<PAGE>
SHAREHOLDERS' MESSAGE
Don G. Powell
November 26, 1996
Dear Shareholder,
While there were indications of an economic slowdown in the final days of the
12-month reporting period, the economy demonstrated an acceleration in growth
during the second half of the year ended October 31, 1996. Real GDP (the na-
tion's gross domestic product, adjusted for inflation) rose nominally in the
last quarter of 1995--due in part to weak construction activity, two govern-
ment shutdowns, and a strike at Boeing--and increased to 2.0 percent in the
first quarter of 1996. However, the economy grew by a much stronger 4.7 per-
cent in the second quarter, partly reflecting a rebound from the aftermath of
the General Motors strike earlier in the year, an end to the budget stalemate
between the White House and Congress, and extreme weather conditions in many
parts of the country. Upward momentum was driven by consumer spending, as in-
dicated by a 5.0 percent rise in retail sales during the Funds' fiscal year.
Surprisingly healthy economic activity led to concerns that inflation may
rise, which could cause the Federal Reserve Board to tighten monetary policy.
Inflation remains modest, however, with consumer prices rising at about a
3 percent annual rate over the past year. By comparison, the closely watched
"core" Consumer Price Index, which excludes volatile food and energy compo-
nents, has risen year over year at rates between 2.7 and 3.0 percent per year.
In general, recent reports have suggested an upward creep in labor-related
costs. For instance, the Employment Cost Index, which measures wages and sala-
ries, rose only 0.6 percent in the third quarter.
It was not until the closing days of the reporting period that signs of a let-
up in the economy began to take shape. Data released in late October indicated
that GDP growth was much slower than expected, having eased to a 2.2 percent
annual rate in the third quarter. This development sparked a late-October
rally in Treasury bond prices and led to speculation that Federal Reserve
policymakers might be less inclined to tighten (raise) interest rates in the
upcoming months. In turn, blue-chip stocks received a boost, as investors re-
laxed amid visions of a slow-growth, low inflation scenario.
While it is difficult to draw any conclusions from recent economic statistics,
it is clear that the stock and bond markets have reacted with enthusiasm, con-
tinuing the trend of steady strength exhibited over the second six months
of the reporting period. Stocks, as measured by the Dow Jones Industrial Aver-
age, have recorded a number of new highs, and the bond market has been bol-
stered by the continuation of low to moderate rates of consumer spending,
government spending, and inflation.
Continued on page two
1
<PAGE>
ECONOMIC OUTLOOK
The third-quarter slowdown of the economy altered the stock and bond markets'
general bias, shifting attention from excessive growth to the possibility of
further slowing. With the election results maintaining the political status
quo--a Democrat in the White House and Republicans controlling both houses of
Congress--investors are taking comfort in the expectation that Fed policy will
likely be on hold through the end of the year.
Nevertheless, we anticipate that the economy will continue to grow during the
balance of 1996, although at more moderate rates than the second quarter's
swift pace. Our analysis strongly suggests that a rebound in economic growth
could occur in the first half of 1997.
Corporate earnings, which have been an important contributor to recent strength
in the stock market, are expected to remain supportive, but perhaps not the
primary factor in the movement of the stock market averages. Other factors,
from inflation to Federal Reserve policy, may prove more important. And bond
market performance, certainly, will hinge on these factors as well, though we
anticipate that bonds will remain within the trading range established over the
past several months, perhaps with a slightly bullish bias.
While we expect rates of inflation to remain near present levels, the Fed may
begin to lean toward greater restraint in its monetary policy in the coming
months--especially if inflation indicators such as labor costs begin to accel-
erate. This could provide an upward bias for short-term interest rates, and it
suggests that yields on long-term bonds will hold steady near current levels.
For the remainder of 1996, we look for the long Treasury bond to trade between
6.25 percent and 6.75 percent, the 5-year Treasury to range between 5.75 per-
cent and 6.25 percent, and the federal funds rate to remain essentially un-
changed.
COMMON SENSE TRUST FUNDS
The completion of the restructuring of the Common Sense Trust funds on August
9, 1996 provided shareholders with seven investment options within the Common
Sense Family of Funds. Depending upon your specific investment objective, these
products, covering a range of asset categories, may help you achieve your long-
term goals.
On the following pages, you will find performance results for each of the funds
for the 12-month period ended October 31, 1996, along with interviews with the
portfolio management teams.
As always, we appreciate your continued confidence in your investment.
Sincerely,
LOGO
Don G. Powell
President
2
<PAGE>
PORTFOLIO PERSPECTIVE
The following is an interview with the portfolio management team of the Common
Sense Trust stock funds. The team includes: Stephen L. Boyd, Common Sense Growth
Fund; Gary M. Lewis, Common Sense Emerging Growth Fund; James A. Gilligan,
Common Sense Growth and Income Fund; James B. Conheady and Jeffrey Russell,
Common Sense International Equity Fund; and Alan T. Sachtleben, executive vice
president for equity investments.
Q. WHAT FACTORS HAD THE GREATEST IMPACT ON THE PERFORMANCE OF THE STOCK FUNDS
DURING THE 12-MONTH PERIOD ENDED OCTOBER 31, 1996?
A. The Common Sense Trust domestic equity funds benefited from a very healthy
rise in stocks in the fiscal year ended October 31, 1996. The rise in the
first half of the 12-month period was fueled by a strong economy and better-
than-expected earnings. In the second half of the reporting period, the
economy moderated slightly, which caused interest rates to decline and
valuations in the stock market to rise. Three sectors noteworthy for their
performance were technology, energy, and finance.
The technology sector exhibited large swings during the year. While this
volatility affected many investors adversely, it did not significantly impact
the funds because each fund remains broadly diversified, avoiding large and
risky sector bets. For the year, the technology sector as a whole was not a
standout, but certain areas within this sector were clear winners. In
particular, telecommunications and network-related stocks dwarfed the returns
in other industries because of strong revenue growth.
The energy sector was attractive for investors, as the price of gas and oil
appreciated throughout the year. While the rise in commodity prices helped the
earnings of producers, the greatest beneficiaries were the oil service
companies. These companies saw an increase in demand for their services, which
enabled them to utilize previously unproductive assets and dramatically
increase the fees they received for their services.
Financial stocks also stood out for their positive performance during the
year. In particular, large banks benefited from using excess capital in share
buybacks and continuing their cost-cutting efforts in order to increase
earnings. Consumer finance companies also did well, as they took advantage of
increased consumer demand for credit.
Q. WHAT CHANGES DID YOU MAKE TO THE PORTFOLIOS DURING THE REPORTING PERIOD?
A. The Common Sense Growth and Income Fund's weighting in convertible
securities was reduced by approximately 5 percent in order to increase the
equity sensitivity of the portfolio. The assets were redirected to the
technology, energy, and consumer distribution sectors. Within the technology
sector, we increased our exposure to telecommunication equipment manufacturers
in an effort to capitalize on the dramatic growth in wireless communications. In
the energy sector, Texaco's weighting was increased in response to strong oil
and gas prices. The emphasis in consumer distribution was shifted to retail
companies in the process of reducing their expense structure, such as Vons and
Eckerd Corp. In recognition of the value of these businesses, J.C. Penney and
Safeway recently entered into agreements to acquire Eckerd Corp. and Vons,
respectively.
Common Sense Growth and Income Fund
Holdings by Sector
[CHART APPEARS HERE]
Percentage of Long-Term Holdings
10/31/96
<TABLE>
<S> <C>
Finance 15.1%
Health Care 12.0%
Technology 12.6%
Energy 11.5%
Utilities 9.3%
Producer
Manufacturing 7.9%
Consumer
Distribution 6.0%
Consumer
Services 3.9%
Other 21.7%
</TABLE>
3
<PAGE>
The Common Sense Growth Fund experienced three significant changes during the
period:
. Throughout the year, as certain sectors such as energy and technology became
more attractive, we reduced the Fund's overall number of holdings in an
effort to concentrate assets in those sectors we believed to have the
greatest growth potential.
. Because of this concentration, the portfolio adopted a slightly more
aggressive profile. Relative to its normal weighting, the Fund took a
larger position in technology holdings.
. In response to the stock market's record-breaking upward run, we sought to
cushion the Fund from potential volatility. By purchasing long bonds, with
the current holding at approximately 2 percent.
[PIE CHART APPEARS HERE]
Common Sense Growth Fund
Holdings by Sector
Percentage of Long-Term Holdings
10/31/96
Technology 19.4%
Finance 19.1%
Producer Manufacturing 10.1%
Health Care 9.8%
Energy 9.0%
Consumer Distribution 7.8%
Consumer Non-Durables 6.6%
Consumers Services 5.2%
Other 13.0%
During the period, the Common Sense Emerging Growth Fund's investment
strategy remained constant through market and economic fluctuations. The Fund is
managed with a bottom-up approach, which focuses on stock selection rather than
market timing or sector rotation. We seek to control risk by maintaining a
broadly diversified portfolio, and under normal circumstances, remaining fully
invested. Our goal is to outperform the market by picking what we believe are
the best stocks in each sector, with the ultimate goal of delivering consistent
results over time. Stocks are selected based on what we believe is a company's
potential to deliver upside earnings reports. To find such companies, we look
for rising earnings estimates and improving valuations. Investments are made in
the companies which, we believe, have the highest growth potential in each
sector that meet the "buy" criteria. In general, these will be smaller companies
with revenue less than $2 billion. Investments are sold when the company no
longer meets the buy criteria.
We remain optimistic about the long-term prospects of smaller-capitalization
growth stocks. Small stocks in general are still selling at reasonable valuation
levels compared to larger stocks and would benefit strongly from any cut in the
capital gains tax rate. However, the securities of emerging growth companies
may be subject to more erratic market moves than larger companies and often have
limited product lines, markets, or financial resources.
[PIE CHART APPEARS HERE]
Common Sense Emerging Growth Fund
Holdings by Sector
Percentage of Long-Term Holdings
10/31/96
Technology 32.6%
Consumers Services 13.1%
Consumer Distribution 10.9%
Health Care 8.8%
Energy 8.8%
Finance 9.7%
Consumer Non-Durables 7.1%
Producer Manufacturing 4.2%
Other 4.8%
4
<PAGE>
The Common Sense International Equity Fund continues to be diversified both
in terms of industries and countries. About 35 percent of the portfolio is
invested in European stocks, with notable exposures in Great Britain, France,
and Germany. About 20 percent of the portfolio is invested in the Far East, with
4.2 percent invested in Japan and 11.4 percent invested in Hong Kong. Other
significant weightings include 10.6 percent in the Netherlands and 5.2 percent
in Sweden, where we see attractive valuations. The remainder of the portfolio is
in cash. Going forward, with investments in 20 countries, the portfolio is well
positioned to take advantage of potential growth opportunities outside the
United States. Keep in mind that foreign investments involve certain risks, such
as currency fluctuation and economic volatility.
[PIE CHART APPEARS HERE]
Common Sense International Equity Fund
Holdings by Country
Percentage of Long-Term Holdings
10/31/96
United Kingdom 12.7%
Hong Kong 11.4%
Netherlands 10.6%
Italy 8.8%
Malaysia 6.7%
Ireland 5.6%
Germany 5.5%
Sweden 5.2%
Norway 4.6%
Japan 4.2%
Australia 4.0%
Other 20.7%
Q. HOW DID THE FUNDS PERFORM DURING THE 12 MONTHS ENDED OCTOBER 31, 1996?*
A.
Common Sense Growth Fund Class 1 shares achieved a total return at net asset
value of 19.94 percent. Common Sense Growth and Income Fund Class 1 shares
achieved a total return at net asset value of 20.58 percent, including
reinvestment of dividends and capital gains totaling $2.095 per share. In
comparison to these two funds, the Standard & Poor's 500-Stock Index, an
unmanaged index that reflects general stock market performance, achieved a total
return of 24.02 percent, including reinvestment of all distributions.
Common Sense Emerging Growth Fund Class A shares achieved a return at net
asset value of 22.82 percent. During the same period, the S&P 500-Stock Index
achieved a total return at net asset value of 24.02 percent, and the Russell
2000 Index, an unmanaged index that reflects the performance of smaller company
stocks, achieved a total return of 16.60 percent, including reinvestment of all
distributions.
Common Sense International Equity Fund Class A shares achieved a total return
at net asset value of 19.34 percent. By comparison, the Morgan Stanley Capital
International EAFE Index, which reflects the general performance of the major
international stock markets, achieved a total return of 8.75 percent.
Keep in mind that the indices referenced above are unmanaged statistical
composites and do not reflect any commissions or fees that would be paid by an
investor purchasing the securities they represent. For more complete performance
information of each fund, please refer to pages 10 through 12.
*As a result of the Common Sense Trust funds' reorganization, performance is
noted for either Class 1 or Class A shares, depending upon which class of
shares has the longest performance record.
