van Kampen American Capital Asset Management, Inc., a Delaware corporation,
hereinafter referred to as the "Adviser."
The TRUST and the ADVISER agree as follows:
(1.) Appointment
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Common Sense Growth and Income Fund (the "Fund") for the period and on
the terms set forth in this Agreement. The ADVISER accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
b. In the event that the TRUST establishes one or more funds with respect to
which it desires to retain the ADVISER to act as investment adviser hereunder,
it shall notify the ADVISER in writing. If the ADVISER is willing to render
such services it shall notify the TRUST in writing whereupon such fund shall
become a fund hereunder and the compensation payable by such new fund to the
ADVISER will be as agreed in writing at that time.
(2.) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Declaration of
Trust, Bylaws, registration statement, prospectuses and the stated investment
objectives, policies and restrictions of the Fund, shall:
a. manage the investment and reinvestment of the TRUST's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Fund, and formulation and implementation of investment
programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the account of the Fund of the TRUST with brokers or
dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
legal services except for services provided by outside counsel to the TRUST
selected by the
<PAGE> 2
Trustees, and the supervision of the TRUST's Treasurer and the personnel
working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to
demonstrate compliance with this requirement. Subject to prior authorization by
the TRUST's Trustees of appropriate policies and procedures, the ADVISER may,
to the extent authorized by law, cause the TRUST to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of commission
for effecting a fund investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase and sale of fund investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the TRUST which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the TRUST's financial statements, preparation of
such financial statements and other TRUST documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the TRUST selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
2
<PAGE> 3
qualifying the TRUST and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the TRUST; (xi) all other expenses incidental to holding meetings of the
TRUST's shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the TRUST's membership in
trade associations approved by the Trustees; and (xv) such non-recurring
expenses as may arise, including those associated with actions, suits, or
proceedings to which the TRUST is a party and the legal obligation which the
TRUST may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the TRUST
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
(3.) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
Except as otherwise required by the Investment Company Act of 1940 ("1940 Act")
any of the shareholders, trustees, officers and employees of the TRUST may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the ADVISER, and in any person controlled by or under common control with the
ADVISER, and the ADVISER, and any person controlled by or under common control
with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the
part of the ADVISER, the ADVISER shall not be subject to liability to the
TRUST, or to any shareholder of the TRUST, for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
(4.) Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the
Fund, a monthly fee calculated at the following annual rates:
.65% of the first $1 billion of average daily net assets; .60% of the next $1
billion of average daily net assets; .55% of the next $1 billion of average
daily net assets; .50% of the next $1 billion of average daily net assets; and
.45% of average daily net assets in excess of $4 billion.
3
<PAGE> 4
Average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given calendar month, made in
the manner provided in the TRUST's Declaration of Trust.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen American Capital, Inc., or its
successor, in connection with the purchase and sale of assets of the TRUST,
less any direct expenses incurred by such person, in connection with obtaining
such commissions, fees, brokerage or similar payments. The ADVISER shall use
its best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the Fund's transactions and shall advise
the Trustees of any other commissions, fees, brokerage or similar payments
which may be possible for the ADVISER or any other direct or indirect majority
owned subsidiary of Van Kampen American Capital, Inc., or its successor, to
receive in connection with the Fund's transactions or other arrangements which
may benefit the TRUST.
In the event that the ordinary business expenses of the Fund, for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the TRUST's shares are qualified for sale, unless waived, the
compensation due to the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the TRUST, and if
such amount should exceed such monthly compensation, the ADVISER shall pay the
Fund an amount sufficient to make up the deficiency, subject to readjustment
during the TRUST's fiscal year. For purposes of this paragraph, all ordinary
business expenses of the Fund include the investment advisory fee and other
operating costs paid by the Fund except for (i) interest and taxes; (ii)
brokerage commissions; (iii) expenses incurred as a result of litigation in
connection with a suit involving a claim for recovery by the Fund; (iv) as a
result of litigation involving a defense against a liability asserted against
the TRUST and the Fund, provided that, if the ADVISER made the decision or took
the actions which resulted in such claim, it acted in good faith without
negligence or misconduct;(v) any indemnification paid by the TRUST to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to PFS
Distributors, Inc., the distributor of the Trust's shares, in connection with a
distribution plan adopted by the Trust's Trustees pursuant to Rule 12b-1 under
the 1940 Act.
4
<PAGE> 5
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(5.) Books and Records
In compliance with the requirements of the 1940 Act, the ADVISER hereby agrees
that, to the extent required by law, all records which it maintains for the
TRUST are the property of the TRUST and further agrees to surrender promptly to
the TRUST any of such records upon the TRUST's request. The ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the Act.
(6.) Duration and Termination
This Agreement will become effective with respect to the Fund on the date
hereof, and with respect to any additional funds, on the date of receipt by the
TRUST of notice from the ADVISER in accordance with Section 1(b) hereof that
the ADVISER is willing to serve as investment adviser with respect to such
fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of the Fund subject to this Agreement, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for a period of two
years. Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each, provided
such continuance is specifically approved at least annually, (a) by the vote of
a majority of those members of the TRUST's Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the TRUST's Trustees or by
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to the Fund
at any time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting securities
of the Fund), or by the ADVISER, on sixty days' written notice. This Agreement
will immediately terminate in the event of its assignment.
(7.) Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment of this Agreement shall be effective as to the Fund until approved by
vote of a majority of the outstanding voting securities of the Fund if such
vote is required by the 1940 Act.
5
<PAGE> 6
(8.) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the TRUST by the Securities and
Exchange Commission, or such interpretive positions as may be taken by the
Commission or its staff, under said Act, and the term "brokerage and research
services" shall have the meaning given in the Securities Exchange Act of 1934
and the Rules and Regulations thereunder.
The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of said
TRUST shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of said TRUST, but the Trust Estate only shall
be liable. All obligations of the TRUST under this Agreement shall apply only
on a Fund by Fund basis and the assets of one Fund shall not be liable for the
obligations of any other Fund.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
COMMON SENSE TRUST
By:_____________________________________
Name:___________________________________
Its:____________________________________
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By:_____________________________________
Name:___________________________________
Its:____________________________________
6
<PAGE> 1
EXHIBIT 5.14
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of _________, 1996 by and between COMMON SENSE
TRUST, a Massachusetts business trust, hereinafter referred to as the "TRUST,"
and Van Kampen American Capital Asset Management, Inc., a Delaware corporation,
hereinafter referred to as the "Adviser."
The TRUST and the ADVISER agree as follows:
(1.) Appointment
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Common Sense Government Fund (the "Fund") for the period and on the
terms set forth in this Agreement. The ADVISER accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
b. In the event that the TRUST establishes one or more funds with respect to
which it desires to retain the ADVISER to act as investment adviser hereunder,
it shall notify the ADVISER in writing. If the ADVISER is willing to render
such services it shall notify the TRUST in writing whereupon such fund shall
become a fund hereunder and the compensation payable by such new fund to the
ADVISER will be as agreed in writing at that time.
(2.) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Declaration of
Trust, Bylaws, registration statement, prospectuses and the stated investment
objectives, policies and restrictions of the Fund, shall:
a. manage the investment and reinvestment of the TRUST's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Fund, and formulation and implementation of investment
programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the account of the Fund of the TRUST with brokers or
dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
legal services except for services provided by outside counsel to the TRUST
selected by the Trustees, and thesupervision of the TRUST's Treasurer and the
<PAGE> 2
personnel working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to
demonstrate compliance with this requirement. Subject to prior authorization by
the TRUST's Trustees of appropriate policies and procedures, the ADVISER may,
to the extent authorized by law, cause the TRUST to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of commission
for effecting a fund investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase and sale of fund investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the TRUST which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the TRUST's financial statements, preparation of
such financial statements and other TRUST documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the TRUST selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the TRUST and its shares for distribution under state
2
<PAGE> 3
and federal securities laws; (x) expenses of printing and mailing of
registration statements, prospectuses, reports, notices and proxy solicitation
materials of the TRUST; (xi) all other expenses incidental to holding meetings
of the TRUST's shareholders including proxy solicitations therefor; (xii)
expenses for servicing shareholder accounts; (xiii) insurance premiums for
fidelity coverage and errors and omissions insurance; (xiv) dues for the
TRUST's membership in trade associations approved by the Trustees; and (xv)
such non-recurring expenses as may arise, including those associated with
actions, suits, or proceedings to which the TRUST is a party and the legal
obligation which the TRUST may have to indemnify its officers and trustees with
respect thereto. To the extent that any of the foregoing expenses are allocated
between the TRUST and any other party, such allocations shall be pursuant to
methods approved by the Trustees.
(3.) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
Except as otherwise required by the Investment Company Act of 1940 ("1940 Act")
any of the shareholders, trustees, officers and employees of the TRUST may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the ADVISER, and in any person controlled by or under common control with the
ADVISER, and the ADVISER, and any person controlled by or under common control
with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the
part of the ADVISER, the ADVISER shall not be subject to liability to the
TRUST, or to any shareholder of the TRUST, for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
(4.) Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the
Fund, a monthly fee calculated at the following annual rates:
.60% of the first $1 billion of average daily net assets; .55% of the next $1
billion of average daily net assets; .50% of the next $1 billion of average
daily net assets; .45% of the next $1 billion of average daily net assets; .40%
of the next $1 billion of average daily net assets; and .35% of average daily
net assets in excess of $5 billion.
3
<PAGE> 4
Average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given calendar month, made in
the manner provided in the TRUST's Declaration of Trust.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen American Capital, Inc., or its
successor, in connection with the purchase and sale of assets of the TRUST,
less any direct expenses incurred by such person, in connection with obtaining
such commissions, fees, brokerage or similar payments. The ADVISER shall use
its best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the Fund's transactions and shall advise
the Trustees of any other commissions, fees, brokerage or similar payments
which may be possible for the ADVISER or any other direct or indirect majority
owned subsidiary of Van Kampen American Capital, Inc., or its successor, to
receive in connection with the Fund's transactions or other arrangements which
may benefit the TRUST.
In the event that the ordinary business expenses of the Fund, for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the TRUST's shares are qualified for sale, unless waived, the
compensation due to the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the TRUST, and if
such amount should exceed such monthly compensation, the ADVISER shall pay the
Fund an amount sufficient to make up the deficiency, subject to readjustment
during the TRUST's fiscal year. For purposes of this paragraph, all ordinary
business expenses of the Fund include the investment advisory fee and other
operating costs paid by the Fund except for (i) interest and taxes; (ii)
brokerage commissions; (iii) expenses incurred as a result of litigation in
connection with a suit involving a claim for recovery by the Fund; (iv) as a
result of litigation involving a defense against a liability asserted against
the TRUST and the Fund, provided that, if the ADVISER made the decision or took
the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the TRUST to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to PFS
Distributors, Inc., the distributor of the Trust's shares, in connection with a
distribution plan adopted by the Trust's Trustees pursuant to Rule 12b-1 under
the 1940 Act.
4
<PAGE> 5
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(5.) Books and Records
In compliance with the requirements of the 1940 Act, the ADVISER hereby agrees
that, to the extent required by law, all records which it maintains for the
TRUST are the property of the TRUST and further agrees to surrender promptly to
the TRUST any of such records upon the TRUST's request. The ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the Act.
(6.) Duration and Termination
This Agreement will become effective with respect to the Fund on the date
hereof, and with respect to any additional funds, on the date of receipt by the
TRUST of notice from the ADVISER in accordance with Section 1(b) hereof that
the ADVISER is willing to serve as investment adviser with respect to such
fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of the Fund subject to this Agreement, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for a period of two
years. Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each, provided
such continuance is specifically approved at least annually, (a) by the vote of
a majority of those members of the TRUST's Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the TRUST's Trustees or by
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to the Fund
at any time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting securities
of the Fund), or by the ADVISER, on sixty days' written notice. This Agreement
will immediately terminate in the event of its assignment.
(7.) Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment of this Agreement shall be effective as to the Fund until approved by
vote of a majority of the outstanding voting securities of the Fund if such
vote is required by the 1940 Act.
5
<PAGE> 6
(8.) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the TRUST by the Securities and
Exchange Commission, or such interpretive positions as may be taken by the
Commission or its staff, under said Act, and the term "brokerage and research
services" shall have the meaning given in the Securities Exchange Act of 1934
and the Rules and Regulations thereunder.
The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of said
TRUST shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of said TRUST, but the Trust Estate only shall
be liable. All obligations of the TRUST under this Agreement shall apply only
on a Fund by Fund basis and the assets of one Fund shall not be liable for the
obligations of any other Fund.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
COMMON SENSE TRUST
By:_____________________________________
Name:___________________________________
Its:____________________________________
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By:_____________________________________
Name:___________________________________
Its:____________________________________
6
<PAGE> 1
EXHIBIT 5.15
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of _____________, 1996 by and between COMMON SENSE
TRUST, a Massachusetts business trust, hereinafter referred to as the "TRUST,"
and Van Kampen American Capital Asset Management, Inc., a Delaware corporation,
hereinafter referred to as the "Adviser."
The TRUST and the ADVISER agree as follows:
(1.) Appointment
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Common Sense Municipal Bond Fund (the "Fund") for the period and on the
terms set forth in this Agreement. The ADVISER accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
b. In the event that the TRUST establishes one or more funds with respect to
which it desires to retain the ADVISER to act as investment adviser hereunder,
it shall notify the ADVISER in writing. If the ADVISER is willing to render
such services it shall notify the TRUST in writing whereupon such fund shall
become a fund hereunder and the compensation payable by such new fund to the
ADVISER will be as agreed in writing at that time.
(2.) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Declaration of
Trust, Bylaws, registration statement, prospectuses and the stated investment
objectives, policies and restrictions of the Fund, shall:
a. manage the investment and reinvestment of the TRUST's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Fund, and formulation and implementation of investment
programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the account of the Fund of the TRUST with brokers or
dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
legal services except for services provided by outside counsel to the TRUST
selected by the
<PAGE> 2
Trustees, and the supervision of the TRUST's Treasurer and the personnel
working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to
demonstrate compliance with this requirement. Subject to prior authorization by
the TRUST's Trustees of appropriate policies and procedures, the ADVISER may,
to the extent authorized by law, cause the TRUST to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of commission
for effecting a fund investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase and sale of fund investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the TRUST which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the TRUST's financial statements, preparation of
such financial statements and other TRUST documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the TRUST selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
2
<PAGE> 3
qualifying the TRUST and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the TRUST; (xi) all other expenses incidental to holding meetings of the
TRUST's shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the TRUST's membership in
trade associations approved by the Trustees; and (xv) such non-recurring
expenses as may arise, including those associated with actions, suits, or
proceedings to which the TRUST is a party and the legal obligation which the
TRUST may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the TRUST
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
(3.) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
Except as otherwise required by the Investment Company Act of 1940 ("1940 Act")
any of the shareholders, trustees, officers and employees of the TRUST may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the ADVISER, and in any person controlled by or under common control with the
ADVISER, and the ADVISER, and any person controlled by or under common control
with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the
part of the ADVISER, the ADVISER shall not be subject to liability to the
TRUST, or to any shareholder of the TRUST, for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
(4.) Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the
Fund, a monthly fee calculated at the following annual rates:
.60% of the first $1 billion of average daily net assets; .55% of the next $1
billion of average daily net assets; .50% of the next $1 billion of average
daily net assets; and .45% of average daily net assets in excess of $3 billion.