5
<PAGE>
Q. WHAT IS THE OUTLOOK FOR STOCKS?
A.
We are cautiously optimistic for several reasons. The economy appears to be
growing at a sustainable rate without triggering inflationary fears.
Therefore, interest rates should remain steady, and companies are expected to
fulfill their earnings expectations. Stocks typically have performed well in
this type of economic environment.
Regardless of which sectors overperform or underperform, our well-defined
stock selection process should continue to serve the Common Sense funds well.
By remaining fully invested and broadly diversified across a number of
different industries, we will continue to invest in those companies we believe
have the best growth potential.
LOGO
LOGO LOGO
Stephen L. Boyd James A. Gilligan
Alan T. Sachtleben Portfolio Manager Portfolio Manager
Executive Vice President Common Sense Growth Fund Common Sense Growth and
Equity Investments Income Fund
LOGO LOGO LOGO
Gary M. Lewis James B. Conheady Jeffrey Russell
Portfolio Manager Portfolio Co-Manager Portfolio Co-Manager
Common Sense Common Sense Common Sense
Emerging Growth Fund International Equity International Equity
Fund Fund
6
<PAGE>
PORTFOLIO PERSPECTIVE
The following is an interview with the portfolio management team of the
Common Sense Trust fixed-income funds. The team includes: John R.
Reynoldson, Common Sense Government Fund; Timothy D. Haney, Common Sense
Municipal Bond Fund; David R. Troth, Common Sense Money Market Fund, and
Peter W. Hegel, executive vice president for fixed-income investments.
Q. WHAT FACTORS HAD THE GREATEST IMPACT ON THE PERFORMANCE OF THE FIXED-IN-
COME FUNDS DURING THE 12-MONTH PERIOD ENDED OCTOBER 31, 1996?
A.
During the past 12 months, the bond market experienced two distinct
investment environments. First, the bond rally that characterized much of
1995 continued through the fourth quarter. In an effort to spur the lackluster
economy, the Federal Reserve Board lowered its key lending rate twice between
mid-December 1995 and late-January 1996, for a total of one-half percent. This
was positive for the bond market, because when interest rates decline, bond
prices and the net asset value of bond funds usually increase.
Secondly, in early 1996, the positive investment environment that dominated
most of 1995 ended. Instead of anticipating further interest rate reductions,
the bond market grew wary that the Federal Reserve might tighten (raise)
interest rates. This concern was triggered by two main factors:
. The two federal government shutdowns indicated that balanced budget
legislation was not imminent
. Several economic indicators pointed to accelerating economic growth (e.g.
consecutive monthly reports showing significant increases in employment)
These factors led to fears that inflation, which had been holding steady at
around 3 percent, might increase. Fears heightened when agricultural commodity
and oil prices rose to their highest levels in two years. Such factors
prompted the Fed to shift its policy from an accommodative mode (lowering
interest rates) in January to a stable, or neutral, mode in February. This
neutral mode was maintained through the remainder of the reporting period.
Predicting no further interest rate reductions, the bond market reacted
negatively and bond prices began to decline.
Since May of this year, 10-year Treasury note yields fluctuated between 6.3
percent and 6.9 percent. The investment environment progressively became more
constructive towards the end of the reporting period, as fundamentals favored
the bond market: economic growth slowed from second quarter peaks, inflation
stayed well under control, and the dollar continued to exhibit stability.
Q. WHAT CHANGES DID YOU MAKE TO THE PORTFOLIOS DURING THE REPORTING PERIOD?
A.
The Common Sense Government Fund took advantage of the positive bond
market environment from November 1995 through January 1996 by maintaining
the Fund's average maturity and duration at slightly higher-than-average
levels. Duration is a measure of a bond's sensitivity to changes in interest
rates--the longer the duration, the greater the effect of changes in interest
rate movements on net asset value. In the falling interest rate environment
the Fund experienced during this time, the extended duration allowed the Fund
to capture capital gain opportunities offered by falling yields, because the
value of the Fund's securities increased.
Mortgage-backed securities generally outperformed Treasuries in the
beginning of 1996. These securities came into the period attractively priced,
reflecting concern about heightened homeowner refinancing activity. Higher
interest rates removed that concern and mortgage-backed securities began to
outperform. To take advantage of this, the Fund's portfolio was adjusted
accordingly.
7
<PAGE>
In mid-March, we began purchasing GNMA securities with 8.5 percent and 9
percent coupons that were first issued in 1986 and 1987. These securities made
the portfolio more defensive, because older mortgage-backed securities
typically have more stable prepayment characteristics and tend to perform well
in a declining market environment. We also purchased lower coupon 6.5 percent
and 7 percent mortgage securities for the Government Fund. These were acquired
because they had become less expensive relative to comparable Treasury issues.
For the last six months, the duration of the portfolio has been set at neutral
levels.
The Common Sense Municipal Bond Fund seeks to provide both an attractive tax-
exempt yield consistent with preservation of capital. As of October 31, 1996,
the Fund emphasized holdings that were investment-grade bonds (rated BBB or
higher), with approximately 74 percent rated single-A or higher, and
approximately 10 percent of the Fund was invested in non-rated securities and
those rated below investment-grade. The values of higher-rated securities are
more responsive to changes in interest rates, but these securities incur less
credit risk. In contrast, the values of non-rated and lower-rated securities are
less dependent on interest rates and more dependent on credit quality
considerations. By utilizing both kinds of issues, we are able to position the
Fund defensively against bond price fluctuation.
As the bond market began to decline later in the first quarter of 1996, the
Common Sense Municipal Bond Fund's duration was shortened slightly in an attempt
to make the Fund less sensitive to rising interest rates. The Fund maintained
this mildly defensive posture through the fiscal year end.
We continue to focus on securities in the 15- to 20-year maturity range. We
believe this range offers the best relative value at this time providing
virtually the same yield, but with less price volatility than is usually
associated with long-term maturities.
The Common Sense Money Market Fund has maintained a concentration on high-
quality money market instruments. As such, it is well-positioned to weather any
anticipated economic slow-down and uncertain interest rate environment.
[PIE CHART APPEARS HERE]
Common Sense Municipal Bond Fund
Quality Ratings
Percentage of Long-term Holdings
10/31/96
AAA 57.4%
AA 6.0%
A 11.0%
BBB 15.3%
BB 1.3%
Non-Rated 9.0%
Q. HOW DID THE FUNDS PERFORM DURING THE 12 MONTHS ENDED OCTOBER 31, 1996?*
A. Common Sense Government Fund Class 1 shares achieved a total return at net
asset value of 4.58 percent, including reinvestment of dividends totaling $0.718
per share. By comparison, the Lehman Brothers General U.S. Government Index
achieved a total return of 5.76 percent.
Common Sense Municipal Bond Fund Class 1 shares achieved a total return at
net asset value of 6.09 percent, including reinvestment of dividends and capital
gains totaling $0.756 per share. By comparison, the Lehman Brothers Municipal
Bond Index achieved a total return of 5.70 percent.
Keep in mind that the indices referenced above are unmanaged statistical
composites used as benchmarks for many government and municipal funds. They do
not reflect any commissions or fees that would be paid by an investor
purchasing the securities they represent.
The Common Sense Money Market Fund Class 1 shares achieved a total return at
net asset value of 4.57 percent. For more complete performance information on
each fund, please refer to pages 10 through 12.
*As a result of the Common Sense Trust Fund's reorganization, performance is
noted for either Class 1 or Class A shares, depending upon which class of
shares has the longest performance record.
8
<PAGE>
Q. WHAT IS THE OUTLOOK FOR THE BOND MARKET?
A.
The bond market should remain stable over the next few months if the
current market fundamentals--especially low inflation--remain in place. We
do not anticipate any significant changes in the management of the Common
Sense fixed-income funds, as long as the following hold true:
. INFLATION: For some time now, inflation has been holding at a low 2 to 3
percent range, but there is some concern that it might creep upward,
which could have a negative effect on the market.
. INTEREST RATES: We anticipate the Fed will remain in a neutral policy
mode for the foreseeable future. However, our fixed-income funds are
structured defensively in the event that interest rates increase.
Additionally, the bond market should find continued support from the
results of the recent national elections. With a Democratic president and a
Republican Congress, there should be checks on potential spending increases
and tax cuts so that the budget deficit does not balloon out of control. This
split government should also minimize the likelihood of major tax reform,
which could threaten the tax-exempt status of municipal bonds.
In any event, we will closely monitor any new developments in Washington
and in the financial marketplace in order to evaluate the potential impact on
fixed-income funds. We believe that, in the coming year, the bond market will
continue to be an attractive investment choice for investors seeking high
current income.
LOGO
LOGO
Peter W. Hegel John R. Reynoldson
Executive Vice President Portfolio Manager
Fixed Income Investments Common Sense Government Fund
LOGO LOGO
Timothy D. Haney David R. Troth
Portfolio Manager Portfolio Manager
Common Sense Municipal Bond Fund Common Sense Money Market Fund
9
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996
COMMON SENSE TRUST
<TABLE>
<CAPTION>
1 SHARES A SHARES B SHARES
COMMON SENSE EMERGING GROWTH FUND
<S> <C> <C> <C>
One-year total returns:
Average annual at net asset value................... N/A 22.82% 21.94%
Average annual with maximum 8.50% sales charge...... N/A 16.06% 16.94%
Inception total returns:*
Cumulative at net asset value**..................... 3.91% 57.24% 55.29%
Average annual at net asset value................... N/A 30.71% 29.75%
Average annual with maximum 8.50% sales charge...... N/A 26.39% 27.76%
*Class 1 shares inception of August 8, 1996, Class A and Class B inception of
February 21, 1995.
**The cumulative total return with maximum 8.50% sales charge for Class 1 shares
is (4.91%).
COMMON SENSE GOVERNMENT FUND
One-year total returns:
Average annual at net asset value................... 4.58% 3.01% 2.16%
Average annual with maximum 6.75% sales charge...... (2.46%) (1.91%) (1.74%)
Five-year total returns:
Cumulative at net asset value....................... 36.55% N/A N/A
Average annual at net asset value................... 6.43% N/A N/A
Average annual with maximum 6.75% sales charge...... 4.95% N/A N/A
Inception total returns:*
Cumulative at net asset value....................... 100.23% 12.81% 10.73%
Average annual at net asset value................... 7.54% 4.94% 4.16%
Average annual with maximum 6.75% sales charge...... 6.76% 2.90% 3.03%
*Class 1 shares inception of April 14, 1987, Class A and Class B inception of
May 3, 1994.
COMMON SENSE GROWTH FUND
One-year total returns:
Average annual at net asset value................... 19.94% 18.09% 17.56%
Average annual with maximum 8.50% sales charge...... 9.76% 11.57% 12.56%
Five-year total returns:
Cumulative at net asset value....................... 90.45% N/A N/A
Average annual at net asset value................... 13.75% N/A N/A
Average annual with maximum 8.50% sales charge...... 11.75% N/A N/A
Inception total returns:*
Cumulative at net asset value....................... 185.20% 45.69% 43.44%
Average annual at net asset value................... 11.60% 16.25% 15.52%
Average annual with maximum 8.50% sales charge...... 10.57% 13.65% 14.55%
</TABLE>
*Class 1 shares inception of April 14, 1987, Class A and Class B inception of
May 3, 1994.
10
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996 (CONTINUED)
COMMON SENSE TRUST
<TABLE>
<CAPTION>
1 SHARES A SHARES B SHARES
COMMON SENSE GROWTH AND INCOME
FUND
<S> <C> <C> <C>
One-year total returns:
Average annual at net asset value................... 20.58% 20.09% 19.22%
Average annual with maximum 8.50% sales charge...... 10.35% 13.51% 14.22%
Five-year total returns:
Cumulative at net asset value....................... 87.75% N/A N/A
Average annual at net asset value................... 13.43% N/A N/A
Average annual with maximum 8.50% sales charge...... 11.42% N/A N/A
Inception total returns:*
Cumulative at net asset value....................... 168.70% 43.74% 41.13%
Average annual at net asset value................... 10.90% 15.62% 14.78%
Average annual with maximum 8.50% sales charge...... 9.88% 13.02% 13.79%
*Class 1 shares inception of April 14, 1987, Class A and Class B inception of
May 3, 1994.
COMMON SENSE INTERNATIONAL EQUITY FUND
One-year total returns:
Average annual at net asset value................... N/A 19.34% 18.64%
Average annual with maximum 8.50% sales charge...... N/A 12.75% 13.64%
Inception total returns:*
Cumulative at net asset value**..................... 3.25% 38.68% 37.16%
Average annual at net asset value................... N/A 22.21% 21.39%
Average annual with maximum 8.50% sales charge...... N/A 18.06% 19.21%
*Class 1 shares inception of August 8, 1996, Class A and Class B inception of
March 17, 1995 (date the Fund's investment strategy was implemented).