3
<PAGE> 4
Average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given calendar month, made in
the manner provided in the TRUST's Declaration of Trust.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen American Capital, Inc., or its
successor, in connection with the purchase and sale of assets of the TRUST,
less any direct expenses incurred by such person, in connection with obtaining
such commissions, fees, brokerage or similar payments. The ADVISER shall use
its best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the Fund's transactions and shall advise
the Trustees of any other commissions, fees, brokerage or similar payments
which may be possible for the ADVISER or any other direct or indirect majority
owned subsidiary of Van Kampen American Capital, Inc., or its successor, to
receive in connection with the Fund's transactions or other arrangements which
may benefit the TRUST.
In the event that the ordinary business expenses of the Fund, for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the TRUST's shares are qualified for sale, unless waived, the
compensation due to the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the TRUST, and if
such amount should exceed such monthly compensation, the ADVISER shall pay the
Fund an amount sufficient to make up the deficiency, subject to readjustment
during the TRUST's fiscal year. For purposes of this paragraph, all ordinary
business expenses of the Fund include the investment advisory fee and other
operating costs paid by the Fund except for (i) interest and taxes; (ii)
brokerage commissions; (iii) expenses incurred as a result of litigation in
connection with a suit involving a claim for recovery by the Fund; (iv) as a
result of litigation involving a defense against a liability asserted against
the TRUST and the Fund, provided that, if the ADVISER made the decision or took
the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the TRUST to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to PFS
Distributors, Inc., the distributor of the Trust's shares, in connection with a
distribution plan adopted by the Trust's Trustees pursuant to Rule 12b-1 under
the 1940 Act.
4
<PAGE> 5
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(5.) Books and Records
In compliance with the requirements of the 1940 Act, the ADVISER hereby agrees
that, to the extent required by law, all records which it maintains for the
TRUST are the property of the TRUST and further agrees to surrender promptly to
the TRUST any of such records upon the TRUST's request. The ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the Act.
(6.) Duration and Termination
This Agreement will become effective with respect to the Fund on the date
hereof, and with respect to any additional funds, on the date of receipt by the
TRUST of notice from the ADVISER in accordance with Section 1(b) hereof that
the ADVISER is willing to serve as investment adviser with respect to such
fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of the Fund subject to this Agreement, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for a period of two
years. Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each, provided
such continuance is specifically approved at least annually, (a) by the vote of
a majority of those members of the TRUST's Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the TRUST's Trustees or by
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to the Fund
at any time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting securities
of the Fund), or by the ADVISER, on sixty days' written notice. This Agreement
will immediately terminate in the event of its assignment.
(7.) Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment of this Agreement shall be effective as to the Fund until approved by
vote of a majority of the outstanding voting securities of the Fund if such
vote is required by the 1940 Act.
5
<PAGE> 6
(8.) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the TRUST by the Securities and
Exchange Commission, or such interpretive positions as may be taken by the
Commission or its staff, under said Act, and the term "brokerage and research
services" shall have the meaning given in the Securities Exchange Act of 1934
and the Rules and Regulations thereunder.
The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of said
TRUST shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of said TRUST, but the Trust Estate only shall
be liable. All obligations of the TRUST under this Agreement shall apply only
on a Fund by Fund basis and the assets of one Fund shall not be liable for the
obligations of any other Fund.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
COMMON SENSE TRUST
By:_____________________________________
Name:___________________________________
Its:____________________________________
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By:_____________________________________
Name:___________________________________
Its:____________________________________
6
<PAGE> 1
EXHIBIT 5.16
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of ________, 1996 by and between COMMON SENSE
TRUST, a Massachusetts business trust, hereinafter referred to as the "TRUST,"
and Van Kampen American Capital Asset Management, Inc., a Delaware corporation,
hereinafter referred to as the "Adviser."
The TRUST and the ADVISER agree as follows:
(1.) Appointment
a. The TRUST hereby appoints the ADVISER to act as investment adviser to the
TRUST's Common Sense Money Market Fund (the "Fund") for the period and on the
terms set forth in this Agreement. The ADVISER accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
b. In the event that the TRUST establishes one or more funds with respect to
which it desires to retain the ADVISER to act as investment adviser hereunder,
it shall notify the ADVISER in writing. If the ADVISER is willing to render
such services it shall notify the TRUST in writing whereupon such fund shall
become a fund hereunder and the compensation payable by such new fund to the
ADVISER will be as agreed in writing at that time.
(2.) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the TRUST's
Trustees and in conformity with applicable laws, the TRUST's Declaration of
Trust, Bylaws, registration statement, prospectuses and the stated investment
objectives, policies and restrictions of the Fund, shall:
a. manage the investment and reinvestment of the TRUST's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the Fund, and formulation and implementation of investment
programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the account of the Fund of the TRUST with brokers or
dealers selected by the ADVISER;
c. conduct and manage the day-to-day operations of the TRUST including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing of
legal services except for services provided by outside counsel to the TRUST
selected by the
<PAGE> 2
Trustees, and the supervision of the TRUST's Treasurer and the personnel
working under his direction; and
d. furnish to the TRUST office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each TRUST trustee and TRUST officer who is an
affiliated person of the ADVISER, except the compensation of the TRUST's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the TRUST and the Fund the most favorable
price and execution available and shall maintain records adequate to
demonstrate compliance with this requirement. Subject to prior authorization by
the TRUST's Trustees of appropriate policies and procedures, the ADVISER may,
to the extent authorized by law, cause the TRUST to pay a broker or dealer that
provides brokerage and research services to the ADVISER an amount of commission
for effecting a fund investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction. In the event of such authorization and to the extent authorized by
law the ADVISER shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action.
Except as otherwise agreed, or as otherwise provided herein, the TRUST shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
TRUST shall include (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase and sale of fund investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the TRUST which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the TRUST's financial statements, preparation of
such financial statements and other TRUST documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the TRUST's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the TRUST selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
2
<PAGE> 3
qualifying the TRUST and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the TRUST; (xi) all other expenses incidental to holding meetings of the
TRUST's shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the TRUST's membership in
trade associations approved by the Trustees; and (xv) such non-recurring
expenses as may arise, including those associated with actions, suits, or
proceedings to which the TRUST is a party and the legal obligation which the
TRUST may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the TRUST
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
(3.) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the TRUST are not impaired.
Except as otherwise required by the Investment Company Act of 1940 ("1940 Act")
any of the shareholders, trustees, officers and employees of the TRUST may be a
shareholder, director, officer or employee of, or be otherwise interested in,
the ADVISER, and in any person controlled by or under common control with the
ADVISER, and the ADVISER, and any person controlled by or under common control
with the ADVISER, may have an interest in the TRUST.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the
part of the ADVISER, the ADVISER shall not be subject to liability to the
TRUST, or to any shareholder of the TRUST, for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
(4.) Compensation Payable to ADVISER
The TRUST shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, with respect to the
Fund, a monthly fee calculated at the following annual rates:
.50% of the first $2 billion of average daily net assets; .475% of the next $2
billion of average daily net assets; and .45% of average daily net assets in
excess of $4 billion.
3
<PAGE> 4
Average daily net assets of the Fund shall be determined by taking the average
of the net assets for each business day during a given calendar month, made in
the manner provided in the TRUST's Declaration of Trust.
The fees payable to the ADVISER by the TRUST pursuant to this Section 4 shall
be reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of Van Kampen American Capital, Inc., or its
successor, in connection with the purchase and sale of assets of the TRUST,
less any direct expenses incurred by such person, in connection with obtaining
such commissions, fees, brokerage or similar payments. The ADVISER shall use
its best efforts to recapture all available tender offer solicitation fees and
exchange offer fees in connection with the Fund's transactions and shall advise
the Trustees of any other commissions, fees, brokerage or similar payments
which may be possible for the ADVISER or any other direct or indirect majority
owned subsidiary of Van Kampen American Capital, Inc., or its successor, to
receive in connection with the Fund's transactions or other arrangements which
may benefit the TRUST.
In the event that the ordinary business expenses of the Fund, for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the TRUST's shares are qualified for sale, unless waived, the
compensation due to the ADVISER for such fiscal year shall be reduced by the
amount of such excess. The ADVISER's compensation shall be so reduced by a
reduction or a refund thereof, at the time such compensation is payable after
the end of each calendar month during such fiscal year of the TRUST, and if
such amount should exceed such monthly compensation, the ADVISER shall pay the
Fund an amount sufficient to make up the deficiency, subject to readjustment
during the TRUST's fiscal year. For purposes of this paragraph, all ordinary
business expenses of the Fund include the investment advisory fee and other
operating costs paid by the Fund except for (i) interest and taxes; (ii)
brokerage commissions; (iii) expenses incurred as a result of litigation in
connection with a suit involving a claim for recovery by the Fund; (iv) as a
result of litigation involving a defense against a liability asserted against
the TRUST and the Fund, provided that, if the ADVISER made the decision or took
the actions which resulted in such claim, it acted in good faith without
negligence or misconduct; (v) any indemnification paid by the TRUST to its
officers and trustees and the ADVISER in accordance with applicable state and
federal laws as a result of such litigation; and (vi) amounts paid to PFS
Distributors, Inc., the distributor of the Trust's shares, in connection with a
distribution plan adopted by the Trust's Trustees pursuant to Rule 12b-1 under
the 1940 Act.
If the ADVISER shall serve for less than the whole of any month,
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<PAGE> 5
the foregoing compensation shall be prorated.
(5.) Books and Records
In compliance with the requirements of the 1940 Act, the ADVISER hereby agrees
that, to the extent required by law, all records which it maintains for the
TRUST are the property of the TRUST and further agrees to surrender promptly to
the TRUST any of such records upon the TRUST's request. The ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the Act.
(6.) Duration and Termination
This Agreement will become effective with respect to the Fund on the date
hereof, and with respect to any additional funds, on the date of receipt by the
TRUST of notice from the ADVISER in accordance with Section 1(b) hereof that
the ADVISER is willing to serve as investment adviser with respect to such
fund, provided that this Agreement (as supplemented by the terms specified in
any notice and agreement pursuant to Section 1(b) hereof) shall have been
approved by the shareholders of the Fund subject to this Agreement, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect for a period of two
years. Thereafter, if not terminated, this Agreement shall continue in effect
as to a particular Fund for successive periods of twelve months each, provided
such continuance is specifically approved at least annually, (a) by the vote of
a majority of those members of the TRUST's Trustees who are not interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the TRUST's Trustees or by
vote of a majority of the outstanding voting securities of the Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to the Fund
at any time, without the payment of any penalty, by the TRUST (by vote of the
TRUST's Trustees or by vote of a majority of the outstanding voting securities
of the Fund), or by the ADVISER, on sixty days' written notice. This Agreement
will immediately terminate in the event of its assignment.
(7.) Amendment of this Agreement
No provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment of this Agreement shall be effective as to the Fund until approved by
vote of a majority of the outstanding voting securities of the Fund if such
vote is required by the 1940 Act.
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<PAGE> 6
(8.) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person",
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the TRUST by the Securities and
Exchange Commission, or such interpretive positions as may be taken by the
Commission or its staff, under said Act, and the term "brokerage and research
services" shall have the meaning given in the Securities Exchange Act of 1934
and the Rules and Regulations thereunder.
The Declaration of Trust establishing Common Sense Trust, dated January 29,
1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of said
TRUST shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of said TRUST, but the Trust Estate only shall
be liable. All obligations of the TRUST under this Agreement shall apply only
on a Fund by Fund basis and the assets of one Fund shall not be liable for the
obligations of any other Fund.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
COMMON SENSE TRUST
By:_____________________________________
Name:___________________________________
Its:____________________________________
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By:_____________________________________
Name:___________________________________
Its:____________________________________
6
<PAGE> 1
EXHIBIT 6.5
UNDERWRITING AGREEMENT
between
COMMON SENSE TRUST
and
PFS DISTRIBUTORS, INC.
THIS AGREEMENT made this _______ day of ________________, 1996 by
and between COMMON SENSE TRUST, a Massachusetts business trust, hereinafter
referred to as the "Trust" and PFS DISTRIBUTORS, INC. hereinafter referred to
as the "Distributor", an indirect subsidiary of Travelers Group Inc.;
WHEREAS, the Trust's Board of Trustees (the "Board") has established
separate series of shares of beneficial interest of the Trust, including the
following series: Common Sense Emerging Growth Fund ("Emerging Growth Fund") ,
Common Sense Growth Fund ("Growth Fund") , Common Sense Growth and Income Fund
("Growth and Income Fund") , Common Sense Government Fund ("Government Fund"),
Common Sense International Equity Fund ("International Equity Fund"), Common
Sense Money Market Fund ("Money Market Fund") and Common Sense Municipal Bond
Fund ("Municipal Bond Fund");
WHEREAS, the Trust may hereafter establish additional series of
shares of beneficial interest or determine that other existing series of the
Trust shall be subject hereto (any such additional series, together with the
Emerging Growth Fund, the Growth Fund, the Growth and Income Fund, the
Government Fund, the International Equity Fund, the Money Market Fund and the
Municipal Bond Fund are collectively referred to herein as the "Funds," and
singly may be referred to as a "Fund");
<PAGE> 2
WHEREAS, the Trust proposes to issue shares of the Funds in three
classes: Class 1, Class A and Class B, as described in the Trust's current
prospectus at the time of sale;
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby acknowledged,
the parties hereto agree as follows:
FIRST: The Trust hereby appoints the Distributor as its exclusive
agent for the distribution of shares of the Fund. Except as herein otherwise
provided, all distributions will be made through PFS Investments Inc. (the
"Dealer").
SECOND: The Trust shall not sell any of the shares of the Fund
except through the Distributor and under the terms and conditions set forth in
paragraph FOURTH below. Notwithstanding the provisions of the foregoing
sentence, however,
(A) the Trust may issue shares of the Fund to any other investment
company or personal holding company, or to the shareholders thereof, in
exchange for all or a majority of the shares or assets of any such company; and
(B) the Trust may issue shares of the Fund at net asset value to
any shareholder of the Fund purchasing such shares with dividends or other cash
distributions received from the Fund pursuant to an offer made to all
shareholders.
THIRD: The Distributor hereby accepts appointment as exclusive
agent for the sale of all classes of the shares of the Fund and agrees that it
will use its best efforts with reasonable promptness to sell such shares;
provided, however, that:
(A) the Distributor may, and when requested by the Trust shall,
suspend its efforts to effectuate such sales for any or all classes of shares
of the Fund at any time when in the opinion of the
2
<PAGE> 3
Distributor or of the Trust no sales should be made because of market or other
economic considerations or abnormal circumstances of any kind; and
(B) the Trust may withdraw the offering of shares of the Fund (i)
at any time with the consent of the Distributor, or (ii) without such consent
when so required by the provisions of any statute or of any order, rule or
regulation of any governmental body having jurisdiction. It is mutually
understood and agreed that the Distributor does not undertake to sell any
specific amount of shares of the Fund. The Trust shall have the right to
specify minimum amounts for initial and subsequent orders for the purchase of
shares.
FOURTH: The public offering price of shares (the "offering price")
of the Fund (other than the Money Market Fund) shall be the net asset value per
share plus, in the case of Class A shares, any applicable sales charge. The
offering price of Class A Shares of the Money Market Fund shall be the net
asset value per share without an initial sales charge. Net asset value per
share shall be determined in the manner provided in the then current prospectus
of the Fund. The sales charge for shares of the Fund shall be established by
the Distributor. The Distributor may designate a scale of reducing sales
charges on the basis of the value of shares purchased or owned in accordance
with Rule 22d-1 under the Investment Company Act of 1940 (the "Investment
Company Act"). Included in the scale of reducing sales charges may be a level
at which no sales charges are added to the net asset value in computing the
public offering price. The Distributor may also designate eliminations of
sales charges to particular classes of investors or transactions in accordance
with Rule 22d-1 provided such eliminations are approved by the Trust and
described in the prospectus. The Trust shall allow directly to the Dealer such
portion of the sales charge as may be payable to them and specified by the
Distributor up to but not exceeding the amount of the total sales charge. The
difference between any portion of the sales charge so payable to the Dealer and
the total sales charges included in the offering price shall be paid to the
Distributor.
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<PAGE> 4
The offering price of Class B shares of the Fund shall be the net
asset value per share without an initial sales charge. However, the Trust
agrees that the Distributor shall impose certain contingent deferred sales
charges in connection with the redemption of Class B shares of the Fund, not to
exceed a specified percentage of the original purchase price of the shares as
from time to time set forth in the prospectus of the Fund. The Distributor may
retain (or receive from the Fund, as the case may be) all of such contingent
deferred sales charges. Net asset value per share shall be determined in the
manner provided in the then current prospectus of the Fund. The Distributor
may designate eliminations of contingent deferred sales charges to particular
classes of investors or transactions in accordance with Rule 22d-1 provided
such eliminations are approved by the Trust and described in the Fund's
prospectus. The Distributor proposes to pay to Dealer through whom Class B
shares of the Fund are sold a dealer commission of a specified percentage of
the purchase price of Class B shares purchased through them and as from time to
time set forth in the prospectus of the Fund.
The offering price of Class 1 shares of the Fund (other than the
Money Market Fund) shall be the net asset value per share plus any applicable
sales charge. Class 1 shares of the Money Market Fund shall be offered at net
asset value without sales charge. Net asset value per share shall be
determined in the manner provided in the then current prospectus of the Fund.
The sales charge for shares of the Fund shall be established by the
Distributor. The Distributor may designate a scale of reducing sales charges
on the basis of the value of shares purchased or owned in accordance with Rule
22d-1 under the Investment Company Act of 1940. Included in the scale of
reducing sales charges may be a level at which no sales charges are added to
the net asset value in computing the public offering price. The Distributor
may also designate eliminations of sales charges to particular classes of
investors or transactions in accordance with Rule 22d-1 provided such
eliminations are approved by the Trust and described in the prospectus. The
Trust shall allow directly to the Dealer such portion of the sales charge as
may be payable to them and specified by the Distributor up to but not exceeding
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<PAGE> 5
the amount of the total sales charge. The difference between any portion of
the sales charge so payable to the Dealer and the total sales charges included
in the offering price shall be paid to the Distributor.
The Distributor shall act as agent of the Trust in connection with
the sale and repurchase of shares of the Fund. Except with respect to such
sales and repurchases, the Distributor shall act as principal in all matters
relating to the promotion of the sale of shares of the Fund and shall enter
into all of its own engagements, agreements and contracts as principal on its
own account. The Distributor shall enter into a Selling Agreement with the
Dealer to offer and sell shares of the Fund to the public upon the terms and
conditions set forth therein, which shall not be inconsistent with the
provisions of this Agreement. The Selling Agreement shall provide that the
Dealer shall act as a principal and not as an agent of the Trust for the Fund.
FIFTH: The Distributor shall bear
(A) the expenses of printing from the final proof and distributing
registration statements and prospectuses to prospective but not current
shareholders of the Fund relating to public offerings made by the Distributor
pursuant to this Agreement and annual and semi-annual shareowner reports used
as sales literature (not, however, including typesetting costs), as well as all
printing and distribution costs of any other sales literature used by the
Distributor or furnished by the Distributor to the Dealer in connection with
such public offerings;
(B) expenses of advertising in connection with such public
offerings; and
(C) all legal expenses in connection with the foregoing.
SIXTH: The Distributor will accept orders for shares of the Fund
only to the extent of purchase orders actually received and not in excess of
such orders, and it will not avail itself of any opportunity of making a profit
by expediting or withholding orders.
5
<PAGE> 6
SEVENTH:
(A) The Trust and the Distributor shall each comply with all
applicable provisions of the Investment Company Act, the Securities Act of 1933
(the "1933 Act"), and of all other federal and state laws, rules and
regulations governing the issuance and sale of shares of the Trust.
(B) The Trust agrees to indemnify the Distributor against any and
all claims, demands, liabilities and expenses which the Distributor may incur
under the 1933 Act, or common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the Fund's
registration statement or prospectus, or any omission to state a material fact
therein, the omission of which makes any statement contained therein
misleading, unless such statement or omission was made in reliance upon, and in
conformity with information furnished to the Trust in connection therewith by
or on behalf of the Distributor.
(C) The Distributor agrees to indemnify the Trust against any and
all claims, demands, liabilities and expenses which the Trust may incur arising
out of or based upon any act or deed of the Distributor which has not been
authorized by the Trust in the Fund's prospectus or in this Agreement. The
Distributor agrees to indemnify the Trust against any and all claims, demands,
liabilities and expenses which the Trust may incur under the 1933 Act , or
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Fund's registration statement or
prospectus, or any omission to state a material fact therein if such statement
or omission was made in reliance upon, and in conformity with, information
furnished to the Trust in connection therewith by or on behalf of the
Distributor.
EIGHTH: Nothing herein contained shall require the Trust to take
any action contrary to any provision of its Declaration of Trust or to any
applicable statute or regulation.
NINTH: This Agreement shall become effective on the date hereof,
shall have an initial term of one year from the date hereof, and shall continue
in force and effect from year to year thereafter,
6
<PAGE> 7
provided, that such continuance is specifically approved at least annually
(a)(i) by the Board of Trustees of the Trust, or (ii) by vote of a majority of
the Trust's outstanding voting securities (as defined in Section 2(a)(42) of
the Investment Company Act), and (b) by vote of a majority of the Trust's
Trustees who are not parties to this Agreement or interested persons (as
defined in Section 2(a)(19) of the Investment Company Act) of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval.
TENTH:
(A) This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Board of Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund, or by the
Distributor, on sixty (60) days' written notice to the other party.
(B) This agreement shall automatically terminate in the event of
its assignment (as defined in Section 2(a)(4) of the Investment Company Act).
ELEVENTH: Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed by certified mail, return receipt requested,
postage paid, to the other party at such address as such other party may
designate for the receipt of such notices. Until further notice to the other
party, it is agreed that the address of the Trust shall be 2800 Post Oak
Boulevard, Houston, Texas 77056 and the address of the Distributor shall be
3100 Breckenridge Blvd., Duluth, Georgia 30199-0001.
TWELFTH: The Declaration of Trust establishing Common Sense Trust,
dated January 29, 1987, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name "Common Sense Trust"
refers to the Trustees under the Declaration collectively as Trustees, but not
as individuals or personally; and no Trustee, shareholder, officer, employee or
agent of said Trust shall be held to any personal liability, nor shall resort
be had to their private property for the satisfaction
7
<PAGE> 8
of any obligation or claim or otherwise in connection with the affairs of said
Trust, but the Trust Estate only shall be liable. All obligations of the Trust
under this Agreement shall apply only on a Fund by Fund basis and the assets of
one Fund shall not be liable for the obligations of any other Fund.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed in duplicate on the day and year first above written.
PFS DISTRIBUTORS, INC.
By:________________________________
COMMON SENSE TRUST
By:________________________________
Nori L. Gabert
Vice President and Secretary
8
<PAGE> 1
EXHIBIT 6.9
PFS DISTRIBUTORS, INC.
SELLING AGREEMENT
WITH
PFS INVESTMENTS INC.
This Selling Agreement made and entered into this ______day of
_________, 1996, in Duluth, Georgia by and between PFS Distributors, Inc. an
indirect subsidiary of Travelers Group Inc. with principal office and place of
business at 3100 Breckinridge Boulevard, Duluth, Georgia 30199-0001
("Distributors"), and PFS Investments Inc., a Georgia corporation with
principal office and place of business at 3100 Breckinridge Boulevard, Duluth,
Georgia 30199- 0001 ("Dealer").
WHEREAS, Distributors has entered into an underwriting
agreement (the "Underwriting Agreement") with Common Sense Trust (the "Trust"),
a diversified, open-end management company, organized as a Massachusetts
business trust;
WHEREAS, the Trust's Board of Trustees (the "Board") has
established separate series of shares of beneficial interest of the Trust,
including the following series: Common Sense Emerging Growth Fund ("Emerging
Growth Fund"), Common Sense Growth Fund ("Growth Fund"), Common Sense Growth
and Income Fund ("Growth and Income Fund"), Common Sense Government Fund
("Government Fund"), Common Sense International Equity Fund ("International
Equity Fund"), Common Sense Money Market Fund ("Money Market Fund") and Common
Sense Municipal Bond Fund ("Municipal Bond Fund");
WHEREAS, the Trust may hereafter establish additional series
of shares of beneficial interest or determine that other existing series of the
Trust shall be subject hereto (any such additional series, together with the
Emerging Growth Fund, the Growth Fund, the Growth and Income Fund, the
Government Fund, the International Equity Fund, the Money Market Fund and the
Municipal Bond Fund are collectively referred to herein as the "Funds," and
singly may be referred to as a "Fund");
WHEREAS, pursuant to the Underwriting Agreement Distributors
will act as Principal Underwriter, as defined in the Investment Company Act of
1940, as amended, for the sale of shares of the Funds in three classes: Class
1, Class A and Class B, as described in the Trust's current prospectus at the
time of sale, with the right to purchase shares of the Funds for distribution
of such shares exclusively to Dealer for Dealer's sale to investors; and
<PAGE> 2
WHEREAS, Distributors and Dealer desire to enter into an agreement
whereby Dealer will act as the exclusive selling broker-dealer of shares of the
Funds;
NOW, THEREFORE, IT IS AGREED between Distributors and Dealer as
follows:
(1) Distributors will distribute shares of the Funds only through
Dealer and through no other broker.
(2) Dealer retains and has the right to act as broker-dealer for
other securities, including without limitation other mutual funds and other
brokerage activities.
(3) In performing its function as Principal Underwriter,
Distributors acts as an independent contractor to perform the functions as
distribution agent for the Funds. In no respect is Distributors an actual
agent for the Funds.
(4) Shares purchased from Distributors for sale to the public
shall be offered and sold at the price or prices, and on the terms and
conditions, set forth in the currently effective prospectuses of the Funds.
Dealer may act as investor for its own account, and in the sale of shares to
the public as agent for Dealer's customers and in no transaction shall Dealer
have any authority to act or hold itself out as agent for Distributors, any of
the Funds, the Funds' Custodians, the Funds' Transfer Agent, or any other
party, and nothing in this agreement shall constitute Dealer a partner,
employee or agent of Distributors or give Dealer any authority to act for
Distributors. Neither Distributors nor the Funds shall be liable for any of
Dealer's acts or obligations as a broker-dealer under this agreement.
(5) Shares purchased from Distributors for sale to the public
shall be purchased only to cover orders previously received by Dealer from
Dealer's customers. Shares purchased for Dealer's own bona fide investment
shall not be reoffered or sold except to the applicable Fund.
Distributors agrees to purchase shares only for investment or
to cover orders received. Dealer will not purchase for any other securities
broker or dealer. Dealer will not withhold placing any customers' order so as
to profit therefrom.
(6) Only unconditional orders for a designated number of shares or
dollar amount of investment shall be accepted. Procedures relating to handling
orders shall be conveyed by Distributors
2
<PAGE> 3
to Dealer from time to time. All orders are subject to acceptance or rejection
by Distributors in its sole discretion. All purchase orders received by
Distributors will be subject to receipt of shares by Distributors from the
Funds.
(7) If any shares sold to or through Dealer under the terms of
this agreement are repurchased by Distributors or by the Funds or are tendered
for redemption within seven business days after date of Distributors'
confirmation, Distributors and Dealer each agree to pay to the Fund all
commissions they respectively received on such shares.
(8) On sales by Dealer to the public, Dealer shall receive the
applicable selling commission and/or concessions, as provided in the current
prospectus of the Funds, as amended from time to time. All commissions and
concessions are subject to change without notice by the Distributor and will
comply with all changes in regulatory requirements. Dealer agrees that it will
not combine customer orders to reach breakpoints in commissions for any purpose
whatsoever unless authorized by the then current prospectus of the Funds or by
Distributors in writing.
Dealer agrees to advise Distributors of any letter of intent
signed by the customer when placing wire trades. If Dealer fails to do so, it
will be liable to Distributors for return of commissions plus interest thereon.
Shareholders may not purchase or accumulate purchases of
shares with a net asset value of more than $10,000,000 in any one of the Funds,
except with the prior written consent, and in the sole discretion of
Distributors.
Distributors may, from time to time, for promotional purposes,
reallow more of the sales charge to Dealer on sales by Dealer or its
representatives. Any such additional reallowances shall take effect in
accordance with the terms and conditions contained in written notification to
Dealer.