**The cumulative total return with maximum 8.50% sales charge for Class 1
shares is (5.55%).
COMMON SENSE MONEY MARKET FUND
One-year total returns:
Average annual at net asset value................... 4.57% N/A N/A
Five-year total returns:
Cumulative at net asset value....................... 19.43% N/A N/A
Average annual at net asset value................... 3.62% N/A N/A
Inception total returns:*
Cumulative at net asset value....................... 56.32% 1.00% 0.73%
Average annual at net asset value................... 5.16% N/A N/A
</TABLE>
*Class 1 shares inception of December 15, 1987, Class A and Class B inception
of August 8, 1996.
An investment in the Common Sense Money Market Fund is neither insured nor
guaranteed by the U.S. government, and there can be no assurance that the Fund
will be able to maintain a stable net asset value of $1.00 per share. There is
a one-time $15 set-up fee for the Money Market Fund.
11
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996 (CONTINUED)
COMMON SENSE TRUST
<TABLE>
<CAPTION>
1 SHARES A SHARES B SHARES
COMMON SENSE MUNICIPAL BOND FUND
<S> <C> <C> <C>
One-year total returns:
Average annual at net asset value................... 6.09% N/A N/A
Average annual with maximum 4.75% sales charge...... 1.02% N/A N/A
Five-year total returns:
Cumulative at net asset value....................... 41.51% N/A N/A
Average annual at net asset value................... 7.19% N/A N/A
Average annual with maximum 4.75% sales charge...... 6.15% N/A N/A
Inception total returns:*
Cumulative at net asset value**..................... 85.42% 1.12% 0.93%
Average annual at net asset value................... 7.72% N/A N/A
Average annual with maximum 4.75% sales charge...... 7.10% N/A N/A
</TABLE>
*Class 1 shares inception of July 13, 1988, Class A and Class B inception of
August 8, 1996.
**The cumulative total return with maximum sales charge of 4.50% for Class A
shares and maximum contingent deferred sales charge of 4.00% for Class B
shares are (3.43%) and (3.08%), respectively.
N/A = Not Applicable
Performance data quoted represents past performance, which is not indicative
of future performance. The investment return and principal value may fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original value.
Maximum sales charges range from 4.50% to 8.50%.
12
<PAGE>
EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK AND EQUIVALENT 91.7%
CONSUMER DISTRIBUTION 10.0%
Bed, Bath & Beyond, Inc. (b)................................ 16,000 $ 404,000
Borders Group, Inc. (b)..................................... 6,000 189,000
CDW Computer Centers, Inc. (b).............................. 6,500 409,094
Central Garden & Pet Co. (b)................................ 8,500 200,813
Claires Stores, Inc......................................... 17,000 289,000
CompUSA, Inc. (b)........................................... 9,000 416,250
Consolidated Stores Corp. (b)............................... 10,500 405,545
Corporate Express, Inc. (b)................................. 10,000 326,250
Danka Business Systems PLC--ADR (UK)........................ 5,500 217,938
Dollar General Corp......................................... 6,500 180,375
Eagle Hardware & Garden (b)................................. 10,500 300,563
Eckerd Corp. (b)............................................ 3,000 83,250
Finish Line, Class A (b).................................... 4,500 191,250
Gadzooks, Inc. (b).......................................... 7,000 203,000
Gucci Group NV--NY (Netherlands)............................ 4,500 310,500
Inacom Corp. (b)............................................ 6,500 205,563
Just For Feet, Inc. (b)..................................... 8,250 213,469
Kroger Co. (b).............................................. 7,500 334,688
Petco Animal Supplies (b)................................... 7,000 164,500
Richfood Holdings, Inc...................................... 8,000 193,000
Ross Stores, Inc............................................ 7,500 311,250
Safeway, Inc. (b)........................................... 16,500 707,438
Saks Holdings, Inc. (b)..................................... 12,000 420,000
Sports Authority, Inc. (b).................................. 5,500 133,375
Staples, Inc. (b)........................................... 10,500 195,563
Stein Mart, Inc. (b)........................................ 7,500 134,063
Tiffany & Co................................................ 10,000 370,000
TJX Cos., Inc............................................... 5,500 220,000
U S Office Products Co. (b)................................. 8,500 246,500
Vons Cos., Inc. (b)......................................... 13,000 719,875
Wet Seal, Inc., Class A (b)................................. 7,500 236,250
Zale Corp. (b).............................................. 10,000 193,750
-----------
9,126,112
-----------
CONSUMER DURABLES 0.5%
Ethan Allen Interiors....................................... 3,000 107,250
Gentex Corp. (b)............................................ 2,000 47,500
Oakwood Homes Corp.......................................... 4,500 119,250
Sturm Ruger & Co., Inc...................................... 8,000 150,000
-----------
424,000
-----------
CONSUMER NON-DURABLES 6.5%
Blyth Industries, Inc. (b).................................. 3,000 116,625
Coca-Cola Enterprises, Inc.................................. 7,500 319,688
Fila Holdings SPA--ADR (Italy).............................. 12,000 864,000
Interstate Bakeries Co...................................... 7,000 296,625
Liz Claiborne, Inc.......................................... 8,000 338,000
Nautica Enterprises, Inc. (b)............................... 17,000 522,750
Nike, Inc., Class B......................................... 30,000 1,766,250
Revlon, Inc., Class A (b)................................... 2,000 73,000
St. John Knits, Inc......................................... 9,000 411,750
</TABLE>
See Notes to Financial Statements
13
<PAGE>
EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
Tommy Hilfiger, Corp. (b)................................... 13,000 $ 676,000
U S A Detergents, Inc. (b).................................. 6,500 214,500
Wolverine World Wide, Inc................................... 12,000 297,000
-----------
5,896,188
-----------
CONSUMER SERVICES 12.0%
ABR Information Services, Inc. (b).......................... 3,500 242,375
Accustaff, Inc. (b)......................................... 18,000 481,500
Anchor Gaming (b)........................................... 4,500 225,000
APAC Teleservices, Inc. (b)................................. 12,000 553,500
Apollo Group, Inc., Class A (b)............................. 8,500 233,750
Billing Information Concepts (b)............................ 7,000 182,875
Boston Chicken, Inc. (b).................................... 4,500 163,688
Career Horizons, Inc. (b)................................... 5,500 223,438
Caribiner International, Inc. (b)........................... 1,000 45,500
CKE Restaurants, Inc........................................ 2,000 59,500
Corestaff, Inc. (b)......................................... 14,000 357,000
Corrections Corp. of America (b)............................ 25,600 665,600
Dave & Buster's, Inc. (b)................................... 4,000 82,000
Doubletree Corp. (b)........................................ 11,500 466,469
Evergreen Media Corp., Class A (b).......................... 20,000 540,000
Gartner Group, Inc. (b)..................................... 11,500 353,625
Ha-Lo Industries, Inc. (b).................................. 5,500 170,500
HFS, Inc. (b)............................................... 17,000 1,245,250
Imperial Credit Industries (b).............................. 16,000 290,000
Infinity Broadcasting Corp. (b)............................. 5,000 145,000
International Game Technologies............................. 10,000 211,250
Interpublic Group Cos., Inc................................. 5,500 266,750
Jacor Communications, Class A (b)........................... 4,000 112,000
Landrys Seafood Restaurants (b)............................. 4,000 82,000
Meredith Corp............................................... 9,500 477,375
MGM Grand, Inc. (b)......................................... 3,000 116,250
Mirage Resorts, Inc. (b).................................... 7,000 154,000
National Data Corp.......................................... 8,500 349,563
Omnicom Group............................................... 5,500 273,625
Penske Motorsports, Inc. (b)................................ 4,000 137,000
Planet Hollywood International, Inc., Class A (b)........... 5,000 103,750
Prime Hospitality Corp. (b)................................. 6,000 91,500
Promus Hotel Corp. (b)...................................... 7,000 222,250
Rainforest Cafe, Inc. (b)................................... 7,600 247,000
Regal Cinemas, Inc. (b)..................................... 10,000 260,000
Reynolds & Reynolds Co...................................... 13,000 342,875
Robert Half International, Inc. (b)......................... 4,000 160,500
Sitel Corp. (b)............................................. 16,000 316,000
Sodak Gaming, Inc. (b)...................................... 15,000 271,875
Whittman Hart, Inc. (b)..................................... 1,000 47,500
-----------
10,969,633
-----------
ENERGY 8.1%
Baker Hughes, Inc........................................... 4,500 160,313
Barrett Resources Corp. (b)................................. 3,000 115,125
Benton Oil & Gas Co. (b).................................... 5,000 122,500
</TABLE>
See Notes to Financial Statements
14
<PAGE>
EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY (CONTINUED)
BJ Services Co. (b)......................................... 3,500 $ 157,063
BJ Services Co. Warrants (exp. 04/13/20).................... 60 1,268
Camco International, Inc.................................... 5,000 193,750
Chesapeake Energy Corp. (b)................................. 15,000 873,750
Cliffs Drilling Co. (b)..................................... 1,900 81,463
Comstock Resources, Inc. (b)................................ 12,000 154,500
Cooper Cameron Corp. (b).................................... 7,000 447,125
Diamond Offshore Drilling (b)............................... 7,000 426,125
Ensco International, Inc. (b)............................... 4,500 194,625
Flores & Rucks Inc. (b)..................................... 5,500 259,875
Forcenergy Gas Exploration (b).............................. 7,000 191,625
Global Marine, Inc. (b)..................................... 18,000 330,750
Input/Output, Inc. (b)...................................... 5,500 163,625
Marine Drilling Co., Inc. (b)............................... 10,500 145,688
Noble Drilling Corp. (b).................................... 10,000 186,250
Pogo Producing Co........................................... 11,000 488,125
Reading & Bates Corp. (b)................................... 12,000 345,000
Rowan Cos., Inc. (b)........................................ 23,000 514,625
Smith International, Inc. (b)............................... 13,000 494,000
Tidewater, Inc.............................................. 7,000 306,250
Transocean Offshore, Inc.................................... 11,000 695,750
United Meridian Corp. (b)................................... 7,500 353,438
-----------
7,402,608
-----------
FINANCE 8.9%
Aames Financial Corp........................................ 9,000 401,625
American Travellers Corp. (b)............................... 12,000 412,500
Amresco, Inc. (b)........................................... 17,000 359,125
Bank of Boston Corp......................................... 9,000 576,000
CMAC Investment Corp........................................ 6,500 449,313
Contifinancial Corp. (b).................................... 3,000 97,500
Cullen Frost Bankers, Inc................................... 5,000 150,313
Finova Group, Inc........................................... 10,000 617,500
First Bank System, Inc...................................... 4,000 264,000
Firstar Corp................................................ 8,000 392,000
Green Tree Financial Corp................................... 12,000 475,500
Household International, Inc................................ 5,500 486,750
Money Store, Inc............................................ 10,000 257,500
North Fork Bancorporation................................... 5,000 158,125
Peoples Heritage Financial.................................. 6,000 138,000
RAC Financial Group, Inc. (b)............................... 10,000 600,000
Southern Pacific Funding Corp. (b).......................... 10,000 315,000
Star Banc Corp.............................................. 3,000 270,000
Student Loan Marketing Assn................................. 5,500 455,125
TCF Financial Corp.......................................... 10,000 387,500
TIG Holdings, Inc........................................... 4,000 115,500
Washington Mutual, Inc...................................... 18,000 760,500
-----------
8,139,376
-----------
</TABLE>
See Notes to Financial Statements
15
<PAGE>
EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE 8.0%
Clintrials Research, Inc. (b)............................... 900 $ 33,413
CRA Managed Care, Inc....................................... 3,100 157,325
Curative Health Services, Inc. (b).......................... 3,000 68,250
Dura Pharmaceuticals, Inc. (b).............................. 22,000 759,000
ESC Medical Systems, Ltd. (b)............................... 4,000 110,500
HBO & Co.................................................... 20,000 1,202,500
Health Management Assoc., Inc., Class A (b)................. 18,000 396,000
Healthsouth Rehabilitation (b).............................. 18,500 693,750
Henry Schein, Inc. (b)...................................... 3,500 139,125
Hologic, Inc. (b)........................................... 6,500 147,875
Jones Medical Industries, Inc............................... 8,500 369,750
Medicis Pharmaceutical, Class A (b)......................... 7,000 351,750
Mentor Corp................................................. 9,000 199,125
Minimed, Inc. (b)........................................... 7,000 183,750
Omnicare, Inc............................................... 25,000 681,250
Orthodontic Centers of America (b).......................... 4,000 57,500
Parexel International Corp. (b)............................. 3,500 171,500
Physician Sales & Services, Inc. (b)........................ 7,500 159,375
Quintiles Transnational (b)................................. 5,500 361,625
Renal Treatment Centers, Inc. (b)........................... 11,000 294,250
Rexall Sundown, Inc. (b).................................... 7,000 189,875
Tenet Healthcare Corp. (b).................................. 5,000 104,375
Total Renal Care Holdings (b)............................... 6,000 234,000
Universal Health Services, Inc., Class B (b)................ 6,000 150,000
Veterinary Centers of America (b)........................... 6,000 110,250