(9) Remittance of the net amount due for shares purchased from
Distributors shall be made payable to PFS Shareholder Services ("Services"),
Agent for Distributors, in Atlanta funds, within the time specified by the
rules of the NASD. Payments from Dealer to Services shall be sent to 3100
Breckinridge Boulevard, Duluth, Georgia 30199-0062, along with Dealer's
transfer instructions on the appropriate copy of Distributors' confirmation of
sale to Dealer. If such payment is not received by Distributors, it reserves
the right to liquidate the shares purchased for Dealer's
3
<PAGE> 4
account and risk. Promptly upon receipt of payment, shares sold to Dealer
shall be deposited by Services to an account on the books of the Fund(s) in
accordance with Dealer's instructions. Certificates will not be issued unless
specifically requested, and Distributors reserves the right to levy a charge
for issuance of certificates.
(10) Dealer represents that: it is, and at the time of purchasing
any shares of the Funds will be, registered as a broker-dealer with the U.S.
Securities and Exchange Commission, a member in good standing of the NASD and
qualified to act as a broker-dealer in the states or jurisdictions in which it
intends to offer shares of the Funds; and it will abide by all applicable
federal and state statutes and rules and the rules of the NASD. The Dealer
will provide immediate notice to Distributors if Dealer becomes the subject of
an order of expulsion or suspension. Expulsion from the NASD will
automatically terminate this agreement. In the event of expulsion or
suspension, no commissions will be paid to the Dealer.
(11) No person is authorized to make any representations concerning
shares of any of the Funds except those contained in the current prospectus or
statement of additional information for such Fund, as amended from time to
time. In purchasing shares from Distributors, Dealer shall rely solely on the
representations contained in such prospectuses and statements of additional
information.
(12) Additional copies of the current prospectuses, statements of
additional information and other literature will be supplied by Distributors to
Dealer in reasonable quantities upon request.
(13) Dealer will not advertise the Funds in any manner whatsoever
without the prior written approval of Distributors.
(14) Distributors reserves the right in its discretion, upon
written notice to Dealer, to suspend sales or withdraw the offering of shares
entirely or to modify or cancel this agreement.
(15) Dealer reserves the right to cancel this agreement at any time
upon written notice to Distributors.
(16) This agreement shall terminate automatically in the event of
its assignment by Dealer.
4
<PAGE> 5
(17) Distributors shall indemnify and hold Dealer harmless from and
against any and all liability, claims, actions, cost, payment and expense
arising out of, because of or as a result of any act or omission of
Distributors.
(18) All communications and notices to a party shall be sent to the
party at its address stated in the Preamble. This agreement shall be construed
in accordance with the laws of Georgia.
PFS DISTRIBUTORS, INC.
By:________________________________
PFS INVESTMENTS INC.
a Georgia corporation
By:________________________________
Senior Vice President
5
<PAGE> 1
EXHIBIT 11
ERNST & YOUNG LLP
One Houston Center
Suite 2400
1221 McKinney Street
Houston, Texas 77010-2007
713-750-1500
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our reports dated
December 1, 1995, in Post-Effective Amendment No. 16 to the Registration
Statement (Form N-1A No. 33-11716) and related Prospectus of Common Sense Trust.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, TX
March 21, 1996
<PAGE> 1
EXHIBIT 15.11
SERVICING AGREEMENT RELATING TO CLASS A SHARES OF CERTAIN
COMMON SENSE TRUST MUTUAL FUNDS
- ----------------------------------------
Dear Sir:
This Servicing Agreement (the "Agreement") between PFS Distributors, Inc.
("Distributor"), an indirect subsidiary of Travelers Group Inc., defines the
services to be provided by PFS Investments Inc. ("Dealer") for Class A shares
for which Dealer may receive payment pursuant to the Class A Distribution Plan
(hereinafter referred to as the "Plan") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "Act") by the Common Sense Emerging
Growth Fund, Common Sense International Equity Fund, Common Sense Growth Fund,
the Common Sense Growth and Income Fund, the Common Sense Government Fund, the
Common Sense Money Market Fund and the Common Sense Municipal Bond Fund (the
"Funds") of Common Sense Trust (the "Trust") for which Distributor serves as
distributor. Each such Fund has acted severally and not jointly in adopting
the Plan and the Agreement and hereinafter is referred to severally as the
"Fund". The Plan and the Agreement have been approved by a majority of the
Trustees including a majority of the Trustees who are not interested persons of
the Trust and who have no direct or indirect financial interest in the
operation of the Plan or any related agreements (the "non-interested
Trustees"), cast in person at a meeting called for the purpose of voting on the
Plan. Such approval included a determination that in the exercise of their
reasonable business judgment and in light of their fiduciary duties, there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Plan has also been approved by a vote of a majority of the Fund's
outstanding Class A voting securities, as defined in the Act.
- --------------------------------------------------------------------------------
1. To the extent you provide servicing and maintenance of
Customers' accounts who may from time to time, directly or
beneficially own shares of the Funds, including but not
limited to, distributing prospectuses and sales literature,
answering routine Customer inquiries regarding the Fund,
assisting Customers in changing dividend options, account
designations and addresses, and in enrolling into the
pre-authorized check plan, systematic withdrawal plan or any
of several tax sheltered retirement plans offered in
connection with the purchase of shares in the case of those
Funds offering such Plans, assisting in the establishment and
maintenance of customer accounts and records and in the
processing of purchase and redemption transactions, investing
dividends and capital gains
<PAGE> 2
distributions automatically in shares and providing such other
services as the Fund or the Customer may reasonably request
("service activities"), we shall pay you at least quarterly a
fee for Class A shares as indicated in each Fund's then
current Prospectus based on the net asset value of Class A
shares of the Fund. Such fee will be payable only so long as
the Plan remains in effect. You understand and agree that you
shall not be paid such quarterly fee until we are in receipt
of the service fee described in the Fund's then current
Prospectus for the period in which you provide the services
described above, and our liability to you for the payment of
such quarterly fee is limited to the proceeds of that Fund's
service fee. No such quarterly fee will be paid to you with
respect to shares purchased by you and redeemed or repurchased
by the Fund or by us as Agent within seven (7) business days
after the date of our confirmation of such purchase. No such
fee shall be payable with respect to shares purchased at net
asset value without a sales charge by investors of the classes
described in the Fund's Prospectus pursuant to Rule 22d-1
under the Act other than classes of net asset value categories
pursuant to Rule 22d-1 as may from time to time be approved by
the Fund. For purposes of this Agreement, "service
activities" shall mean activities covered by the definition of
"service fee" contained in Article III, Section 26(b) of the
Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
- --------------------------------------------------------------------------------
2. By accepting such fee you agree to assign a representative to
each account, to require such representative to contact the
Customer regularly and to pay at least a portion of such fee
to such representative. Additionally, you understand that
Distributor will monitor service levels which you provide to
your Customers pursuant to this agreement and that
consistently low levels of service will result in non-payment
of the fee.
- --------------------------------------------------------------------------------
3. You agree to use your best efforts to support the asset value
of the Fund to the extent consistent with the suitability
requirements of your Customer. You understand that
Distributor will monitor levels of redemption and that
redemption levels consistently above those dictated by market
conditions will result in non-payment of the fee.
- --------------------------------------------------------------------------------
4. This Agreement does not require Dealer to hold Fund shares in
street name or to provide shareholder accounting and record
keeping services for any Customers who are beneficial owners
of Fund shares.
- --------------------------------------------------------------------------------
2
<PAGE> 3
5. You shall furnish us and the Fund with such information as
shall reasonably be requested by either the Trustees of the
Fund or by us with respect to the fees paid to you pursuant to
this Agreement.
- --------------------------------------------------------------------------------
6. We shall furnish to the Trustees of the Fund, for their review
on a quarterly basis, a written report of the amounts expended
under the Plan by us and the purposes for which such
expenditures were made.
- --------------------------------------------------------------------------------
7. Neither you nor any of your employees or agents are authorized
to make any representation concerning shares of the Fund
except those contained in the then current Prospectus for the
Fund, and you shall have no authority to act as Agent for the
Fund or for Distributor.
- --------------------------------------------------------------------------------
8. This Agreement may be terminated with respect to any Fund at
any time without payment of any penalty by the vote of a
majority of the non-interested Trustees or by a vote of a
majority of the Fund's outstanding Class A shares, on sixty
(60) days written notice. It will be terminated by any act
which terminates either the Fund's Underwriting Agreement with
us or the Selling Agreement between Dealer and us and shall
terminate automatically in the event of its assignment as that
term is defined in the Act.
- --------------------------------------------------------------------------------
9. The provisions of the Underwriting Agreement between the Fund
and us, insofar as they relate to the Plan, are incorporated
herein by reference. This Agreement shall become effective
upon execution and delivery hereof and shall continue in full
force and effect so long as the continuance of the Plan and
this related Agreement are approved at least annually by a
vote of the Trustees, including a majority of the
non-interested Trustees, cast in person at a meeting called
for the purpose of voting thereon. All communications to us
should be sent to the foregoing address. Any notice to you
shall be duly given if mailed or telegraphed to you at the
address specified by you below.
- --------------------------------------------------------------------------------
10. The Declaration of Trust establishing Common Sense Trust, a
copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of
the Commonwealth of Massachusetts, provides that the name of
the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder or officer of said
Trust shall be held to any
3
<PAGE> 4
personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said Trust, but
only the assets and property of the Trust, or of the
particular series of the Trust in question, as the case may
be, shall be liable. All obligations under this Agreement
shall apply only on a Fund by Fund basis and the assets of one
Fund shall not be liable for the obligations of any other
Fund.
- --------------------------------------------------------------------------------
11. This Agreement shall be construed in accordance with the laws
of the State of Georgia.
PFS DISTRIBUTORS, INC.
By:______________________________ Date:______________________________
ACCEPTED:
PFS INVESTMENTS INC.
a Georgia corporation
By:______________________________ Date:______________________________
Name:____________________________
Title:___________________________
4
<PAGE> 1
EXHIBIT 15.12
SERVICING AGREEMENT RELATING TO CLASS B SHARES OF CERTAIN
COMMON SENSE TRUST MUTUAL FUNDS
- ----------------------------------------
Dear Sir:
This Servicing Agreement (the "Agreement") between PFS Distributors, Inc.
("Distributor"), an indirect subsidiary of Travelers Group Inc., defines the
services to be provided by PFS Investments Inc. ("Dealer") for Class B shares
for which Dealer may receive payment pursuant to the Class B Distribution Plan
(hereinafter referred to as the "Plan") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "Act") by the Common Sense Emerging
Growth Fund, Common Sense International Equity Fund, Common Sense Growth Fund,
Common Sense Growth and Income Fund, the Common Sense Government Fund and the
Common Sense Municipal Bond Fund (the "Funds") of Common Sense Trust (the
"Trust") for which Distributor serves as distributor. Each such Fund has acted
severally and not jointly in adopting the Plan and the Agreement and
hereinafter is referred to severally as the "Fund". The Plan and the Agreement
have been approved by a majority of the Trustees including a majority of the
Trustees who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plan or any related
agreements (the "non-interested Trustees"), cast in person at a meeting called
for the purpose of voting on the Plan. Such approval included a determination
that in the exercise of their reasonable business judgment and in light of
their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan has also been approved by a
vote of a majority of the Fund's outstanding Class B voting securities, as
defined in the Act.
- --------------------------------------------------------------------------------
1. To the extent you provide servicing and maintenance of
Customers' accounts who may from time to time, directly or
beneficially own shares of the Funds, including but not
limited to, distributing prospectuses and sales literature,
answering routine Customer inquiries regarding the Fund,
assisting Customers in changing dividend options, account
designations and addresses, and in enrolling into the
pre-authorized check plan, systematic withdrawal plan or any
of several tax sheltered retirement plans offered in
connection with the purchase of shares in the case of those
Funds offering such Plans, assisting in the establishment and
maintenance of customer accounts and records and in the
processing of purchase and redemption transactions, investing
dividends and capital gains
<PAGE> 2
distributions automatically in shares and providing such other
services as the Fund or the Customer may reasonably request
("service activities"), we shall pay you at least quarterly a
fee for Class B shares as indicated in each Fund's then
current Prospectus based on the net asset value of Class B
shares of the Fund. Such fee will be payable only so long as
the Plan remains in effect. You understand and agree that you
shall not be paid such quarterly fee until we are in receipt
of the service fee described in the Fund's then current
Prospectus for the period in which you provide the services
described above, and our liability to you for the payment of
such quarterly fee is limited to the proceeds of that Fund's
service fee. No such quarterly fee will be paid to you with
respect to shares purchased by you and redeemed or repurchased
by the Fund or by us as Agent within seven (7) business days
after the date of our confirmation of such purchase. No such
fee shall be payable with respect to shares purchased at net
asset value without a sales charge by investors of the classes
described in the Fund's Prospectus pursuant to Rule 22d-1
under the Act other than classes of net asset value categories
pursuant to Rule 22d-1 as may from time to time be approved by
the Fund. For purposes of this Agreement, "service
activities" shall mean activities covered by the definition of
"service fee" contained in Article III, Section 26(b) of the
Rules of Fair Practice of the National Association of
Securities Dealers, Inc.
- --------------------------------------------------------------------------------
2. By accepting such fee you agree to assign a representative to
each account, to require such representative to contact the
Customer regularly and to pay at least a portion of such fee
to such representative. Additionally, you understand that
Distributor will monitor service levels which you provide to
your Customers pursuant to this agreement and that
consistently low levels of service will result in non-payment
of the fee.
- --------------------------------------------------------------------------------
3. You agree to use your best efforts to support the asset value
of the Fund to the extent consistent with the suitability
requirements of your Customer. You understand that
Distributor will monitor levels of redemption and that
redemption levels consistently above those dictated by market
conditions will result in non-payment of the fee.
- --------------------------------------------------------------------------------
4. This Agreement does not require Dealer to hold Fund shares in
street name or to provide shareholder accounting and record
keeping services for any Customers who are beneficial owners
of Fund shares.
- --------------------------------------------------------------------------------
2
<PAGE> 3
5. You shall furnish us and the Fund with such information as
shall reasonably be requested by either the Trustees of the
Fund or by us with respect to the fees paid to you pursuant to
this Agreement.
- --------------------------------------------------------------------------------
6. We shall furnish to the Trustees of the Fund, for their review
on a quarterly basis, a written report of the amounts expended
under the Plan by us and the purposes for which such
expenditures were made.
- --------------------------------------------------------------------------------
7. Neither you nor any of your employees or agents are authorized
to make any representation concerning shares of the Fund
except those contained in the then current Prospectus for the
Fund, and you shall have no authority to act as Agent for the
Fund or for Distributor.
- --------------------------------------------------------------------------------
8. This Agreement may be terminated with respect to any Fund at
any time without payment of any penalty by the vote of a
majority of the non-interested Trustees or by a vote of a
majority of the Fund's outstanding Class B shares, on sixty
(60) days written notice. It will be terminated by any act
which terminates either the Fund's Underwriting Agreement with
us or the Selling Agreement between Dealer and us and shall
terminate automatically in the event of its assignment as that
term is defined in the Act.