-----------
7,326,113
-----------
PRODUCER MANUFACTURING 3.9%
American Power Conversion Corp. (b)......................... 5,000 106,875
BMC Industries, Inc.--MN.................................... 5,500 162,938
Danaher Corp................................................ 7,500 306,563
Foster Wheeler Corp......................................... 4,500 184,500
Hughes Supply, Inc.......................................... 2,000 76,000
Mastec, Inc. (b)............................................ 2,500 121,563
Mueller Industries, Inc. (b)................................ 3,500 140,875
Precision Castparts Co...................................... 6,500 303,875
Shaw Group, Inc. (b)........................................ 4,000 98,500
Thermedics, Inc. (b)........................................ 5,500 114,125
Thermo Instruments Systems, Inc. (b)........................ 2,000 60,500
U S Filter Corp. (b)........................................ 15,000 517,500
United Waste Systems, Inc. (b).............................. 16,500 567,188
U S A Waste Services, Inc. (b).............................. 20,500 656,000
Wyman-Gordan Co. (b)........................................ 4,500 99,000
-----------
3,516,002
-----------
RAW MATERIALS/PRODUCER INDUSTRIES 1.9%
BF Goodrich Co.............................................. 9,000 381,375
Cytec Industries, Inc. (b).................................. 4,000 143,000
Pentair, Inc................................................ 5,000 126,250
Praxair, Inc................................................ 9,000 398,250
Raychem Corp................................................ 6,000 468,750
Sealed Air Corp. (b)........................................ 3,500 136,063
Titanium Metals Corp. (b)................................... 3,000 92,250
-----------
1,745,938
-----------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 29.9%
Acxiom Corp. (b)............................................ 8,000 $ 314,000
ADC Telecommunications, Inc. (b)............................ 9,500 649,563
Ascend Communications, Inc. (b)............................. 23,000 1,503,625
Aspect Telecommunications Corp. (b)......................... 10,000 595,000
Aspen Technology, Inc. (b).................................. 4,500 302,625
BDM International, Inc. (b)................................. 2,000 100,500
BMC Software, Inc. (b)...................................... 10,500 871,500
Cadence Design Systems, Inc. (b)............................ 18,000 657,000
Cambridge Tech Partners, Inc. (b)........................... 11,000 363,000
Cascade Communications (b).................................. 14,000 1,016,750
CBT Group Ltd. SA--ADR (Ireland) (b)........................ 600 33,000
Ciber, Inc. (b)............................................. 5,500 195,250
Cisco Systems, Inc. (b)..................................... 18,000 1,113,750
Citrix Systems, Inc. (b).................................... 8,000 442,000
Clarify, Inc. (b)........................................... 3,000 144,750
Cognos, Inc. (b)............................................ 4,000 125,500
Computer Assoc. International, Inc.......................... 6,500 384,313
Compuware Corp. (b)......................................... 7,500 395,625
Comverse Technology, Inc. (b)............................... 7,500 262,500
Concord EFS, Inc. (b)....................................... 7,000 203,000
Dell Computer Corp. (b)..................................... 13,000 1,057,875
DSP Communications, Inc. (b)................................ 10,500 399,000
Dynatech Corp. (b).......................................... 10,000 494,375
Encad, Inc. (b)............................................. 5,500 225,500
GT Interactive Software Corp. (b)........................... 5,000 95,625
Inso Corp. (b).............................................. 4,500 221,625
Integrated Systems, Inc. (b)................................ 5,500 148,500
Intel Corp.................................................. 4,500 494,438
Legato Systems, Inc. (b).................................... 9,000 319,500
Lucent Technologies, Inc.................................... 5,500 258,500
McAfee Assoc., Inc. (b)..................................... 36,500 1,660,750
Medic Computer Systems, Inc. (b)............................ 5,000 141,250
National Techteam, Inc. (b)................................. 2,000 54,000
Network General Corp. (b)................................... 5,500 132,688
Newbridge Networks Corp. (b)................................ 10,500 332,063
Oracle Systems Corp. (b).................................... 20,000 846,250
Pairgain Technologies, Inc. (b)............................. 24,000 1,653,000
Parametric Technology Corp. (b)............................. 15,000 733,125
Paychex, Inc................................................ 9,500 541,500
Peoplesoft, Inc. (b)........................................ 15,500 1,391,125
Picturetel Corp. (b)........................................ 8,000 216,000
Rational Software Corp. (b)................................. 5,000 191,875
Saville Systems PLC--ADR (Ireland), Class A (b)............. 1,800 77,625
SCI Systems, Inc. (b)....................................... 7,500 373,125
Security Dynamics Technologies, Inc. (b).................... 6,500 528,125
Sun Microsystems, Inc. (b).................................. 7,000 427,000
Sunguard Data Systems, Inc. (b)............................. 12,000 513,000
Sykes Enterprises, Inc. (b)................................. 2,000 93,000
Systemsoft Corp. (b)........................................ 7,000 197,750
</TABLE>
See Notes to Financial Statements
17
<PAGE>
EMERGING GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Technology Solutions Co. (b)............................... 5,500 $ 213,813
Tellabs, Inc. (b).......................................... 7,500 638,438
U S Robotics Corp. (b)..................................... 12,000 754,500
Ultrak, Inc. (b)........................................... 6,500 171,438
Uniphase Corp. (b)......................................... 3,500 168,875
Vanstar Corp. (b).......................................... 11,000 261,250
Vantive Corp. (b).......................................... 7,000 231,000
Viasoft, Inc. (b).......................................... 13,000 640,250
Visio Corp. (b)............................................ 3,000 138,375
Vitesse Semiconductor (b).................................. 8,000 255,000
Wind River Systems, Inc. (b)............................... 7,000 297,500
-----------
27,261,879
-----------
TRANSPORTATION 0.4%
Comair Holdings, Inc....................................... 6,000 120,750
Continental Airlines, Inc., Class B (b).................... 10,000 251,250
-----------
372,000
-----------
UTILITIES 1.6%
ACC Corp. (b).............................................. 10,500 446,250
AES Corp. (b).............................................. 5,000 219,375
Cincinnati Bell, Inc....................................... 8,000 395,000
LCI International, Inc. (b)................................ 13,000 414,375
-----------
1,475,000
-----------
TOTAL LONG-TERM INVESTMENTS 91.7%
(Cost $66,343,908) (a)........................................... 83,654,849
REPURCHASE AGREEMENT 6.6%
BankAmerica Securities, Inc. ($6,070,000 par collateralized by
U.S. Government Obligations in a pooled cash account, dated
10/31/96, to be sold on 11/01/96 at $6,070,944).................. 6,070,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%........................ 1,551,787
-----------
NET ASSETS 100.0%................................................. $91,276,636
-----------
</TABLE>
(a) At October 31, 1996, for federal income tax purposes, cost of long-term
investments is $66,446,079; the aggregate gross unrealized appreciation is
$19,026,851, and the aggregate gross unrealized depreciation is
$1,818,081, resulting in net unrealized appreciation of $17,208,770.
(b) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements
18
<PAGE>
EMERGING GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $66,343,908) (Note 1).......... $83,654,849
Repurchase Agreement (Note 1)..................................... 6,070,000
Cash.............................................................. 3,552
Receivables:
Fund Shares Sold................................................. 1,814,415
Securities Sold.................................................. 771,034
Dividends........................................................ 20,444
Other............................................................ 52,835
Unamortized Organizational Expenses (Note 1)...................... 13,910
Other............................................................. 4,015
-----------
Total Assets..................................................... 92,405,054
-----------
LIABILITIES:
Payables:
Securities Purchased............................................. 808,033
Distributor and Affiliates (Note 2).............................. 115,515
Investment Advisory Fee (Note 2)................................. 48,762
Fund Shares Repurchased.......................................... 32,076
Other............................................................ 24,573
Accrued Expenses.................................................. 98,201
Retirement Plan (Note 2).......................................... 1,258
-----------
Total Liabilities................................................ 1,128,418
-----------
NET ASSETS........................................................ $91,276,636
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $77,755,730
Net Unrealized Appreciation on Securities......................... 17,310,941
Accumulated Net Investment Loss................................... (1,258)
Accumulated Net Realized Loss on Securities....................... (3,788,777)
-----------
NET ASSETS........................................................ $91,276,636
-----------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value and redemption price per share (Based on net
assets of $708,473 and 38,105 shares of beneficial interest
issued and outstanding) (Note 3)................................. $ 18.59
Maximum sales charge (8.50%* of offering price).................. 1.73
-----------
Maximum offering price to public................................. $ 20.32
-----------
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $51,483,826 and 2,771,815 shares of beneficial interest
issued and outstanding) (Note 3)................................. $ 18.57
Maximum sales charge (5.50%* of offering price).................. 1.08
-----------
Maximum offering price to public................................. $ 19.65
-----------
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $39,084,337 and 2,131,160 shares of beneficial interest issued
and outstanding) (Note 3)........................................ $ 18.34
-----------
</TABLE>
*On sales of $10,000 or more for Class 1 shares and $50,000 or more for Class A
shares, the sales charge will be reduced.
See Notes to Financial Statements
19
<PAGE>
EMERGING GROWTH FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 205,313
Dividends......................................................... 197,215
-----------
Total Income..................................................... 402,528
-----------
EXPENSES:
Shareholder Services (Note 2)..................................... 476,088
Investment Advisory Fee (Note 2).................................. 376,436
Distribution (12b-1) and Service Fees (Attributed to Classes A and
B of $81,313 and $253,350, respectively) (Note 6)................. 334,663
Registration and Filing Fees...................................... 116,570
Accounting (Note 2)............................................... 79,620
Trustees Fees and Expenses (Note 2)............................... 16,286
Amortization of Organizational Expenses (Note 1).................. 4,191
Other ............................................................ 67,411
-----------
Total Expenses................................................... 1,471,265
-----------
NET INVESTMENT LOSS............................................... $(1,068,737)
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Loss on Investments.................................. $(3,758,785)
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.......................................... 2,166,765
End of the Period:
Investments...................................................... 17,310,941
-----------
Net Unrealized Appreciation on Securities During the Period....... 15,144,176
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... $11,385,391
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $10,316,654
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1996 and the Period February 21, 1995
(Commencement of Investment Operations) to October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From
February 21, 1995
(Commencement of
Investment
Year Ended Operations) to
October 31, 1996 October 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss....................... $ (1,068,737) $ (142,765)
Net Realized Loss on Securities........... (3,758,785) (29,992)
Net Unrealized Appreciation
on Securities During the Period.......... 15,144,176 2,166,765
------------ -----------
Change in Net Assets from Operations...... 10,316,654 1,994,008
------------ -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................. 62,308,648 26,003,007
Cost of Shares Repurchased................ (8,092,239) (1,253,642)
------------ -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.............................. 54,216,409 24,749,365
------------ -----------
TOTAL INCREASE IN NET ASSETS.............. 64,533,063 26,743,373
NET ASSETS:
Beginning of the Period................... 26,743,573 200
------------ -----------
End of the Period (Including undistributed
net loss of
$1,258 and $0, respectively)............. $ 91,276,636 $26,743,573
------------ -----------
</TABLE>
See Notes to Financial Statements
20
<PAGE>
EMERGING GROWTH FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 8, 1996
(Commencement
of Distribution) to
Class 1 Shares October 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period.................. $17.890
-------
Net Investment Loss...................................... (.015)
Net Realized and Unrealized Gain on Securities........... .718
-------
Total from Investment Operations.......................... .703
-------
Net Asset Value, End of the Period........................ $18.593
-------
Total Return (a).......................................... 3.91%*
Net Assets at End of the Period (In millions)............. $0.7
Ratio of Expenses to Average Net Assets................... 1.74%
Ratio of Net Investment Loss to Average Net Assets........ (1.09%)
Portfolio Turnover........................................ 80%
Average Commission Paid for Equity Share Traded (b)....... $.0498
</TABLE>
*Non-Annualized
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commissions paid on equity transactions
entered into during the period for trades where commissions were
applicable.
See Notes to Financial Statements
21
<PAGE>
EMERGING GROWTH FUND FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 21, 1995
(Commencement of
Investment
Year Ended Operations) to
Class A Shares October 31, 1996 October 31, 1995(a)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period................................ $15.12 $11.81
------- -------
Net Investment Loss.................. (.178) (.24)
Net Realized and Unrealized Gain on
Securities.......................... 3.632 3.55
------- -------
Total from Investment Operations...... 3.454 3.31
------- -------
Net Asset Value, End of the Period.... $18.574 $15.12
------- -------
Total Return (b)...................... 22.82% 28.11%(c)
Net Assets at End of the Period (In
millions)............................. $51.5 $15.9
Ratio of Expenses to Average Net
Assets (d)............................ 2.21% 2.75%
Ratio of Net Investment Loss to
Average Net Assets (d)................ (1.52%) (1.65%)
Portfolio Turnover.................... 80% 83%*
Average Commission Paid Per Equity
Share Traded (e)...................... $.0498 --
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 21, 1995
(Commencement of
Investment
Year Ended Operations) to
Class B Shares October 31, 1996 October 31, 1995(a)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period................................ $15.04 $11.81
------- -------
Net Investment Loss.................. (.270) (.35)
Net Realized and Unrealized Gain on
Securities.......................... 3.569 3.58
------- -------
Total from Investment Operations...... 3.299 3.23
------- -------
Net Asset Value, End of the Period.... $18.339 $15.04
------- -------
Total Return (b)...................... 21.94% 27.43%(c)
Net Assets at End of the Period (In
millions)............................. $39.1 $10.8
Ratio of Expenses to Average Net
Assets (d)............................ 2.96% 3.49%
Ratio of Net Investment Loss to
Average Net Assets (d)................ (2.27%) (2.45%)
Portfolio Turnover.................... 80% 83%*
Average Commission Paid Per Equity
Share Traded (e)...................... $.0498 --
</TABLE>
*Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995 without annualization.
(d) If the Adviser had not waived fees for the period ended October 31, 1995,
the total return would have been lower and the Ratios of Expenses to
Average Net Assets and Net Investment Income to Average Net Assets would
have been 3.37% and (2.27%) for Class A shares and 4.11% and (3.07%) for
Class B shares, respectively.
(e) Represents the average brokerage commissions paid on equity transactions
entered into during the period for trades where commissions were
applicable. This disclosure was not required in fiscal years prior to
1996.
See Notes to Financial Statements
22
<PAGE>
GOVERNMENT FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS 57.3%
Federal Home Loan Mortgage
$ 4,631 Corp. Gold 5 Year Balloon... 6.500% 10/01/97-07/01/98 $ 4,636,713
Federal Home Loan Mortgage
543 Corp. Gold 5 Year Balloon... 7.000 12/01/96-08/01/97 548,510
Federal Home Loan Mortgage
4,691 Corp. Gold 30 Year Pools.... 7.000 07/01/24-10/01/24 4,610,549
Federal Home Loan Mortgage
22,460 Corp. Gold 30 Year Pools.... 7.500 04/01/24-09/01/26 22,530,539
Federal Home Loan Mortgage
373 Corp. Gold 30 Year Pools.... 8.000 06/01/24-11/01/24 380,703
Federal National Mortgage
10,645 Association Pools........... 6.500 01/01/26-07/01/26 10,182,693
Federal National Mortgage
9,490 Association Pools........... 7.000 12/01/22-05/01/25 9,325,093
Federal National Mortgage
16,876 Association Pools........... 7.500 04/01/24-03/01/26 16,924,030
Federal National Mortgage
26 Association Pools........... 8.000 08/01/25 26,172
Government National Mortgage
10,458 Association Pools........... 6.500 01/15/26-07/15/26 10,000,803
Government National Mortgage
32,418 Association Pools........... 7.000 06/15/22-08/15/26 31,800,273
Government National Mortgage
7,111 Association Pools........... 7.500 03/15/22-10/15/24 7,134,798
Government National Mortgage
5,597 Association Pools........... 8.000 06/15/16-08/15/24 5,722,875
Government National Mortgage
29,509 Association Pools........... 8.500 12/15/05-12/15/22 30,860,841
Government National Mortgage
22,515 Association Pools........... 9.000 12/15/17 24,189,146
Government National Mortgage
12 Association Pools........... 10.000 03/15/16 13,699
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS................. 178,887,437
------------
U.S. GOVERNMENT
OBLIGATIONS 40.0%
1,000 U.S. Treasury Bonds......... 7.125 02/15/23 1,045,470
10,000 U.S. Treasury Bonds......... 11.125 08/15/03 12,665,600
9,000 U.S. Treasury Notes (b)....... 6.500 08/15/97 9,068,940
700 U.S. Treasury Notes......... 6.500 05/15/05 707,546
1,200 U.S. Treasury Notes......... 6.500 08/15/05 1,213,128
15,000 U.S. Treasury Notes (b)....... 7.875 01/15/98 15,386,700
10,000 U.S. Treasury Notes......... 7.875 08/15/01 10,731,300
600 U.S. Treasury Notes......... 8.000 08/15/99 631,686
10,000 U.S. Treasury Notes......... 8.500 04/15/97 10,137,500
11,000 U.S. Treasury Notes......... 8.500 05/15/97 11,176,990
10,000 U.S. Treasury Notes (b)....... 8.500 02/15/00 10,746,900
20,000 U.S. Treasury Notes (b)....... 8.750 10/15/97 20,587,600
20,000 U.S. Treasury Notes (b)....... 9.000 05/15/98 20,971,800
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS................. 125,071,160
------------
FORWARD PURCHASE
COMMITMENTS 6.4%
U.S. Treasury Notes
10,000 (November Forward).......... 5.750 10/31/00 9,901,000
U.S. Treasury Notes
10,000 (November Forward).......... 6.500 08/15/05 10,104,300
------------
TOTAL FORWARD PURCHASE
COMMITMENTS................. 20,005,300
------------
</TABLE>
<TABLE>
<S> <C>
TOTAL LONG-TERM INVESTMENTS 103.7%
(Cost $320,383,980) (a)......................................... 323,963,897
REPURCHASE AGREEMENT 1.5%
BankAmerica Securities ($4,570,000 par collateralized by U.S.
Government obligations
in a pooled cash account, dated 10/31/96, to be sold on 11/01/96
at $4,570,711).................................................. 4,570,000
LIABILITIES IN EXCESS OF OTHER ASSETS (5.2%)..................... (16,185,793)
------------
NET ASSETS 100.0%................................................ $312,348,104
------------
</TABLE>
(a) At October 31, 1996, for federal income tax purposes, cost is $320,994,584,
the aggregate gross unrealized appreciation is $4,686,897 and the aggregate
gross unrealized depreciation is $1,717,584; resulting in net unrealized
appreciation of $2,969,313.
(b) Assets segregated as collateral for open futures transactions and open
forward commitments.
See Notes to Financial Statements
23
<PAGE>
GOVERNMENT FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $320,383,980) (Note 1)........ $323,963,897
Repurchase Agreement (Note 1).................................... 4,570,000
Cash............................................................. 3,123
Receivables:
Securities Sold................................................. 10,868,852
Interest........................................................ 3,744,204
Fund Shares Sold................................................ 692,552
Variation Margin on Futures (Note 5)............................ 202,906
Other............................................................ 36,587
------------
Total Assets.................................................... 344,082,121
------------
LIABILITIES:
Payables:
Securities Purchased............................................ 30,819,067
Fund Shares Purchased........................................... 294,622
Income Distributions............................................ 238,122
Investment Advisory Fee (Note 2)................................ 155,687
Distributor and Affiliates (Notes 2 and 6)...................... 132,757
Accrued Expenses................................................. 87,109
Retirement Plan (Note 2)......................................... 6,653
------------
Total Liabilities............................................... 31,734,017
------------
NET ASSETS....................................................... $312,348,104
------------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................. $343,906,112
Net Unrealized Appreciation on Securities........................ 5,358,494
Accumulated Distributions in Excess of Net Investment Income
(Note 1)......................................................... (6,653)
Accumulated Net Realized Loss on Securities...................... (36,909,849)
------------
NET ASSETS....................................................... $312,348,104
------------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value and redemption price per share (Based on net
assets of $287,374,275 and 27,616,551 shares of beneficial
interest issued and outstanding) (Note 3)....................... $ 10.41
Maximum sales charge (6.75%* of offering price)................. .75
------------
Maximum offering price to public................................ $ 11.16
------------
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $11,123,614 and 1,068,402 shares of beneficial
interest issued and outstanding) (Note 3)....................... $ 10.41
Maximum sales charge (4.75%* of offering price)................. .52
------------
Maximum offering price to public................................ $ 10.93
------------
Class B Shares:
Net asset value and offering price per share (Based on net
assets of $13,850,215 and 1,330,303 shares of beneficial
interest issued and outstanding) (Note 3)....................... $ 10.41
------------
</TABLE>
*On sales of $25,000 or more for Class 1 shares and $100,000 or more for Class
A shares, the sales charge will be reduced.
See Notes to Financial Statements
24
<PAGE>
GOVERNMENT FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $23,945,687
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 1,883,666
Shareholder Services (Note 2)...................................... 434,734
Trustees Fees and Expenses (Note 2)................................ 46,123
Distribution (12b-1) and Services Fees (Attributed to Classes A & B
of $5,959 and $30,717, respectively) (Note 6)...................... 36,676
Other ............................................................. 263,648
-----------
Total Expenses.................................................. 2,664,847
-----------
NET INVESTMENT INCOME.............................................. $21,280,840
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain/Loss on Securities:
Investments....................................................... $ (300,492)
Futures........................................................... (2,226,391)
Forwards.......................................................... (1,449,713)
-----------
Net Realized Loss on Securities.................................... (3,976,596)
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 8,948,767
-----------
End of the Period:
Investments....................................................... 3,579,917
Futures........................................................... 1,778,577
-----------
5,358,494
-----------
Net Unrealized Depreciation on Securities During the Period........ (3,590,273)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES..................... $(7,566,869)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $13,713,971
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................ $ 21,280,840 $ 22,579,674
Net Realized Gain/Loss on Securities......... (3,976,596) 542,878
Net Unrealized Appreciation/Depreciation on
Securities During the Period................ (3,590,273) 20,974,048
------------ ------------
Change in Net Assets from Operations......... 13,713,971 44,096,600
------------ ------------
Distributions from Net Investment Income..... (21,657,232) (22,389,062)
Distributions in Excess of Net Investment
Income...................................... (124,957) 0
------------ ------------
Distributions from and in Excess of Net
Investment Income (Note 1)................ (21,782,189) (22,389,062)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (8,068,218) 21,707,538
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................... 56,574,484 40,107,323
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 18,761,150 19,322,483
Cost of Shares Repurchased................... (83,934,267) (87,084,035)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. (8,598,633) (27,654,229)
------------ ------------
TOTAL DECREASE IN NET ASSETS................. (16,666,851) (5,946,691)
NET ASSETS:
Beginning of the Period...................... 329,014,955 334,961,646
------------ ------------
End of the Period (Including undistributed
net investment income of $(6,653) and
$376,392, respectively)..................... $312,348,104 $329,014,955
------------ ------------
</TABLE>
See Notes to Financial Statements
25
<PAGE>
GOVERNMENT FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
Class 1 Shares 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.. $10.67 $9.99 $11.80 $11.56 $11.47
------- ------ ------- ------ ------
Net Investment Income.................... .701 .70 .69 .7616 .86
Net Realized and Unrealized
Gain/Loss on Securities................. (.247) .6779 (1.358) .4249 .1639
------- ------ ------- ------ ------
Total from Investment Operations.......... .454 1.3779 (.668) 1.1865 1.0239
------- ------ ------- ------ ------
Less:
Distributions from and in Excess of Net
Investment Income (Note 1)............... .718 .6979 .6878 .7615 .8639
Distributions from and in Excess of Net
Realized Gain on Securities (Note 1).... -0- -0- .4542 .185 .07
------- ------ ------- ------ ------
Total Distributions....................... .718 .6979 1.142 .9465 .9339
------- ------ ------- ------ ------
Net Asset Value, End of the Period........ $10.406 $10.67 $9.99 $11.80 $11.56
------- ------ ------- ------ ------
Total Return (a).......................... 4.58% 14.27% (5.45%) 10.55% 9.32%
Net Assets at End of the Period (In
millions)................................. $287.4 $329.0 $335.0 $370.2 $282.0
Ratio of Expenses to Average Net Assets... .84% .83% .89% .89% .95%
Ratio of Net Investment Income to Average
Net Assets................................ 6.79% 6.84% 7.06% 7.35% 7.46%
Portfolio Turnover........................ 276% 214% 256% 218% 112%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------- --------------
Period Ended Period Ended
October 31, 1996(b) October 31, 1996(b)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................... $10.32 $10.32
------- -------
Net Investment Income............... .152 .137
Net Realized and Unrealized
Gain/Loss on Securities............ .090 .090
------- -------
Total from Investment Operations..... .242 .227
Less Distributions from and in Excess
of Net Investment Income (Note 1).... .151 .136
------- -------
Net Asset Value, End of the Period... $10.411 $10.411
------- -------
Total Return (a)..................... 2.36%* 2.18%*
Net Assets at End of the Period (In
millions)............................ $11.1 $13.9
Ratio of Expenses to Average Net
Assets............................... 1.09% 1.84%
Ratio of Net Investment Income to
Average Net Assets................... 6.50% 5.74%
Portfolio Turnover................... 276% 276%
</TABLE>
*Non-Annualized
(a)Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b)Class A and Class B shares commenced distribution on August 8, 1996.