- --------------------------------------------------------------------------------
9. The provisions of the Underwriting Agreement between the Fund
and us, insofar as they relate to the Plan, are incorporated
herein by reference. This Agreement shall become effective
upon execution and delivery hereof and shall continue in full
force and effect so long as the continuance of the Plan and
this related Agreement are approved at least annually by a
vote of the Trustees, including a majority of the
non-interested Trustees, cast in person at a meeting called
for the purpose of voting thereon. All communications to us
should be sent to the foregoing address. Any notice to you
shall be duly given if mailed or telegraphed to you at the
address specified by you below.
- --------------------------------------------------------------------------------
10. The Declaration of Trust establishing Common Sense Trust, a
copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of
the Commonwealth of Massachusetts, provides that the name of
the Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or
personally; and no Trustee, shareholder or officer of said
Trust shall be held to any
3
<PAGE> 4
personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of said Trust, but
only the assets and property of the Trust, or of the
particular series of the Trust in question, as the case may
be, shall be liable. All obligations under this Agreement
shall apply only on a Fund by Fund basis and the assets of one
Fund shall not be liable for the obligations of any other
Fund.
- --------------------------------------------------------------------------------
11. This Agreement shall be construed in accordance with the laws
of the State of Georgia.
PFS DISTRIBUTORS, INC
By:______________________________ Date:______________________________
ACCEPTED:
PFS INVESTMENTS INC.
a Georgia corporation
By:______________________________ Date:______________________________
Name:____________________________
Title:___________________________
4
<PAGE> 1
EXHIBIT 15.13
DISTRIBUTION PLAN FOR CLASS A SHARES
OF
COMMON SENSE TRUST
WHEREAS, Common Sense Trust (the "Trust"), engages in business as an
open-end management investment company and is registered under the Investment
Company Act of 1940 (the "1940 Act");
WHEREAS, the Trust's Board of Trustees (the "Board") has established
separate series of shares of beneficial interest of the Trust, including the
following series: Common Sense Emerging Growth Fund ("Emerging Growth Fund"),
Common Sense Growth Fund, ("Growth Fund"), Common Sense Growth and Income Fund
("Growth and Income Fund"), Common Sense Government Fund ("Government Fund"),
Common Sense International Equity Fund ("International Equity Fund"), Common
Sense Money Market Fund ("Money Market Fund") and Common Sense Municipal Bond
Fund ("Municipal Bond Fund");
WHEREAS, the Trust hereafter may establish additional series of shares
of beneficial interest or determine that other existing series of the Trust
shall be subject hereto (any such additional series, together with the Emerging
Growth Fund, the Growth Fund, the Growth and Income Fund, the Government Fund,
the International Equity Fund, the Money Market Fund and the Municipal Bond
Fund are collectively referred to herein as the "Funds," and singly may be
referred to as a "Fund");
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class A shares of
the Emerging Growth Fund, the Growth Fund, the Growth and Income Fund, the
Government Fund, the International Equity Fund, the Money Market Fund and the
Municipal Bond Fund and of such other Funds as may hereafter be designated by
the Board as subject to this Plan and have Class A shares established; and
WHEREAS, the Trust has entered into an Underwriting Agreement
("Agreement") with PFS Distributors Inc. (the "Distributor") to serve as
distributor of the Class A shares of the Funds.
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class A shares of each Fund in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Fund is authorized to pay to the Distributor, as
compensation for the Distributor's services with respect to the Class A shares,
a service fee at the rate of 0.25% (0.10% for the Money Market Fund) on an
annualized basis of the average daily net assets of the Fund's Class A shares.
Such fee shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine.
<PAGE> 2
B. Any Fund may pay a service fee to the Distributor at a
lesser rate than the fee specified in paragraph 1A of this Plan, as agreed upon
by the Board and the Distributor and as approved in the manner specified in
paragraph 4 of this Plan.
2. As Distributor of the Class A shares of each Fund the Distributor
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Fund's Class A shares or the
servicing and maintenance of shareholder accounts.
3. This Plan shall not take effect with respect to the Class A
shares of any Fund that has not previously issued such shares to the public
unless it first has been approved by a vote of the then sole shareholder of the
Class A shares of such Fund. This Plan shall not take effect with respect to
the Class A shares of any Fund that has previously issued shares to the public,
unless it has first been approved by a vote of a majority of the outstanding
voting securities of the Class A shares of such Fund.
4. This Plan shall not take effect with respect to the Class A
shares of any Fund unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct
or indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees") cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Fund's Class
A shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. So long as the Plan remains in effect, the selection and
nomination of persons to serve as Trustees of the Trust who are not "interested
persons" of the Trust shall be committed to the discretion of the Trustees then
in office who are not "interested persons" of the Trust.
6. Unless sooner terminated pursuant to paragraph 8, this Plan shall
continue in effect for a period of one year from the date it takes effect with
respect to a Fund, provided that the continuance of the Plan is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 4.
7. The Distributor shall provide to the Board and the Independent
Trustees shall review, in exercise of their fiduciary duties, at least
quarterly, a written report of the amounts expended with respect to Class A
shares of each Fund by the Distributor under this Plan and the purposes for
which such expenditures were made. Only expenditures properly attributable to
2
<PAGE> 3
the sale of Class A shares of any Fund will be used to justify any fee paid
pursuant to this Plan. The Distributor shall submit only information regarding
amounts expended for "service activities," as defined in this paragraph 7, to
the Board in support of the service fee payable hereunder. "Service
activities" shall mean activities covered by the definition of "service fee"
contained in Article III, Section 26(b) of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as amended.
8. This Plan may be terminated with respect to the Class A shares of
any Fund, without payment of any penalty, at any time by vote of the Board, by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Class A shares of such Fund.
9. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof with respect to the Class A
shares of a Fund unless such amendment is approved by a vote of a majority of
the outstanding voting securities of the Class A shares of such Fund, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in paragraph 4 hereof.
10. The amount of the service fees payable by any Fund to the
Distributor under paragraph 1A hereof is not related directly to expenses
incurred by the Distributor on behalf of such Fund in serving as Distributor of
the Class A shares, and paragraph 2 hereof does not obligate the Fund to
reimburse the Distributor for such expenses. The service fees set forth in
paragraph 1A hereof will be paid by the Fund to the Distributor until the Plan
is terminated or not renewed. If the Plan is terminated or not renewed with
respect to the Class A shares of any Fund, any distribution expenses incurred
by the Distributor on behalf of the Fund in excess of payments of the service
fees specified in paragraph 1A hereof which the Distributor has received or
accrued through the termination date are the sole responsibility and liability
of the Distributor and are not obligations of the Fund.
11. Any agreement related to this Plan shall be in writing, and shall
provide:
(a) That such agreement may be terminated at any time without
payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the outstanding voting
securities of the Class A shares of the applicable Fund, on
not more than 60 days' written notice to any other party to
this agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
3
<PAGE> 4
12. The Declaration of Trust establishing the Trust, dated January
29, 1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the Trust Estate only shall be
liable. All obligations of the Trust under this Plan shall apply only on a
Fund by Fund basis and the assets of one Fund shall not be subject to the
obligations of any other Fund.
13. As used in this Plan, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as those terms have in the 1940 Act.
14. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
paragraph 7 hereof for a period of not less than six years from the date of
this Plan, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
on the day and year set forth below.
Date: __________, 1996
ATTEST: COMMON SENSE TRUST
______________________________ By:______________________________
4
<PAGE> 1
EXHIBIT 15.14
DISTRIBUTION PLAN FOR CLASS B SHARES
OF
COMMON SENSE TRUST
WHEREAS, Common Sense Trust (the "Trust"), engages in business as an
open-end management investment company and is registered under the Investment
Company Act of 1940 (the "1940 Act");
WHEREAS, the Trust's Board of Trustees (the "Board") has established
separate series of shares of beneficial interest of the Trust, including the
following series: Common Sense Emerging Growth Fund ("Emerging Growth Fund"),
Common Sense Growth Fund, ("Growth Fund"), Common Sense Growth and Income Fund
("Growth and Income Fund"), Common Sense Government Fund ("Government Fund"),
Common Sense International Equity Fund ("International Equity Fund"), Common
Sense Money Market Fund ("Money Market Fund") and Common Sense Municipal Bond
Fund ("Municipal Bond Fund");
WHEREAS, the Trust hereafter may establish additional series of shares
of beneficial interest or determine that other existing series of the Trust
shall be subject hereto (any such additional series, together with the Emerging
Growth Fund, the Growth Fund, the Growth and Income Fund, the Government Fund,
the International Equity Fund, the Money Market Fund and the Municipal Bond
Fund are collectively referred to herein as the "Funds," and singly may be
referred to as a "Fund");
WHEREAS, the Trust desires to adopt a Plan of Distribution ("Plan")
pursuant to Rule 12b-1 under the 1940 Act with respect to the Class B shares of
the Emerging Growth Fund, the Growth Fund, the Growth and Income Fund, the
Government Fund, the International Equity Fund, the Money Market Fund and the
Municipal Bond Fund and of such other Funds as may hereafter be designated by
the Board as subject to this Plan and have Class B shares established; and
WHEREAS, the Trust has entered into an Underwriting Agreement
("Agreement") with PFS Distributors Inc. (the "Distributor") to serve as
distributor of the Class B shares of the Funds.
NOW, THEREFORE, the Trust hereby adopts this Plan with respect to the
Class B shares of each Fund in accordance with Rule 12b-1 under the 1940 Act.
1. A. Each Fund is authorized to pay to the Distributor, as
compensation for the Distributor's services with respect to the Class B shares,
a service fee at the rate of 0.75% on an annualized basis of the average daily
net assets of the Fund's Class B shares. Such fee shall be calculated and
accrued daily and paid monthly or at such other intervals as the Board shall
determine.
1
<PAGE> 2
B. Each Fund (other than the Money Market Fund) is authorized
to pay to the Distributor, as compensation for the Distributor's services with
respect to the Class B shares, a service fee at the rate of 0.25% on an
annualized basis of the average daily net assets of the Fund's Class B shares.
Such fee shall be calculated and accrued daily and paid monthly or at such
other intervals as the Board shall determine.
C. Any Fund may pay a distribution or service fee to the
Distributor at a lesser rate than the fees specified in paragraphs 1A or 1B,
respectively, of this Plan, as agreed upon by the Board and the Distributor and
as approved in the manner specified in paragraph 4 of this Plan.
2. As Distributor of the Class B shares of each Fund the Distributor
may spend such amounts as it deems appropriate on any activities or expenses
primarily intended to result in the sale of the Fund's Class B shares or the
servicing and maintenance of shareholder accounts.
3. This Plan shall not take effect with respect to the Class B
shares of any Fund that has not previously issued such shares to the public
unless it first has been approved by a vote of the then sole shareholder of the
Class B shares of such Fund. This Plan shall not take effect with respect to
the Class B shares of any Fund that has previously issued shares to the public,
unless it has first been approved by a vote of a majority of the outstanding
voting securities of the Class B shares of such Fund.
4. This Plan shall not take effect with respect to the Class B
shares of any Fund unless it first has been approved, together with any related
agreements, by votes of a majority of both (a) the Board and (b) those Trustees
of the Trust who are not "interested persons" of the Trust and have no direct
or indirect financial interest in the operation of this Plan or any agreements
related thereto ("Independent Trustees") cast in person at a meeting (or
meetings) called for the purpose of voting on such approval; and until the
Trustees who approve the Plan's taking effect with respect to such Fund's Class
B shares have reached the conclusion required by Rule 12b-1(e) under the 1940
Act.
5. So long as the Plan remains in effect, the selection and
nomination of persons to serve as Trustees of the Trust who are not "interested
persons" of the Trust shall be committed to the discretion of the Trustees then
in office who are not "interested persons" of the Trust.
6. Unless sooner terminated pursuant to paragraph 8, this Plan shall
continue in effect for a period of one year from the date it takes effect with
respect to a Fund, provided that the continuance of the Plan is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 4.
2
<PAGE> 3
7. The Distributor shall provide to the Board and the Independent
Trustees shall review, in exercise of their fiduciary duties, at least
quarterly, a written report of the amounts expended with respect to Class B
shares of each Fund by the Distributor under this Plan and the purposes for
which such expenditures were made. The Distributor shall submit only information
regarding amounts expended for "distribution activities," as defined in this
paragraph 7, to the Board in support of the distribution fee payable hereunder
and shall submit only information regarding amounts expended for "service
activities," as defined in this paragraph 7, to the Board in support of the
service fee payable hereunder. Only expenditures properly attributable to the
sale of Class B shares of any Fund will be used to justify any fee paid pursuant
to this Plan.
For purposes of this Plan, "distribution activities" shall mean any
activities in connection with the Distributor's performance and of its
obligations hereunder that are not deemed "service activities." "Service
activities" shall mean activities covered by the definition of "service fee"
contained in Article III, Section 26(b) of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as amended.
8. This Plan may be terminated with respect to the Class B shares of
any Fund, without payment of any penalty, at any time by vote of the Board, by
vote of a majority of the Independent Trustees or by vote of a majority of the
outstanding voting securities of the Class B shares of such Fund.
9. This Plan may not be amended to increase materially the amount of
service fees provided for in paragraph 1A hereof or the amount of service fees
provided for in paragraph 1B hereof with respect to the Class B shares of a
Fund unless such amendment is approved by a vote of a majority of the
outstanding voting securities of the Class B shares of such Fund, and no
material amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in paragraph 4 hereof.
10. The amount of the distribution and service fees payable by any
Fund to the Distributor under paragraphs 1A and 1B hereof is not related
directly to expenses incurred by the Distributor on behalf of such Fund in
serving as Distributor of the Class B shares, and paragraph 2 hereof does not
obligate the Fund to reimburse the Distributor for such expenses. The
distribution and service fees set forth in paragraphs 1A and 1B hereof will be
paid by the Fund to the Distributor until the Plan is terminated or not renewed.
If the Plan is terminated or not renewed with respect to the Class B shares of
any Fund, any distribution expenses incurred by the Distributor on behalf of the
Fund in excess of payments of the distribution and service fees specified in
paragraphs 1A and 1B hereof which the Distributor has received or accrued
through the
3
<PAGE> 4
termination date are the sole responsibility and liability of the Distributor
and are not obligations of the Fund.
11. Any agreement related to this Plan shall be in writing, and shall
provide:
(a) That such agreement may be terminated at any time without
payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the outstanding voting
securities of the Class B shares of the applicable Fund, on
not more than 60 days' written notice to any other party to
this agreement; and
(b) That such agreement shall terminate automatically in the
event of its assignment.