See Notes to Financial Statements
26
<PAGE>
GROWTH FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 89.4%
CONSUMER DISTRIBUTION 7.2%
Cardinal Health Inc................................... 160,000 $ 12,560,000
Dayton Hudson Corp.................................... 450,000 15,581,250
Dillard Department Stores Inc......................... 450,000 14,287,500
Dominick's Supermarkets Inc. (c)...................... 314,000 6,240,750
Duckwall-Alco Stores, Inc. (c)........................ 200,000 2,625,000
Eckerd Corp. (c)...................................... 1,025,000 28,443,750
Federated Department Stores Inc. (c).................. 500,000 16,500,000
Gap Inc............................................... 280,000 8,120,000
Kroger Co. (c)........................................ 750,000 33,468,750
Lear Corp. (c)........................................ 600,000 22,200,000
Safeway Inc. (c)...................................... 350,000 15,006,250
Saks Holdings Inc. (c)................................ 295,000 10,325,000
Sears, Roebuck & Co................................... 208,000 10,062,000
TJX Cos. Inc. New..................................... 350,000 14,000,000
Wal-Mart Stores Inc................................... 550,000 14,643,750
--------------
224,064,000
--------------
CONSUMER DURABLES 2.2%
Black & Decker Corp................................... 500,000 18,687,500
Eastman Kodak Co...................................... 110,000 8,772,500
General Motors Corp................................... 600,000 32,325,000
Harley Davidson Inc................................... 235,000 10,604,375
--------------
70,389,375
--------------
CONSUMER NON-DURABLES 6.0%
Adidas --ADS (Germany)................................ 360,000 15,390,000
Avon Products Inc..................................... 640,000 34,720,000
Colgate Palmolive Co.................................. 260,000 23,920,000
CPC International Inc................................. 400,000 31,550,000
Gillette Co........................................... 450,000 33,637,500
Liz Claiborne Inc..................................... 525,000 22,181,250
Nabisco Holdings Corp. Class A........................ 500,000 18,625,000
Tambrands Inc......................................... 172,400 7,348,550
--------------
187,372,300
--------------
CONSUMER SERVICES 4.7%
Cox Communications Inc. New (c)....................... 1,112,500 20,581,250
Harcourt General Inc.................................. 330,000 16,417,500
Host Marriott Corp. (c)............................... 675,000 10,378,125
Marriott International Inc............................ 400,000 22,750,000
Service Corp. International........................... 826,000 23,541,000
Tele Communications Class A New (c)................... 2,750,000 34,203,125
Time Warner Inc....................................... 550,000 20,487,500
--------------
148,358,500
--------------
ENERGY 8.2%
Apache Corp........................................... 300,000 10,650,000
Baker Hughes Inc...................................... 400,000 14,250,000
Coastal Corp.......................................... 500,000 21,500,000
Diamond Offshore Drilling (c)......................... 230,000 14,001,250
PanEnergy Corp........................................ 1,000,000 38,500,000
Phillips Petroleum Co................................. 625,000 25,625,000
Repsol SA Sponsored--ADR (Spain)...................... 700,000 22,837,500
Texaco Inc............................................ 250,000 25,406,250
Union Pacific Resources Group......................... 600,000 16,500,000
Williams Cos.......................................... 825,000 43,106,250
Ypf Sociedad Anonima--ADS (Argentina)................. 1,000,000 22,750,000
--------------
255,126,250
--------------
</TABLE>
See Notes to Financial Statements
27
<PAGE>
GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE 17.5%
Bank of Boston Corp................................... 650,000 $ 41,600,000
BankAmerica Corp...................................... 350,000 32,025,000
Chase Manhattan Corp.................................. 380,000 32,585,000
Corestates Financial Corp............................. 725,000 35,253,125
Federal National Mortgage Association................. 1,190,000 46,558,750
First Bank System Inc................................. 315,000 20,790,000
First Union Corp...................................... 420,000 30,555,000
Green Tree Financial Corp............................. 460,000 18,227,500
Greenpoint Financial Corp............................. 975,000 45,337,500
Merrill Lynch & Co. Inc............................... 130,000 9,132,500
MGIC Investment Corp.................................. 315,000 21,616,875
Nationsbank Corp...................................... 180,000 16,965,000
Ryder Systems Inc..................................... 399,600 11,888,100
SunAmerica Inc........................................ 950,000 35,625,000
Van Kampen American Capital Small Capitalization Fund. 7,516,109 103,797,466
Van Kampen American Capital Foreign Securities Fund... 4,457,683 44,665,980
--------------
546,622,796
--------------
HEALTH CARE 9.0%
Abbott Laboratories................................... 500,000 25,312,500
American Home Products Corp........................... 415,000 25,418,750
Amgen Inc. (c)........................................ 284,000 17,412,750
Becton Dickinson & Co................................. 625,000 27,187,500
Bristol-Myers Squibb Co............................... 420,000 44,415,000
Healthsouth Rehabilitation (c)........................ 520,000 19,500,000
Mallinckrodt Group Inc................................ 310,000 13,485,000
Merck & Co. Inc....................................... 215,000 15,936,875
Pfizer Inc............................................ 285,000 23,583,750
Schering Plough Corp.................................. 315,000 20,160,000
Smithkline Beecham PLC--ADR (United Kingdom).......... 390,000 24,423,750
Warner Lambert Co..................................... 365,000 23,223,125
--------------
280,059,000
--------------
PRODUCER MANUFACTURING 9.2%
AlliedSignal Inc...................................... 450,000 29,475,000
Canadian Pacific Ltd.................................. 1,300,000 32,825,000
Corning Inc........................................... 1,350,000 52,312,500
Deere & Co............................................ 375,000 15,656,250
Dover Corp............................................ 275,000 14,128,125
General Electric Co................................... 295,000 28,541,250
Honeywell Inc......................................... 750,000 46,593,750
Ingersoll Rand Co..................................... 300,000 12,487,500
United Technologies Corp.............................. 195,000 25,106,250
WMX Technologies Inc.................................. 930,000 31,968,750
--------------
289,094,375
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.0%
Air Products & Chemicals Inc.......................... 400,000 24,000,000
Mead Corp............................................. 250,000 14,187,500
Morton International Inc.............................. 970,000 38,193,750
Praxair Inc........................................... 370,000 16,372,500
Raychem Corp.......................................... 190,000 14,843,750
Union Carbide Corp.................................... 420,000 17,902,500
--------------
125,500,000
--------------
TECHNOLOGY 17.7%
3Com Corp. (c)........................................ 500,000 33,812,500
ADC Telecommunications Inc. (c)....................... 230,000 15,726,250
Altera Corp. (c)...................................... 300,000 18,600,000
</TABLE>
See Notes to Financial Statements
28
<PAGE>
GROWTH FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Description Shares Market Value
- ---------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Ascend Communications Inc. (c)................... 150,000 $ 9,806,250
BMC Software Inc. (c)............................ 300,000 24,900,000
Boeing Co........................................ 285,000 27,181,875
Cadence Design Systems Inc. (c).................. 420,000 15,330,000
Cisco Systems Inc. (c)........................... 800,000 49,500,000
Compaq Computer Corp. (c)........................ 200,000 13,925,000
Computer Association International Inc........... 500,000 29,562,500
Dell Computer Corp. (c).......................... 160,000 13,020,000
Ericsson LM--ADR (Sweden)........................ 1,000,000 27,625,000
Intel Corp....................................... 470,000 51,641,250
International Business Machines.................. 250,000 32,250,000
Lucent Technologies Inc.......................... 650,000 30,550,000
McAfee Association Inc. (c)...................... 390,000 17,745,000
McDonnell Douglas Corp........................... 500,000 27,250,000
Microsoft Corp. (c).............................. 235,000 32,253,750
Oracle System Corp. (c).......................... 480,000 20,310,000
Parametric Technology Corp. (c).................. 200,000 9,775,000
SCI Systems Inc. (c)............................. 200,000 9,950,000
Sun Microsystems Inc. (c)........................ 250,000 15,250,000
Tellabs Inc. (c)................................. 225,000 19,153,125
Xilinx Inc. (c).................................. 300,000 9,825,000
--------------
554,942,500
--------------
TRANSPORTATION 1.0%
Union Pacific Corp............................... 560,000 31,430,000
--------------
UTILITIES 2.7%
Frontier Corp.................................... 335,000 9,715,000
LCI International Inc. (c)....................... 275,000 8,765,625
MCI Communications Corp.......................... 600,000 15,075,000
Portugal Telecom SA Sponsored--ADR (Portugal)
(c).............................................. 315,000 8,150,625
Telefonica De Espana SA--ADR (Spain)............. 365,000 21,991,250
Texas Utilities Co............................... 520,000 21,060,000
--------------
84,757,500
--------------
TOTAL COMMON STOCK.......................................... 2,797,716,596
--------------
U.S. GOVERNMENT OBLIGATIONS 2.0%
United States Treasury Bonds ($50,000,000 par, 8.75% coupon,
05/15/17 maturity) (b)...................................... 61,140,500
--------------
TOTAL LONG-TERM INVESTMENTS 91.4%
(Cost of $2,326,341,343) (a)............................... 2,858,857,096
--------------
SHORT-TERM INVESTMENTS 7.0%
U.S. GOVERNMENT OBLIGATIONS 4.0%
Federal Home Loan Mortgage Corp. ($13,000,000 par, yielding
5.21%, 11/13/96 maturity)................................... 12,975,683
Federal Home Loan Mortgage Corp. ($50,000,000 par, yielding
5.30%, 01/24/97 maturity) (b)............................... 49,386,000
Federal National Mortgage Association ($13,000,000 par,
yielding 5.19%, 11/14/96 maturity).......................... 12,973,812
Federal National Mortgage Association ($20,000,000 par,
yielding 5.35%, 01/03/97 maturity).......................... 19,816,400
Federal National Mortgage Association ($10,000,000 par,
yielding 5.31%, 02/10/97 maturity).......................... 9,852,300
Federal National Mortgage Association ($20,000,000 par,
yielding 5.45%, 04/11/97 maturity).......................... 19,531,000
--------------
124,535,195
--------------
REPURCHASE AGREEMENTS 3.0%
BankAmerica Securities ($34,685,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated
10/31/96, to be sold on 11/01/96 at $34,690,395)............ 34,685,000
Prudential Securities Inc. ($23,185,000 par collateralized
by U.S. Government obligations in a pooled cash account,
dated 10/31/96, to be sold on 11/01/96 at $23,188,561)...... 23,185,000
SBC Capital Markets Inc. ($37,165,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated
10/31/96, to be sold on 11/01/96 at $37,170,884)............ 37,165,000
--------------
95,035,000
TOTAL SHORT-TERM INVESTMENTS (Cost of $219,554,148)(a)...... 219,570,195
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%.................. 50,160,044
--------------
NET ASSETS 100.0%........................................... $3,128,587,335
--------------
</TABLE>
(a) At October 31, 1996, for federal income tax purposes cost including short-
term investments is $2,553,417,674, the aggregate gross unrealized
appreciation is $541,278,832 and the aggregate gross unrealized
depreciation is $16,269,215, resulting in net unrealized appreciation of
$525,009,617.
(b) Assets segregated as collateral for open futures transactions.
(c) Non-income producing security as this stock currently does not declare
dividends.