12. The Declaration of Trust establishing the Trust, dated January
29, 1987, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Common Sense Trust" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the Trust Estate only shall be
liable. All obligations of the Trust under this Plan shall apply only on a
Fund by Fund basis and the assets of one Fund shall not be subject to the
obligations of any other Fund.
13. As used in this Plan, the terms "majority of the outstanding
voting securities," "interested person" and "assignment" shall have the same
meaning as those terms have in the 1940 Act.
14. The Trust shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
paragraph 7 hereof for a period of not less than six years from the date of
this Plan, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Trust has executed this Plan of Distribution
on the day and year set forth below.
Date: __________, 1996
ATTEST: COMMON SENSE TRUST
______________________________ By:______________________________
4
<PAGE> 1
EXHIBIT 16
CALCULATION OF TOTAL RETURN -- CLASS A AND CLASS 1 SHARES
COMMON SENSE EMERGING GROWTH FUND
COMMON SENSE INTERNATIONAL EQUITY FUND
COMMON SENSE GROWTH FUND
COMMON SENSE GROWTH AND INCOME FUND
COMMON SENSE GOVERNMENT FUND
COMMON SENSE MUNICIPAL BOND FUND
The above-referenced funds calculate their average annual total return
quotations for the one, five, and ten year periods on the date of the most
recent balance sheet included in the registration statement, by finding the
average annual compounded rates of return over the one, five, and ten year
periods that would equate the initial amount invested to the ending redeemable
value.
The Common Sense Municipal Bond Fund calculates the average return
quotations for the one, five, and ten year periods by finding the average
compounded rates of return over the one, five and ten year periods on the date
of the most recent balance sheet included in the registration statement, by
finding the average compounded rates of return over the one, five, and ten year
periods that would equate the initial amount invested to the ending redeemable
value according to the following formula:
P(1+T)[n]=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-year period at the end of the one-year period or
(fractional portion thereof);
</TABLE>
The calculations incorporate the following assumptions:
1. The maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 payment.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period,
i.e., any sales load charged upon reinvestment of dividends would be
reflected.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the one, five and ten year period, and the deduction of all
nonrecurring charges deducted at the end of that period.
<PAGE> 2
CALCULATION OF TOTAL RETURN -- CLASS B SHARES
COMMON SENSE GROWTH FUND
COMMON SENSE GROWTH AND INCOME FUND
COMMON SENSE GOVERNMENT FUND
COMMON SENSE INTERNATIONAL EQUITY FUND
COMMON SENSE EMERGING GROWTH FUND
COMMON SENSE MUNICIPAL BOND FUND
The above-referenced funds calculate their average annual total return
quotations for Class B shares for the one, five, and ten year periods ended on
the date of the most recent balance sheet included in the registration
statement, by finding the average annual compounded rates of return over the
one, five, and ten year periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
P(1+T)[n]=ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment made at the beginning
of the one, five, and ten year periods at the end of the one, five, and ten
year periods [or fractional portion thereof];
</TABLE>
These calculations incorporate the following assumptions:
1. Assumes an initial $1,000 payment with the applicable contingent
deferred sale charge imposed upon redemption.
2. All dividends and distributions by the Fund are reinvested at the
price stated in the prospectus on the reinvestment dates during the period.
3. All recurring fees, if any, charged to all shareholder accounts are
included.
4. The ending redeemable value assumes a complete redemption at the
end of the designated period or periods and the deduction of all
nonrecurring charges, if any, deducted at the end of each period.
<PAGE> 3
CALCULATION OF YIELD
COMMON SENSE GOVERNMENT FUND
COMMON SENSE MUNICIPAL BOND FUND
The Common Sense Government Fund and the Common Sense Municipal Bond Fund
calculate their yield quotations based on a 30-day period ended on the date of
the most recent balance sheet included in the registration statement, by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD (y)=2[(a-b+1)6-1]
-------
cd
<TABLE>
<S> <C> <C> <C>
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
</TABLE>
<TABLE>
<CAPTION>
COMMON SENSE
MUNICIPAL BOND CLASS
1
- ---------------------
<S> <C> <C>
a = 569,071
b = 84,359
c = 8,582,925
d = 14.46
y = 4.73
</TABLE>
COMMON SENSE GOVERNMENT FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS 1
- ------------------- ------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
a = 50,362 a = 48,155 a = 1,821,909
b = 22,368 b = 27,063 b = 210,755
c = 762,326 c = 728,948 c = 30,819,711
d = 12.76 d = 12.15 d = 11.44
y = 3.48 y = 2.88 y = 5.55
</TABLE>
<PAGE> 4
CALCULATION OF YIELD
COMMON SENSE MONEY MARKET FUND
The Common Sense Money Market Fund calculated its annualized current yield
quotation for its Class 1 shares based on the seven days ended on the date of
the most recent balance sheet included in the registration statement, computed
by determining the net change, exclusive of capital charges, in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period by (365/7).
Subsidized Annualized Current Yield = 4.79%
Non Subsidized Annualized Current Yield = 4.50%
The Common Sense Money Market Fund calculates its effective yield based on
the seven days ended on the date of the most recent balance sheet included in
the registration statement, computed by determining the net change, exclusive of
capital charges, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, according to the following
formula:
Effective Yield = [(Base Period Return = 1) 365/7] -1
Subsidized Effective Yield = 4.91%
Non-Subsidized Effective Yield = 4.60%
<PAGE> 5
CALCULATION OF TAX EQUIVALENT YIELD
COMMON SENSE MUNICIPAL BOND FUND
The Fund calculates its tax equivalent yield on its Class 1 shares based on
a 30-day (or one month) period ended on the date of the most recent balance
sheet included in the registration statement, computed by dividing that portion
of the yield of the Fund as disclosed above which is tax-exempt by one minus a
stated income tax rate (in this case 28%) and adding the product to that
portion, if any, of the yield of the Fund that is not tax-exempt.
Tax equivalent Yield = 7.39%
<PAGE> 1
EXHIBIT 17.1
INVESTMENT COMPANIES FOR WHICH
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS INC.
ACTS AS PRINCIPAL UNDERWRITER OR DEPOSITOR
DECEMBER 5, 1995
Van Kampen American Capital U.S. Government Trust
Van Kampen American Capital U.S. Government Fund
Van Kampen American Capital Tax Free Trust
Van Kampen American Capital Insured Tax Free Income Fund
Van Kampen American Capital Tax Free High Income Fund
Van Kampen American Capital California Insured Tax Free Fund
Van Kampen American Capital Municipal Income Fund
Van Kampen American Capital Limited Term Municipal Income Fund
Van Kampen American Capital Florida Insured Tax Free Income Fund
Van Kampen American Capital New Jersey Tax Free Income Fund
Van Kampen American Capital New York Tax Free Income Fund
Van Kampen American Capital Trust
Van Kampen American Capital High Yield Fund
Van Kampen American Capital Short-Term Global Income Fund
Van Kampen American Capital Strategic Income Fund
Van Kampen American Capital Emerging Markets Income Fund
Van Kampen American Capital Equity Trust
Van Kampen American Capital Utility Fund
Van Kampen American Capital Balanced Fund
Van Kampen American Capital Pennsylvania Tax Free Income Fund
Van Kampen American Capital Tax Free Money Fund
Van Kampen American Capital Prime Rate Income Trust
Van Kampen Merritt Series Trust
Van Kampen American Capital Quality Income Portfolio
Van Kampen American Capital High Yield Portfolio
Van Kampen American Capital Growth and Income Portfolio
Van Kampen American Capital Money Market Portfolio
Van Kampen American Capital Stock Index Portfolio
Van Kampen American Capital Comstock Fund
Van Kampen American Capital Corporate Bond Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Enterprise Fund
Van Kampen American Capital Equity Income Fund
Van Kampen American Capital Limited Maturity Government Fund
Van Kampen American Capital Global Managed Assets Fund
Van Kampen American Capital Government Securities Fund
Van Kampen American Capital Government Target Fund
Van Kampen American Capital Growth and Income Fund
Van Kampen American Capital Harbor Fund
Van Kampen American Capital High Income Corporate Bond Fund
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital Common Stock Fund
Van Kampen American Capital Domestic Strategic Income Fund
Van Kampen American Capital Emerging Growth Fund
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Government Fund
Van Kampen American Capital Money Market Fund
Van Kampen American Capital Multiple Strategy Fund
Van Kampen American Capital Real Estate Securities Fund
<PAGE> 2
Van Kampen American Capital Pace Fund
Van Kampen American Capital Real Estate Securities Fund
Van Kampen American Capital Reserve Fund
Van Kampen American Capital Tax-Exempt Trust
Van Kampen American Capital High Yield Municipal Fund
Van Kampen American Capital Texas Tax Free Income Fund
Van Kampen American Capital U.S. Government Trust for Income
Van Kampen American Capital World Portfolio Series Trust
Van Kampen American Capital Global Equity Fund
Van Kampen American Capital Global Government Securities Fund
<PAGE> 3
<TABLE>
<S> <C>
Emerging Markets Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 361
Insured Municipals Income Trust (Discount) . . . . . . . . . . . . . . . . . . . . . . . . . Series 5 through 13
Insured Municipals Income Trust (Short Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1 through 1009
Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . . . . Series 5 through 85
Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . Series 9 through 82
Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . . . . Series 1 through 3
Insured Municipals Income Trust (Intermediate Laddered Maturity) . . . . . . . . . . . . . . Series 1 and 2
Insured Tax Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Insured Tax Free Bond Trust (Limited Term) . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 92
Investors' Quality Tax-Exempt Trust-Intermediate . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Corporate Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 12
Investors' Governmental Securities Income Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 7
Van Kampen Merritt International Bond Income Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Alabama Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Alabama Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Arizona Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Arizona Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Arkansas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 2
Arkansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 147
California Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . Series 1
California Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . Series 1 through 3
California Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
California Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . Series 1 through 22
Colorado Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Colorado Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
Connecticut Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 28
Connecticut Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1
Delaware Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipal Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Florida Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 2
Florida Insured Municipals Income Trust (Intermediate Laddered) . . . . . . . . . . . . . . . Series 1 through 13
Georgia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 77
Georgia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Hawaii Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Investors' Quality Municipals Trust (AMT) . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
Kansas Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 11
Kentucky Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 56
Louisiana Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 13
Maine Investor's Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Maryland Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 74
Massachusetts Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 31
Massachusetts Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Michigan Financial Institutions Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 133
Michigan Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Michigan Insured Municipals Income Trust (1st Intermediate Series) . . . . . . . . . . . . . Series 1 through 3
Michigan Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 30
Minnesota Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 57
Minnesota Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 21
Missouri Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 93
Missouri Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . Series 1
Missouri Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
Missouri Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Nebraska Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 9
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
New Mexico Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 18
New Jersey Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 107
New Jersey Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 22
New Jersey Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 and 4
New York Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . . . Series 1 through 6
New York Insured Municipals Income Trust (Limited Term) . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 129
New York Insured Tax-Free Bond Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
New York Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 15
New York Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1
North Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 84
Ohio Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 99
Ohio Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . . . . . Series 1 and 2
Ohio Insured Municipals Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . . Series 1
Ohio Insured Municipals Income Trust
(Intermediate Laddered Maturity) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 3 through 6
Ohio Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 16
Oklahoma Insured Municipal Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 17
Oregon Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 53
Pennsylvania Insured Municipals Income Trust - Intermediate . . . . . . . . . . . . . . . . . Series 1 through 6
Pennsylvania Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 211
Pennsylvania Insured Municipals Income Trust (Premium Bond Series) . . . . . . . . . . . . . Series 1
Pennsylvania Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . Series 1 through 14
South Carolina Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . Series 1 through 81
Tennessee Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1-3 and 5-33
Texas Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 40
Texas Insured Municipal Income Trust (Intermediate Ladder) . . . . . . . . . . . . . . . . . Series 1
Virginia Investors' Quality Tax-Exempt Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 67
Van Kampen Merritt Utility Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 6
Van Kampen Merritt Insured Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 45
Van Kampen Merritt Insured Income Trust (Intermediate Term) . . . . . . . . . . . . . . . . . Series 1 through 44
Van Kampen Merritt Select Equity Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
Van Kampen Merritt Select Equity and Treasury Trust . . . . . . . . . . . . . . . . . . . . . Series 1
Washington Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . . Series 1
West Virginia Insured Municipals Income Trust . . . . . . . . . . . . . . . . . . . . . . . . Series 1 through 5
</TABLE>
<PAGE> 1
EXHIBIT 17.2
OFFICERS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & Chief Executive Officer Houston, TX