See Notes to Financial Statements
29
<PAGE>
GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $2,326,341,343) (Note 1)..... $2,858,857,096
Short-Term Investments (Cost of $124,519,148) (Note 1).......... 124,535,195
Repurchase Agreement (Note 1)................................... 95,035,000
Cash............................................................ 2,639
Receivables:
Securities Sold................................................ 101,819,205
Dividends...................................................... 2,230,898
Interest....................................................... 2,021,060
Variation Margin on Futures (Note 5)........................... 959,000
Other........................................................... 296,575
--------------
Total Assets................................................... 3,185,756,668
--------------
LIABILITIES:
Payables:
Securities Purchased........................................... 51,708,114
Fund Shares Repurchased........................................ 1,904,375
Distributor and Affiliates (Note 2)............................ 1,729,823
Investment Advisory Fee (Note 2)............................... 1,551,641
Accrued Expenses................................................ 212,684
Retirement Plan (Note 2)........................................ 62,696
--------------
Total Liabilities.............................................. 57,169,333
--------------
NET ASSETS...................................................... $3,128,587,335
--------------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................ $2,345,009,529
Net Unrealized Appreciation on Securities....................... 532,627,910
Accumulated Net Realized Gain on Securities..................... 226,812,341
Accumulated Undistributed Net Investment Income................. 24,137,555
--------------
NET ASSETS...................................................... $3,128,587,335
--------------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value and redemption price per share (Based on net
assets of $3,005,162,569 and 167,171,713 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 17.98
Maximum sales charge (8.50%* of offering price)................ 1.67
--------------
Maximum offering price to public............................... $ 19.65
--------------
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $49,284,844 and 2,744,250 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 17.96
Maximum sales charge (5.50%* of offering price)................ 1.05
--------------
Maximum offering price to public............................... $ 19.01
--------------
Class B Shares:
Net asset value and offering price per share (Based on net
assets of $74,139,922 and 4,135,444 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 17.93
--------------
</TABLE>
*On sales of $10,000 or more on Class 1 shares and $50,000 or more on Class A
shares, the sales charge will be reduced.
See Notes to Financial Statements
30
<PAGE>
GROWTH FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 44,041,257
Interest.......................................................... 13,157,977
------------
Total Income..................................................... 57,199,234
------------
EXPENSES:
Investment Advisory Fee (Note 2).................................. 17,148,560
Shareholder Services (Note 2)..................................... 7,572,904
Trustees Fees and Expenses (Note 2)............................... 249,315
Distribution (12b-1) and Service Fees (Attributed to Classes A and
B of $25,460 and $157,762, respectively)(Note 6).................. 183,222
Other ............................................................ 1,611,597
------------
Total Expenses................................................... 26,765,598
------------
NET INVESTMENT INCOME............................................. $ 30,433,636
------------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments...................................................... $211,349,535
Options.......................................................... 124,017
Futures.......................................................... 21,850,672
------------
Net Realized Gain on Securities................................... 233,324,224
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.......................................... 266,339,991
------------
End of the Period:
Investments...................................................... 532,531,800
Futures.......................................................... 96,110
------------
532,627,910
------------
Net Unrealized Appreciation on Securities During the Period....... 266,287,919
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... $499,612,143
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $530,045,779
------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................... $ 30,433,636 $ 24,386,716
Net Realized Gain on Securities............ 233,324,224 358,190,994
Net Unrealized Appreciation on Securities
During the Period......................... 266,287,919 130,227,400
-------------- --------------
Change in Net Assets from Operations....... 530,045,779 512,805,110
-------------- --------------
Distributions from Net Investment Income
(Note 1).................................. (27,245,960) (22,053,177)
Distributions from Net Realized Gain on
Securities (Note 1)....................... (358,762,393) (147,259,430)
-------------- --------------
Total Distributions..................... (386,008,353) (169,312,607)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................. 144,037,426 343,492,503
-------------- --------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................. 386,037,987 294,906,458
Net Asset Value of Shares Issued Through
Dividend Reinvestment...................... 383,855,779 168,462,102
Cost of Shares Repurchased................. (396,848,766) (365,263,456)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................... 373,045,000 98,105,104
-------------- --------------
TOTAL INCREASE IN NET ASSETS............... 517,082,426 441,597,607
NET ASSETS:
Beginning of the Period.................... 2,611,504,909 2,169,907,302
-------------- --------------
End of the Period (Including undistributed
net investment income of
$24,137,555 and $20,950,803,
respectively)............................. $3,128,587,335 $2,611,504,909
-------------- --------------
</TABLE>
See Notes to Financial Statements
31
<PAGE>
GROWTH FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------
Class 1 Shares 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $17.46 $15.31 $16.26 $16.02 $15.47
-------- -------- -------- -------- --------
Net Investment Income............ .187 .16 .13 .116 .13
Net Realized and Unrealized
Gain/Loss on Securities......... 2.916 3.18 .2075 2.0065 1.3925
-------- -------- -------- -------- --------
Total from Investment Operations.. 3.103 3.34 .3375 2.1225 1.5225
-------- -------- -------- -------- --------
Less:
Distributions from Net Investment
Income........................... .183 .155 .1125 .115 .17
Distributions from and in Excess
of Net Realized Gain on
Securities...................... 2.403 1.035 1.175 1.7675 .8025
-------- -------- -------- -------- --------
Total Distributions............... 2.586 1.19 1.2875 1.8825 .9725
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period............................ $17.977 $17.46 $15.31 $16.26 $16.02
-------- -------- -------- -------- --------
Total Return (a).................. 19.94% 24.01% 2.04% 14.27% 9.83%
Net Assets at End of the Period
(In millions)..................... $3,005.2 $2,611.5 $2,169.9 $2,065.7 $1,648.0
Ratio of Expenses to Average Net
Assets............................ .93% 1.00% 1.09% 1.14% 1.18%
Ratio of Net Investment Income to
Average Net Assets................ 1.08% 1.04% .89% .80% .91%
Portfolio Turnover................ 202% 230% 164% 166% 134%
Average Commission Paid Per Equity
Share Traded (b).................. $.0602 -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------- --------------
Period Ended Period Ended
October 31, 1996(c) October 31, 1996(c)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................... $16.630 $16.630
------- -------
Net Investment Income............... .017 (.011)
Net Realized and Unrealized
Gain/Loss on Securities............ 1.312 1.309
------- -------
Total from Investment Operations..... 1.329 1.298
------- -------
Net Asset Value, End of the Period... $17.959 $17.928
------- -------
Total Return (a)..................... 8.00%* 7.82%*
Net Assets at End of the Period (In
millions)............................ $49.3 $74.1
Ratio of Expenses to Average Net
Assets............................... 1.17% 1.93%
Ratio of Net Investment Income/Loss
to Average Net Assets................ .46% (.29%)
Portfolio Turnover................... 202% 202%
Average Commission Paid Per Equity
Share Traded (b)..................... $.0602 $.0602
</TABLE>
*Non-Annualized
(a)Total return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Presents the average brokerage commission paid on equity transactions
entered into during the period for trades where commissions were
applicable. This disclosure was not required in fiscal years prior to 1996.
(c)Class A and Class B shares commenced distribution on August 8, 1996.
See Notes to Financial Statements
32
<PAGE>
GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCK 88.1%
CONSUMER DISTRIBUTION 5.7%
Eckerd Corp. (c)........................... 288,000 $ 7,992,000
Federated Department Stores, Inc. (c).......537,700. 17,744,100
Gymboree Corp. (c)..........................143,500. 4,484,375
Sears Roebuck & Co......................... 131,700 6,370,987
Talbots, Inc............................... 174,400 4,970,400
Toys R Us, Inc. (c).........................137,000. 4,640,875
Vons Companies, Inc. (c)....................120,300. 6,661,612
Wal-Mart Stores, Inc....................... 203,000 5,404,875
------------
58,269,224
------------
CONSUMER DURABLES 1.9%
Eastman Kodak Co........................... 77,200 6,156,700
Hasbro, Inc................................ 142,000 5,520,250
Masco Corp................................. 189,000 5,929,875
Newell Co.................................. 52,000 1,475,500
------------
19,082,325
------------
CONSUMER NON-DURABLES 6.3%
Adidas Ads................................. 234,200 10,012,050
Campbell Soup Co........................... 109,300 8,744,000
Coca Cola Co............................... 108,700 5,489,350
Colgate Palmolive Co....................... 82,200 7,562,400
Nabisco Holdings Corp., Class A............ 362,000 13,484,500
Procter & Gamble Co........................ 64,000 6,336,000
Quaker Oats Co............................. 224,000 7,952,000
Ralston Purina Group....................... 85,100 5,627,238
------------
65,207,538
------------
CONSUMER SERVICES 3.7%
H & R Block Inc............................ 209,100 5,175,225
Deluxe Corp................................ 159,800 5,213,475
Dun & Bradstreet Corp...................... 78,300 4,531,612
Omnicom Group.............................. 158,642 7,892,440
Time Warner, Inc........................... 120,000 4,470,000
Tribune Co................................. 80,000 6,540,000
Walt Disney Co............................. 61,500 4,051,313
------------
37,874,065
------------
ENERGY 10.8%
Amerada Hess Corp.......................... 104,000 5,759,000
Apache Corp................................ 162,800 5,779,400
Burlington Resources, Inc.................. 219,400 11,052,275
Chevron Corp............................... 209,000 13,741,750
Coastal Corp............................... 105,000 4,515,000
Pacific Enterprises........................ 130,100 4,000,575
PanEnergy Corp............................. 250,100 9,628,850
Royal Dutch Petroleum--ADR (UK)............ 73,300 12,121,988
Sun, Inc................................... 190,000 4,251,250
Texaco, Inc................................ 294,500 29,928,563
Union Pacific Resources Group.............. 55,474 1,525,535
Unocal Corp................................ 251,000 9,192,875
------------
111,497,061
------------
FINANCE 14.3%
Allstate Corp.............................. 218,800 12,280,150
American International Group, Inc.......... 99,100 10,764,738
Bankamerica Corp........................... 213,000 19,489,500
Beacon Properties Corp..................... 58,400 1,715,500
</TABLE>
See Notes to Financial Statements
33
<PAGE>
GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (CONTINUED)
Chase Manhattan Corp.................................... 139,400 $ 11,953,550
Citicorp................................................ 45,500 4,504,500
Comerica, Inc........................................... 141,400 7,511,875
Everest Real Estate Holdings............................ 266,800 6,803,400
Federal National Mortgage Association................... 443,400 17,348,025
First Bank System, Inc.................................. 95,300 6,289,800
Health Care Property Investors.......................... 45,000 1,580,625
Horace Mann Educators Corp.............................. 183,000 6,267,750
J.P. Morgan & Co., Inc.................................. 100,000 8,637,500
MBIA, Inc............................................... 75,800 6,717,775
Nationsbank Corp........................................ 53,000 4,995,250
Simon DeBartolo Group, Inc.............................. 85,204 2,247,256
Student Loan Marketing Association...................... 104,000 8,606,000
USF&G Corp.............................................. 388,000 7,372,000
Weingarten Realty Investors............................. 35,800 1,373,825
--------------
146,459,019
--------------
HEALTH CARE 11.3%
Abbott Labs............................................. 202,000 10,226,250
Amgen, Inc. (c)......................................... 125,000 7,664,062
Bristol Myers Squibb Co................................. 112,000 11,844,000
Glaxo Sponsored PLC--ADR (UK)........................... 305,000 9,607,500
Merck & Co., Inc........................................ 160,000 11,860,000
Pacificare Health Systems, Inc., Class B (c)............ 107,000 7,516,750
Pharmacia & Upjohn, Inc................................. 174,700 6,289,200
Sandoz Limited Sponsored--ADR (Switzerland)............. 220,000 12,677,500
Smithkline Beecham PLC, Class A--ADR (UK)............... 230,000 14,403,750
Teva Pharmaceutical Limited--ADR (Germany).............. 153,100 6,411,062
Warner Lambert Co....................................... 216,000 13,743,000
Watsons Pharmaceuticals, Inc. (c)....................... 127,000 4,238,625
--------------
116,481,699
--------------
PRODUCER MANUFACTURING 7.4%
AlliedSignal, Inc....................................... 196,700 12,883,850
Briggs & Stratton Corp.................................. 85,000 3,400,000
Canadian Pacific Limited................................ 573,200 14,473,300
Cooper Industries, Inc.................................. 98,800 3,976,700
Foster Wheeler Corp..................................... 127,300 5,219,300
General Electric Co..................................... 72,100 6,975,675
Honeywell, Inc.......................................... 126,000 7,827,750
Ingersoll Rand Co....................................... 185,000 7,700,625
Stewart & Stevenson Services, Inc....................... 311,000 6,608,750
WMX Technologies, Inc................................... 211,400 7,266,875
--------------
76,332,825
--------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.8%
Betzdearborn, Inc....................................... 77,300 4,058,250
Crown Cork & Seal, Inc.................................. 303,800 14,582,400