William R. Molinari President & Chief Operating Oakbrook Terrace, IL
Officer
Ronald A. Nyberg Executive Vice President & General Oakbrook Terrace, IL
Counsel
William R. Rybak Executive Vice President & Chief Oakbrook Terrace, IL
Financial Officer
Paul R. Wolkenberg Executive Vice President Houston, TX
Robert A. Broman Sr. Vice President Oakbrook Terrace, IL
Gary R. DeMoss Sr. Vice President Oakbrook Terrace, IL
Keith K. Furlong Sr. Vice President Oakbrook Terrace, IL
Douglas B. Gehrman Sr. Vice President Houston, TX
Richard D. Humphrey Sr. Vice President Houston, TX
Scott E. Martin Sr. Vice President, Deputy General Oakbrook Terrace, IL
Counsel & Secretary
Debra A. Nichols Sr. Vice President Houston, TX
Charles G. Millington Sr. Vice President & Treasurer Oakbrook Terrace, IL
Robert S. West Sr. Vice President Oakbrook Terrace, IL
John H. Zimmermann, III Sr. Vice President Oakbrook Terrace, IL
Timothy K. Brown 1st Vice President Laguna Niguel, CA
James S. Fosdick 1st Vice President Oakbrook Terrace, IL
Edward F. Lynch 1st Vice President Oakbrook Terrace, IL
Mark R. McClure 1st Vice President Oakbrook Terrace, IL
Mark T. McGannon 1st Vice President Oakbrook Terrace, IL
James J. Ryan 1st Vice President Oakbrook Terrace, IL
Michael L. Stallard 1st Vice President Oakbrook Terrace, IL
David M. Swanson 1st Vice President Oakbrook Terrace, IL
Laurence J. Althoff Vice President & Controller Oakbrook Terrace, IL
James K. Ambrosio Vice President Massapequa, NY
Patricia A. Bettlach Vice President St. Louis, MO
Carol S. Biegel Vice President Oakbrook Terrace, IL
Linda Mae Brown Vice President Oakbrook Terrace, IL
William F. Burke, Jr. Vice President Mendham, NJ
Loren Burket Vice President Plymouth, MN
Thomas M. Byron Vice President Oakbrook Terrace, IL
Glenn M. Cackovic Vice President Laguna Niguel, CA
Joseph N. Caggiano Vice President New York, NY
Richard J. Charlino Vice President Oakbrook Terrace, IL
Eleanor M. Cloud Vice President Oakbrook Terrace, IL
Dominick Cogliandro Vice President & Asst. Treasurer New York, NY
Michael Colston Vice President Louisville, KY
Suzanne Cummings Vice President Houston, TX
David B. Dibo Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Howard A. Doss Vice President Tampa, FL
Jonathan Eckhard Vice President Boulder, CO
Charles Edward Fisher Vice President Oakbrook Terrace, IL
William J. Fow Vice President Redding, CT
Charles Friday Vice President Gibsonia, PA
Nori L. Gabert Vice President, Assoc. General Houston, TX
Counsel & Asst. Secretary
Erich P. Gerth Vice President Dallas, TX
Daniel Hamilton Vice President Houston, TX
John A. Hanhauser Vice President Philadelphia, PA
Eric J. Hargens Vice President Orlando, FL
J. Christopher Jackson Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
Lowell Jackson Vice President Norcross, GA
Dana R. Klein Vice President Oakbrook Terrace, IL
Ann Marie Klingenhagen Vice President Oakbrook Terrace, IL
Frederick Kohly Vice President Miami, FL
David R. Kowalski Vice President & Director Oakbrook Terrace, IL
of Compliance
S. William Lehew III Vice President Charlotte, NC
Robert C. Lodge Vice President Philadelphia, PA
Walter Lynn Vice President Flower Mound, TX
Michele L. Manley Vice President Oakbrook Terrace, IL
Kevin S. Marsh Vice President Bellevue, WA
Carl Mayfield Vice President Lakewood, CO
Ruth L. McKeel Vice President Oakbrook Terrace, IL
John Mills Vice President Kenner, LA
Robert Muller, Jr. Vice President Houston, TX
Ronald E. Pratt Vice President Marietta, GA
Craig S. Prichard Vice President Oakbrook Terrace, IL
Walter E. Rein Vice President Oakbrook Terrace, IL
Michael W. Rohr Vice President Oakbrook Terrace, IL
James B. Ross Vice President Oakbrook Terrace, IL
Heather R. Sabo Vice President Richmond, Va
Stephanie Scarlata Vice President Lynbrook, NY
Lisa A. Schomer Vice President Oakbrook Terrace, IL
Ronald J. Schuster Vice President Tampa, FL
Kimberly M. Spangler Vice President Atlanta, GA
Darren D. Stabler Vice President Phoenix, AZ
Christopher J. Staniforth Vice President Leawood, KS
William C. Strafford Vice President Granger, IN
James C. Taylor Vice President Oakbrook Terrace, IL
John F. Tierney Vice President Oakbrook Terrace, IL
Curtis L. Ulvestad Vice President Red Wing, MN
Sandra A. Waterworth Vice President and Assistant Oakbrook Terrace, IL
Secretary
Steven T. West Vice President Wayne, PA
Weston B. Wetherell Vice President, Assoc. General Oakbrook Terrace, IL
Counsel & Asst. Secretary
James R. Yount Vice President Seattle, WA
Richard P. Zgonina Vice President Oakbrook Terrace, IL
James J. Boyne Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Eric J. Bridges Asst. Vice President Oakbrook Terrace, IL
Richard B. Callaghan Asst. Vice President Oakbrook Terrace, IL
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Stephen M. Cutka Asst. Vice President Oakbrook Terrace, IL
Nicholas Dalmaso Asst. Vice President & Asst. Oakbrook Terrace, IL
Secretary
Gerald A. Davis Asst. Vice President Oakbrook Terrace, IL
Jerome M. Dybzinski Asst. Vice President Oakbrook Terrace, IL
Melissa B. Epstein Asst. Vice President Houston, TX
Huey P. Falgout, Jr. Asst. Vice President & Asst. Secretary Houston, TX
Rocco Fiordelisi III Asst. Vice President St. Louis, MO
Robert D. Gorski Asst. Vice President Oakbrook Terrace, IL
Walter C. Gray Asst. Vice President Oakbrook Terrace, IL
Joseph Hays Asst. Vice President Philadelphia, PA
Susan J. Hill Asst. Vice President Oakbrook Terrace, IL
Hunter Knapp Asst. Vice President Laguna, CA
Natalie N. Hurdle Asst. Vice President New York, NY
Laurie L. Jones Asst. Vice President Houston, TX
Brian T. Levinson Asst. Vice President Houston, TX
Peggy E. Moro Asst. Vice President Oakbrook Terrace, IL
David R. Niemi Asst. Vice President Oakbrook Terrace, IL
Daniel J. O'Keefe Asst. Vice President Oakbrook Terrace, IL
Allison Okun Asst. Vice President Oakbrook Terrace, IL
David B. Partain Asst. Vice President Oakbrook Terrace, IL
Christine K. Putong Asst. Vice President & Asst. Secretary Oakbrook Terrace, IL
Michael Quinn Asst. Vice President Oakbrook Terrace, IL
David P. Robbins Asst. Vice President Oakbrook Terrace, IL
Thomas J. Sauerborn Asst. Vice President New York, NY
Andrew J. Scherer Asst. Vice President Oakbrook Terrace, IL
Jeffrey C. Shirk Asst. Vice President Philadelphia, PA
Traci T. Sorensen Asst. Vice President Oakbrook Terrace, IL
Gary Steele Asst. Vice President Philadelphia, PA
David H. Villarreal Asst. Vice President Oakbrook Terrace, IL
Kathleen M. Wennerstrum Asst. Vice President Oakbrook Terrace, IL
Barbara A. Withers Asst. Vice President Oakbrook Terrace, IL
Melinda K. Yeager Asst. Vice President Houston, TX
David C. Goodwin Asst. Secretary Oakbrook Terrace, IL
Gina M. Scumaci Asst. Secretary Oakbrook Terrace, IL
Elizabeth M. Brown Officer Houston, TX
John Browning Officer Oakbrook Terrace, IL
Leticia George Officer Houston, TX
Gina Grippo Officer Houston, TX
Sarah Kessler Officer Oakbrook Terrace, IL
Francis McGarvey Officer Houston, TX
William D. McLaughlin Officer Houston, TX
Becky Newman Officer Houston, TX
Rosemary Pretty Officer Houston, TX
Colette Saucedo Officer Houston, TX
Frederick Shepherd Officer Houston, TX
Larry Vickrey Officer Houston, TX
John Yovanovic Officer Houston, TX
</TABLE>
<PAGE> 4
DIRECTORS
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
<TABLE>
<CAPTION>
NAME OFFICE LOCATION
- ---- ------ --------
<S> <C> <C>
Don G. Powell Chairman & CEO 2800 Post Oak Blvd.
Houston, TX 77056
William R. Molinari President & COO One Parkview Plaza
Oakbrook Terrace, IL 60181
Ronald A. Nyberg Executive Vice President One Parkview Plaza
& General Counsel Oakbrook Terrace, IL 60181
William R. Rybak Executive Vice President One Parkview Plaza
& CFO Oakbrook Terrace, IL 60181
</TABLE>
<PAGE> 1
EXHIBIT 18
MULTI-CLASS PLAN
FOR
COMMON SENSE TRUST
This Plan is adopted pursuant to Rule 18f-3 under the Act to provide for
the issuance and distribution of multiple classes of shares by each of the
separate Series of Common Sense Trust (the "Trust") in accordance with the
terms, procedures and conditions set forth below. A majority of the Trustees
of the Trust, including a majority of the Trustees who are not interested
persons of the Trust within the meaning of the Act, found this Multi-Class
Plan, including the expense allocations, to be in the best interest of the
Trust and each Series of the Trust and each Class of Shares of each Series and
adopted this Plan on _________________, 1996.
A. Definitions. As used herein, the terms set forth below
shall have the meanings ascribed to them below.
1. The Act - Investment Company Act of 1940, as
amended.
2. CDSC - contingent deferred sales charge.
3. CDSC Period - the period of years following
acquisition during which Shares are assessed
a CDSC upon redemption.
4. Class - a class of Shares of a Series.
5. Class A Shares - shall have the meaning
ascribed in Section B. 1.
6. Class B Shares - shall have the meaning
ascribed in Section B. 1.
7. Class 1 Shares - shall have the meaning
ascribed in Section B. 1.
8. Distribution Expenses - expenses incurred in
activities which are primarily intended to
result in the distribution and sale of
Shares as defined in a Plan of Distribution
and/or board resolutions.
9. Distribution Fee - a fee paid by a Series to
the Distributor in reimbursement of
Distribution Expenses.
10. Distributor - PFS Distributors, Inc.
11. Trust - Common Sense Trust.
<PAGE> 2
12. Series - each separate Series of the Trust.
13. Money Market Fund - Common Sense Money
Market Fund, a Series of the Trust.
14. Plan of Distribution - Any plan adopted
under Rule 12b-1 under the Act with respect
to payment of a Distribution Fee.
15. Service Fee - a fee paid to PFS Investments,
Inc. for the ongoing provision of personal
services to Trust shareholders and/or the
maintenance of shareholder accounts.
16. Share - a share of beneficial interest in
the Trust.
17. Trustees - the trustees of the Trust.
18. Immediate family - spouses and minor
children.
B. Classes. Each Series may offer Class A Shares and
Class B Shares. Each Series shall make available Class
1 Shares to accounts of previously established
shareholders or their immediate family.
1. Class A Shares. Class A Shares shall be
offered at net asset value plus a front-end
sales charge as approved from time to time
by the Trustees and set forth in the Trust's
prospectus, which may be reduced or
eliminated for Money Market Fund, larger
purchases, under a combined purchase
privilege, under a right of accumulation,
under a letter of intent or for certain
categories of purchasers as permitted by
Rule 22(d) of the Act and as set forth in
the Trust's prospectus. Class A Shares that
are not subject to a front-end sales charge
as a result of the foregoing, may be subject
to a CDSC for the CDSC Period set forth in
Section D.1. The offering price of Shares
subject to a front-end sales charge shall be
computed in accordance with Rule 22c-1 and
Section 22(d) of the Act and the rules and
regulations thereunder. Class A Shares
shall be subject to ongoing Service Fees
approved from time to time by the Trustees
and set forth in the Trust's prospectus.
2. Class B Shares. Class B Shares shall be (1)
offered at net asset value, (2) subject to a
CDSC for the CDSC Period set forth in
Section D. 1, (3) subject to ongoing Service
Fees, which may not apply for Money Market
Fund, and Distribution Fees approved from
time to time by the Trustees and set forth
in the Trust's prospectus and (4) converted
to Class A Shares six years after the shares
were purchased.
2
<PAGE> 3
3. Class 1 Shares. Class 1 Shares are those
shares as set forth in the Trust's
prospectus that are not available to the
general public.
C. Rights and Privileges of Classes. Each Class of each
Series will represent an interest in the same portfolio
of investments of that Series and will have identical
voting, dividend, liquidation and other rights,
preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions
except as described otherwise herein.
D. CDSC. A CDSC may be imposed upon redemption of Class A
Shares and Class B Shares that do not incur a front-end
sales charge subject to the following conditions:
1. CDSC Period. The CDSC Period for Class A
Shares shall be one year. The CDSC Period
for Class B Shares shall be at least three
but not more than ten years as recommended
by the Distributor and approved by the
Trustees.
2. CDSC Rate. The CDSC rate shall be
recommended by the Distributor and approved
by the Trustees. If a CDSC is imposed for a
period greater than one year the CDSC rate
must decline during the CDSC Period such
that (a) the CDSC rate is less in the last
year of the CDSC Period than in the first
and (b) in each succeeding year the CDSC
rate shall be less than or equal to the CDSC
rate in the preceding year.
3. Disclosure and Changes. The CDSC rates and
CDSC Period shall be disclosed in the
Trust's prospectus and may be decreased at
the discretion of the Distributor but may
not be increased unless approved as set
forth in Section M.
4. Method of Calculation. The CDSC shall be
assessed on an amount equal to the lesser of
the then current market value or the cost of
the Shares being redeemed. No CDSC shall be
imposed on increases in the net asset value
of the Shares being redeemed above the
initial purchase price. No CDSC shall be
assessed on Shares derived from reinvestment
of dividends or capital gains distributions.
The order in which Class B Shares are to be
redeemed when not all of such Shares would
be subject to a CDSC shall be as determined
by the Distributor in accordance with the
provisions of Rule 6c-10 under the Act.
5. Waiver. The Distributor may in its
discretion waive a CDSC otherwise due upon
the redemption of Shares under circumstances
previously approved by the Trustees and
disclosed in the Trust's prospectus or
statement of additional information and as
allowed under Rule 6c-10 under the Act.
3
<PAGE> 4
6. Calculation of offering price. The offering
price of Shares subject to a CDSC shall be
computed in accordance with Rule 22c-1 and
Section 22(d) of the Act and the rules and
regulations thereunder.
7. Retention by Distributor. The CDSC paid
with respect to Shares of a Series may be
retained by the Distributor to reimburse the
Distributor for commissions paid by it in
connection with the sale of Shares subject
to a CDSC and Distribution Expenses to the
extent of such commissions and Distribution
Expenses eligible for reimbursement and
approved by the Trustees.
E. Service and Distribution Fees. Class A Shares shall be
subject to a Service Fee and Class B Shares shall be
subject to a Service Fee and a Distribution Fee. The
Service Fee applicable to any class shall be 0.25% per
annum of the average daily net assets of the Class
(0.10% for Money Market Fund) and the Distribution Fee
shall be 0.75% per annum of the average daily net
assets of the Class. All other terms and conditions
with respect to Service Fees and Distribution Fees
shall be governed by the plans adopted by the Fund with
respect to such fees and Rule 12b-1 of the Act.
F. Conversion. Shares purchased through the reinvestment
of dividends and distributions paid on Shares subject
to conversion shall be treated as if held in a separate
sub-account. Each time any Shares in a Shareholder's
account (other than Shares held in the sub-account)
convert to Class A Shares, a proportionate number of
Shares held in the sub-account shall also convert to
Class A Shares. All conversions shall be effected on
the basis of the relative net asset values of the two
Classes without the imposition of any sales load or
other charge. So long as any Class of Shares converts
into Class A Shares, the Distributor shall waive or
reimburse each Series, or take such other actions with
the approval of the Trustees as may be reasonably
necessary, to ensure the expenses, including payments
authorized under a Plan of Distribution, applicable to
the Class A Shares are not higher than the expenses,
including payments authorized under the Plan of
Distribution, applicable to the class of shares
converting into Class A Shares.
G. Allocation of Expenses, Income and Gains Among Classes.
1. Expenses applicable to a particular class.
Each Class of each Series shall pay any
Service Fee, Distribution Fee and CDSC
applicable to that Class. Other expenses
applicable to a particular Class such as
incremental transfer agency fees, but not
including advisory or custodial fees or
other expenses related to the management of
the Series' assets, shall be allocated
between Classes in different amounts if they
are actually incurred in different amounts
by the Classes or the Classes receive
services of a different kind or to a
different degree than other Classes.
4
<PAGE> 5
2. Distribution Expenses. Distribution
Expenses actually attributable to the sale
of all Classes shall be allocated to each
Class based upon the ratio which sales of
each Class bears to the sales of all Shares
of the Series. For this purpose, Shares
issued upon reinvestment of dividends or
distributions, upon conversion from Class B
Shares to Class A Shares or upon share
splits will not be considered sales.
3. Income, capital gains and losses, and other
expenses applicable to all Classes. Income,
realized and unrealized capital gains and
losses, and expenses such as advisory fees
applicable to all Classes shall be allocated
to each Class on the basis of the net asset
value of that Class in relation to the net
asset value of the Series.
4. Determination of nature of expenses. The
Trustees shall determine in their sole
discretion whether any expenses other than
those listed herein is properly treated as
attributed to a particular Class or all
Classes.
H. Exchange Privilege. Exchanges of Shares shall be
permitted between Series of the Trust as follows.
1. General. Shares of one Series may be
exchanged for Shares of the same Class of
another Series at net asset value and
without sales charge, provided that
a. Class A Shares of the Money
Market Fund that were not
acquired in exchange for Class B
Shares of a Series may be
exchanged for Class A Shares of
another Series only upon payment
of the excess, if any, of the
sales charge rate applicable to
the Shares being acquired over
the sales charge rate previously
paid.
b. Shares of the Money Market Fund
acquired through an exchange of
Class 1 or Class B Shares may be
exchanged only for the same
Class of another Series as the
Class they were acquired in
exchange for or any Class into
which those shares were
converted.
2. CDSC Computation. The acquired Shares will
remain subject to the CDSC rate schedule and
CDSC Period, if applicable, for the
original Series upon the redemption of the
Shares from the Trust. For purposes of
computing the CDSC payable on a disposition
of the new Shares, the holding period for
the original Shares shall be added to the
holding period of the new Shares.
5
<PAGE> 6
I. Voting Rights of Classes.
1. Shareholders of each Class shall have
exclusive voting rights on any matter
submitted to them that relates solely to the
Plan of Distribution related to that Class,
provided that
a. If any amendment is proposed to
the plan under which Service
Fees are paid with respect to
Class A Shares of a Series that
would increase materially the
amount to be borne by Class A
Shares under that plan, then no
Class B Shares shall convert
into Class A Shares of that
Series until the holders of
Class B Shares of that Series
have also approved the proposed
amendment.
b. If the holders of either the
Class B Shares referred to in
subparagraph a. do not approve
the proposed amendment, the
Trustees of the Trust and the
Distributor shall take such
action as is necessary to ensure
that the Class voting against
the amendment shall convert into
another Class identical in all
material respects to Class A
Shares of the Series as
constituted prior to the
amendment.
2. Shareholders shall have separate voting
rights on any matter submitted to
shareholders in which the interest of one
Class differs from the interests of any
other Class.
J. Dividends. Dividends paid by a Series with respect to
each Class, to the extent any dividends are paid, will
be calculated in the same manner at the same time on
the same day and will be in substantially the same
amount, except any Distribution Fees, Service Fees or
incremental expenses relating to a particular Class
will be borne exclusively by that Class.
K. Reports to Trustees. The Distributor shall provide to
the Trustees of the Trust quarterly and annual
statements concerning distribution and Shareholder
servicing expenditures complying with paragraph
(b)(3)(ii) of Rule 12b-1 of the Act, as it may be
amended from time to time. The Distributors also
shall provide the Trustees such information as the
Trustees may from time to time deem to be reasonably
necessary to evaluate this Plan.
L. Amendment. Any material amendment to this Plan shall
be approved by the affirmative vote of a majority of
the Trustees of the Trust, including the affirmative
vote of the Trustees of the Trust who are not
interested persons of the Trust, except that any
amendment that increases the CDSC rate schedule or CDSC
Period must also be approved by the affirmative vote of
a majority of the Shares of the affected Class. The
Distributor shall provide the Trustees such information
as may be reasonably necessary to evaluate any
amendment to this Plan.
6
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST
<SERIES>
<NUMBER> 1
<NAME> GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 2,344,613,872
<INVESTMENTS-AT-VALUE> 2,610,914,545
<RECEIVABLES> 111,633,298
<ASSETS-OTHER> 125,135
<OTHER-ITEMS-ASSETS> 7,211
<TOTAL-ASSETS> 2,722,680,189
<PAYABLE-FOR-SECURITIES> 107,093,069
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,082,211
<TOTAL-LIABILITIES> 111,175,280
<SENIOR-EQUITY> 1,495,334
<PAID-IN-CAPITAL-COMMON> 1,970,060,661
<SHARES-COMMON-STOCK> 149,533,377
<SHARES-COMMON-PRIOR> 141,740,595
<ACCUMULATED-NII-CURRENT> 20,950,803
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 352,658,120
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 266,339,991
<NET-ASSETS> 2,611,504,909
<DIVIDEND-INCOME> 35,447,186
<INTEREST-INCOME> 12,456,275
<OTHER-INCOME> 0
<EXPENSES-NET> 23,516,745
<NET-INVESTMENT-INCOME> 24,386,716
<REALIZED-GAINS-CURRENT> 358,190,994
<APPREC-INCREASE-CURRENT> 130,227,400
<NET-CHANGE-FROM-OPS> 512,805,110
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,053,177
<DISTRIBUTIONS-OF-GAINS> 147,259,430
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,019,524
<NUMBER-OF-SHARES-REDEEMED> 23,505,333
<SHARES-REINVESTED> 12,278,591
<NET-CHANGE-IN-ASSETS> 441,597,607
<ACCUMULATED-NII-PRIOR> 18,617,264
<ACCUMULATED-GAINS-PRIOR> 141,726,556
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,436,748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,516,745
<AVERAGE-NET-ASSETS> 2,352,136,090
<PER-SHARE-NAV-BEGIN> 15.31
<PER-SHARE-NII> .160
<PER-SHARE-GAIN-APPREC> 3.180
<PER-SHARE-DIVIDEND> .155
<PER-SHARE-DISTRIBUTIONS> 1.035
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.46
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST
<SERIES>
<NUMBER> 2
<NAME> GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 705,220,569
<INVESTMENTS-AT-VALUE> 821,633,016
<RECEIVABLES> 20,402,373
<ASSETS-OTHER> 42,324
<OTHER-ITEMS-ASSETS> 3,034
<TOTAL-ASSETS> 842,080,747
<PAYABLE-FOR-SECURITIES> 12,443,269
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,318,678
<TOTAL-LIABILITIES> 13,761,947
<SENIOR-EQUITY> 488,620
<PAID-IN-CAPITAL-COMMON> 620,858,953
<SHARES-COMMON-STOCK> 48,862,007
<SHARES-COMMON-PRIOR> 45,213,652
<ACCUMULATED-NII-CURRENT> 5,483,984
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 84,630,671
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 116,856,572
<NET-ASSETS> 828,318,800
<DIVIDEND-INCOME> 18,964,829
<INTEREST-INCOME> 5,576,108
<OTHER-INCOME> 0
<EXPENSES-NET> 7,267,676
<NET-INVESTMENT-INCOME> 17,273,261
<REALIZED-GAINS-CURRENT> 84,851,910
<APPREC-INCREASE-CURRENT> 53,004,855
<NET-CHANGE-FROM-OPS> 155,130,026
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,344,183
<DISTRIBUTIONS-OF-GAINS> 71,729,488
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,095,770
<NUMBER-OF-SHARES-REDEEMED> 8,600,756
<SHARES-REINVESTED> 6,153,341
<NET-CHANGE-IN-ASSETS> 115,423,516
<ACCUMULATED-NII-PRIOR> 2,332,648
<ACCUMULATED-GAINS-PRIOR> 71,730,507
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,937,121
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,267,676
<AVERAGE-NET-ASSETS> 759,557,068
<PER-SHARE-NAV-BEGIN> 15.77
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> 2.715
<PER-SHARE-DIVIDEND> .30
<PER-SHARE-DISTRIBUTIONS> 1.595
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.95
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST
<SERIES>
<NUMBER> 3
<NAME> GOVERNMENT PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 374,029,773
<INVESTMENTS-AT-VALUE> 381,760,731
<RECEIVABLES> 51,166,838
<ASSETS-OTHER> 19,041
<OTHER-ITEMS-ASSETS> 2,142
<TOTAL-ASSETS> 432,948,752
<PAYABLE-FOR-SECURITIES> 77,867,031
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,066,766
<TOTAL-LIABILITIES> 103,933,797
<SENIOR-EQUITY> 308,399
<PAID-IN-CAPITAL-COMMON> 352,075,117
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<TABLE> <S> <C>
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<NAME> COMMON SENSE TRUST
<SERIES>
<NUMBER> 4
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST
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<NUMBER> 5
<NAME> MUNICIPAL BOND PORTFOLIO
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
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<NUMBER> 6A
<NAME> GROWTH II-CLASS A
<S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 6B
<NAME> GROWTH II-CLASS B
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 7A
<NAME> GROWTH & INCOME II-CLASS A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 7B
<NAME> GROWTH & INCOME II-CLASS B
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 8A
<NAME> GOVERNMENT II-CLASS A
<S> <C>
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 8B
<NAME> GOVERNMENT II-CLASS B
<S> <C>
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,503,150
<PER-SHARE-NAV-BEGIN> 11.54
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .652
<PER-SHARE-DIVIDEND> .562
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.14
<EXPENSE-RATIO> 3.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 9A
<NAME> GROWTH OPPORTUNITY II-CLASS A
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,386,185
<SHARES-COMMON-PRIOR> 2,216,296
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 541,366
<INTEREST-INCOME> 637,372
<OTHER-INCOME> 0
<EXPENSES-NET> 882,104
<NET-INVESTMENT-INCOME> 296,634
<REALIZED-GAINS-CURRENT> 1,107,296
<APPREC-INCREASE-CURRENT> 6,084,043
<NET-CHANGE-FROM-OPS> 7,487,973
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 329,081
<DISTRIBUTIONS-OF-GAINS> 795,255
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,528,407
<NUMBER-OF-SHARES-REDEEMED> 444,723
<SHARES-REINVESTED> 86,205
<NET-CHANGE-IN-ASSETS> 28,840,771
<ACCUMULATED-NII-PRIOR> 60,329
<ACCUMULATED-GAINS-PRIOR> 51,407
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 370,279
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 882,104
<AVERAGE-NET-ASSETS> 37,471,251
<PER-SHARE-NAV-BEGIN> 12.20
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 1.433
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> .243
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.36
<EXPENSE-RATIO> 2.15<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATION IS ANNUALIZED
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 9B
<NAME> GROWTH OPPORTUNITY II-CLASS B
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,704,119
<SHARES-COMMON-PRIOR> 996,432
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 400,283
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 832,280
<NUMBER-OF-SHARES-REDEEMED> 156,105
<SHARES-REINVESTED> 31,512
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 18,060,879
<PER-SHARE-NAV-BEGIN> 12.17
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 1.423
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .243
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.36
<EXPENSE-RATIO> 2.91<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 10A
<NAME> INTERNATIONAL EQUITY II-CLASS A
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> FEB-21-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 8,690,128
<INVESTMENTS-AT-VALUE> 9,296,743
<RECEIVABLES> 658,006
<ASSETS-OTHER> 28,097
<OTHER-ITEMS-ASSETS> 363,752
<TOTAL-ASSETS> 10,346,598
<PAYABLE-FOR-SECURITIES> 964,183
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,686
<TOTAL-LIABILITIES> 1,024,869
<SENIOR-EQUITY> 6,735
<PAID-IN-CAPITAL-COMMON> 8,709,504
<SHARES-COMMON-STOCK> 474,025
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 605,490
<NET-ASSETS> 9,321,729
<DIVIDEND-INCOME> 51,723
<INTEREST-INCOME> 21,913
<OTHER-INCOME> 0
<EXPENSES-NET> 133,483
<NET-INVESTMENT-INCOME> (59,847)
<REALIZED-GAINS-CURRENT> 13,225
<APPREC-INCREASE-CURRENT> 605,490
<NET-CHANGE-FROM-OPS> 558,868
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 480,871
<NUMBER-OF-SHARES-REDEEMED> 6,846
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,321,529
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,227
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,684
<AVERAGE-NET-ASSETS> 3,690,764
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> (.14)
<PER-SHARE-GAIN-APPREC> 2.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.86
<EXPENSE-RATIO> 3.64<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000810271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 10B
<NAME> INTERNATIONAL EQUITY II-CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> FEB-21-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 199,498
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 202,578
<NUMBER-OF-SHARES-REDEEMED> 3,080
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,006,154
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> (.21)
<PER-SHARE-GAIN-APPREC> 2.19
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.79
<EXPENSE-RATIO> 4.33<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000270271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 11A
<NAME> EMERGING GROWTH II-CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> FEB-21-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 25,806,938
<INVESTMENTS-AT-VALUE> 27,973,703
<RECEIVABLES> 1,539,997
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,229
<TOTAL-ASSETS> 29,518,929
<PAYABLE-FOR-SECURITIES> 2,682,343
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93,013
<TOTAL-LIABILITIES> 2,775,356
<SENIOR-EQUITY> 17,725
<PAID-IN-CAPITAL-COMMON> 24,589,075
<SHARES-COMMON-STOCK> 1,054,794
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (29,992)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,166,765
<NET-ASSETS> 26,743,573
<DIVIDEND-INCOME> 35,352
<INTEREST-INCOME> 44,084
<OTHER-INCOME> 0
<EXPENSES-NET> 222,201
<NET-INVESTMENT-INCOME> (142,765)
<REALIZED-GAINS-CURRENT> (29,992)
<APPREC-INCREASE-CURRENT> 2,166,765
<NET-CHANGE-FROM-OPS> 1,994,008
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,125,630
<NUMBER-OF-SHARES-REDEEMED> 70,836
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,743,373
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,662
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 267,694
<AVERAGE-NET-ASSETS> 6,122,787
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> (.24)
<PER-SHARE-GAIN-APPREC> 3.55
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.12
<EXPENSE-RATIO> 2.75<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000270271
<NAME> COMMON SENSE TRUST II
<SERIES>
<NUMBER> 11B
<NAME> EMERGING GROWTH II-CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> FEB-21-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 717,720
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 732,333
<NUMBER-OF-SHARES-REDEEMED> 14,613
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,654,028
<PER-SHARE-NAV-BEGIN> 11.81
<PER-SHARE-NII> (.35)
<PER-SHARE-GAIN-APPREC> 3.58
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.04
<EXPENSE-RATIO> 3.49<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>EXPENSE RATIO IS ANNUALIZED
</FN>
</TABLE>