Georgia Pacific Corp.................................... 30,000 2,250,000
Lubrizol Corp........................................... 137,000 4,075,750
Mead Corp............................................... 111,200 6,310,600
Monsanto Co............................................. 223,000 8,836,375
Morton International Industries, Inc.................... 55,000 2,165,625
Praxair, Inc............................................ 155,300 6,872,025
--------------
49,151,025
--------------
</TABLE>
See Notes to Financial Statements
34
<PAGE>
GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 11.9%
3Com Corp. (c).......................................... 166,000 $ 11,225,750
BMC Software, Inc. (c).................................. 120,000 9,960,000
Boeing Co............................................... 124,600 11,883,725
Cisco Systems, Inc. (c)................................. 126,400 7,821,000
Computer Associates International, Inc.................. 210,050 12,419,206
DSC Communications Corp. (c)............................ 155,000 2,150,625
Ericsson L M, Class B Sek 10--ADR (Sweden).............. 192,000 5,304,000
General Instruments Corp. (c)........................... 357,000 7,184,625
General Signal Corp..................................... 198,200 8,076,650
Intel Corp.............................................. 53,000 5,823,375
Linear Technology Corp.................................. 91,000 3,048,500
Lucent Technologies, Inc................................ 146,514 6,886,157
Microsoft Corp. (c)..................................... 51,500 7,068,375
Newbridge Networks Corp. (c)............................ 278,600 8,810,725
Nokia Corp. Ads......................................... 115,400 5,351,675
Oak Industries, Inc. (c)................................ 62,000 1,573,250
Tellabs, Inc. (c)....................................... 88,400 7,525,050
--------------
122,112,688
--------------
TRANSPORTATION 1.2%
Canadian National Railway............................... 242,700 6,674,250
Union Pacific Corp...................................... 98,000 5,500,250
--------------
12,174,500
--------------
UTILITIES 8.8%
Allegheny Power Systems, Inc............................ 139,500 4,167,563
AT&T Corp............................................... 721,000 25,144,875
Cable & Wireless PLC--ADR (UK).......................... 213,000 5,085,375
Cincinnati Bell, Inc.................................... 150,400 7,426,000
Duke Power Co........................................... 10,200 498,525
Edison International.................................... 252,000 4,977,000
Frontier Corp........................................... 210,600 6,107,400
Houston Industries, Inc................................. 131,000 2,996,625
MCI Communications Corp................................. 312,300 7,846,538
National Power PLC Sponsored--ADR (UK).................. 224,300 6,084,137
Pacificorp.............................................. 337,600 7,131,800
Powergen PLC--ADR (UK).................................. 255,000 8,542,500
Scana Corp.............................................. 170,000 4,547,500
--------------
90,555,838
--------------
TOTAL COMMON STOCKS..................................... 905,197,807
--------------
CONVERTIBLE PREFERRED 1.8%
Kmart Financing, 7.75%.................................. 78,900 3,747,750
SCI Finance LLC, 6.25%.................................. 51,200 4,870,400
Williams Cos., $3.50 Dividend per share................. 118,700 9,911,450
--------------
TOTAL CONVERTIBLE PREFERRED............................. 18,529,600
--------------
</TABLE>
See Notes to Financial Statements
35
<PAGE>
GROWTH AND INCOME FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE CORPORATE OBLIGATIONS 4.5%
ADT Operations, Inc., LYON ($15,600,000
par, 0% coupon, 07/06/10 maturity)........ $ 9,243,000
Continental Airlines, Inc., ($1,975,000
par, 6.75% coupon, 04/15/06 maturity)..... 2,024,375
MBL International ($5,300,000 par, 3.00%
coupon, 11/30/02 maturity)................ 5,856,500
Merrill Lynch STRYPES ($97,700 par, 6.00%
coupon, 06/01/99 maturity)................ 1,892,937
News America Holdings, Inc., LYON
($12,300,000 par, 0% coupon, 03/11/13
maturity)................................. 5,750,250
Roche Holdings, Inc., LYONS ($23,500,000
par, 0% coupon, 04/20/10 maturity)........ 10,398,750
Sandoz Ltd. ($2,600,000 par, 2.00% coupon,
10/06/02 maturity)........................ 2,853,500
Sprint Corp., DECS ($120,000 par, 8.25%
coupon, 03/31/00 maturity)................ 4,239,787
U S Cellular Corp., LYON ($13,000,000 par,
0% coupon, 06/15/15 maturity)............. 4,322,500
--------------
TOTAL CONVERTIBLE DEBT.................... 46,581,599
--------------
TOTAL LONG-TERM INVESTMENTS 94.4%
(Cost $814,300,859) (a).................. 970,309,006
--------------
SHORT-TERM INVESTMENTS 6.4%
GOVERNMENT AGENCY OBLIGATIONS 4.3%
Federal Home Loan Mortgage Corp. Disc Note
($3,250,000 par, yielding 5.18%, 11/08/96
maturity)................................. 3,246,266
Federal Home Loan Mortgage Corp. Disc Note
($4,000,000 par, yielding 5.19%, 11/13/96
maturity)................................. 3,992,518
Federal Home Loan Mortgage Corp. Disc Note
($25,000,000 par, yielding 5.29%, 02/21/97
maturity) (b)............................. 24,591,000
Federal National Mortgage Association
Discount Note ($12,000,000 par, yielding
5.20%, 11/14/96 maturity) (b)............. 11,975,827
--------------
43,805,611
--------------
REPURCHASE AGREEMENT 2.1%
BankAmerica Securities ($21,775,000 par
collateralized by U.S. Government
obligations in a pooled cash account,
dated 10/31/96, to be sold on 11/01/96
at $21,778,387)......................... 21,775,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $65,578,809) (a)................... 65,580,611
LIABILITIES IN EXCESS OF OTHER
ASSETS (0.8%)............................. (8,460,971)
--------------
NET ASSETS 100.0%......................... $1,027,428,646
--------------
</TABLE>
(a) At October 31, 1996, for federal income tax purposes, cost for long-term
and short-term investments is $882,121,724, the aggregate gross unrealized
appreciation is $176,584,424 and the gross unrealized depreciation is
$22,816,531, resulting in net realized appreciation of $153,767,893.
(b) Assets segregated as collateral for open futures contracts.
(c) Non-income producing security as this stock currently does not declare
dividends.
DECS-Dividend enhanced convertible stock.
LYON-Liquid yield option note.
STRYPES-Structured yield product exchangeable for common stock.
See Notes to Financial Statements
36
<PAGE>
GROWTH AND INCOME FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $814,300,859) (Note 1)....... $ 970,309,006
Short-Term Investments (Cost $43,803,809) (Note 1).............. 43,805,611
Repurchase Agreement (Note 1)................................... 21,775,000
Cash............................................................ 1,660
Receivables:
Securities Sold................................................ 8,958,543
Fund Shares Sold............................................... 2,166,003
Dividends...................................................... 1,294,109
Variation Margin on Futures (Note 5)........................... 325,375
Interest....................................................... 127,169
Other........................................................... 237,572
--------------
Total Assets................................................... 1,049,000,048
--------------
LIABILITIES:
Payables:
Securities Purchased........................................... 18,745,030
Fund Shares Purchased.......................................... 1,509,647
Investment Advisory Fee (Note 2)............................... 555,560
Distributor and Affiliates (Note 2)............................ 436,810
Accrued Expenses................................................ 303,130
Retirement Plan (Note 2)........................................ 21,225
--------------
Total Liabilities.............................................. 21,571,402
--------------
NET ASSETS...................................................... $1,027,428,646
--------------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................ $ 746,317,281
Net Unrealized Appreciation on Securities....................... 156,698,636
Accumulated Net Realized Gain on Securities..................... 119,991,729
Accumulated Undistributed Net Investment Income................. 4,421,000
--------------
NET ASSETS...................................................... $1,027,428,646
--------------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value and redemption price per share (Based on net
assets of $942,868,507 and 52,075,188 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 18.11
Maximum sales charge (8.50%* of offering price)................ 1.68
--------------
Maximum offering price to public............................... $ 19.79
--------------
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $32,489,335 and 1,794,453 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 18.11
Maximum sales charge (5.50%* of offering price)................ 1.05
--------------
Maximum offering price to public............................... $ 19.16
--------------
Class B Shares:
Net asset value and offering price per share (Based on net
assets of $52,070,804 and 2,878,964 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 18.09
--------------
</TABLE>
*On sales of $10,000 or more for Class 1 shares and $50,000 or more for Class A
shares, the sales charge will be reduced.
See Notes to Financial Statements
37
<PAGE>
GROWTH AND INCOME FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 19,334,312
Interest.......................................................... 5,618,499
------------
Total Income..................................................... 24,952,811
------------
EXPENSES:
Investment Advisory Fee (Note 2).................................. 6,017,204
Shareholder Services (Note 2)..................................... 1,815,960
Distribution (12b-1) and Service Fees (Attributed to Classes A and
B of $16,874 and $111,249, respectively) (Note 6)................. 128,123
Trustees Fees and Expenses (Note 2)............................... 95,509
Other ............................................................ 537,739
------------
Total Expenses................................................... 8,594,535
------------
NET INVESTMENT INCOME............................................. $ 16,358,276
------------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain/Loss on Securities:
Investments...................................................... $116,393,676
Options.......................................................... 22,970
Futures.......................................................... 4,467,847
------------
Net Realized Gain on Securities................................... 120,884,493
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.......................................... 116,856,572
------------
End of the Period:
Investments...................................................... 156,009,949
Futures.......................................................... 688,687
------------
156,698,636
------------
Net Unrealized Appreciation on Securities During the Period....... 39,842,064
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.................... $160,726,557
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $177,084,833
------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................... $ 16,358,276 $ 17,273,261
Net Realized Gain on Securities............. 120,884,493 84,851,910
Net Unrealized Appreciation/Depreciation on
Securities During the Period............... 39,842,064 53,004,855
-------------- ------------
Change in Net Assets from Operations........ 177,084,833 155,130,026
-------------- ------------
Distributions from Net Investment Income
(Note 1)................................... (17,629,557) (14,344,183)
Distributions from Net Realized Gain on
Securities (Note 1)........................ (85,264,726) (71,729,488)
-------------- ------------
Total Distributions........................ (102,894,283) (86,073,671)
-------------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................. 74,190,550 69,056,355
-------------- ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................... 168,779,871 94,833,007
Net Asset Value of Shares Issued Through
Dividend Reinvestment....................... 101,272,424 84,847,579
Cost of Shares Repurchased.................. (145,132,999) (133,313,425)
-------------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................ 124,919,296 46,367,161
-------------- ------------
TOTAL INCREASE IN NET ASSETS................ 199,109,846 115,423,516
NET ASSETS:
Beginning of the Period..................... 828,318,800 712,895,284
-------------- ------------
End of the Period (Including undistributed
net investment income of $4,421,000 and
$5,483,984, respectively).................. $1,027,428,646 $828,318,800
-------------- ------------
</TABLE>
See Notes to Financial Statements
38
<PAGE>
GROWTH AND INCOME FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
Class 1 Shares 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.. $16.95 $15.77 $17.13 $15.54 $14.70
------- ------ ------ ------ ------
Net Investment Income.................... .308 .36 .29 .29 .275
Net Realized and Unrealized Gain/Loss on
Securities.............................. 2.943 2.715 (.2125) 1.8775 1.2875
------- ------ ------ ------ ------
Total from Investment Operations.......... 3.251 3.075 .0775 2.1675 1.5625
------- ------ ------ ------ ------
Less:
Distributions from Net Investment Income. .340 .30 .275 .2775 .295
Distributions from Net Realized Gain on
Securities.............................. 1.755 1.595 1.1625 .30 .4275
------- ------ ------ ------ ------
Total Distributions....................... 2.095 1.895 1.4375 .5775 .7225
------- ------ ------ ------ ------
Net Asset Value, End of the Period........ $18.106 $16.95 $15.77 $17.13 $15.54
------- ------ ------ ------ ------
Total Return (a).......................... 20.58% 22.45% .51% 14.13% 10.85%
Net Assets at End of the Period (In
millions)................................. $942.9 $828.3 $712.9 $712.4 $591.0
Ratio of Expenses to Average Net Assets... .91% .96% 1.02% 1.05% 1.09%
Ratio of Net Investment Income to Average
Net Assets................................ 1.78% 2.27% 1.84% 1.76% 1.84%
Portfolio Turnover........................ 121% 117% 88% 51% 32%
Average Commission Paid per Equity Share
Traded (b)................................ $.056 N/A N/A N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------- --------------
Period Ended Period Ended
October 31, 1996(c) October 31, 1996(c)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................. $17.190 $17.190
------- -------
Net Investment Income............. .071 .042
Net Realized and Unrealized Gain
on Securities.................... .906 .899
------- -------
Total from Investment Operations... .977 .941
Less Distributions from Net
Investment Income.................. .062 .044
------- -------
Net Asset Value, End of the Period. $18.105 $18.087
------- -------
Total Return (a)................... 5.72%* 5.49%*
Net Assets at End of the Period (In
millions).......................... $ 32.5 $ 52.1
Ratio of Expenses to Average Net
Assets............................. 1.16% 1.91%
Ratio of Net Investment Income to
Average Net Assets................ 1.78% 1.05%
Portfolio Turnover................. 121% 121%
Average Commission Paid Per Equity
Share Traded (b)................... $ .056 $ .056
</TABLE>
*Non-Annualized
(a) Total Return is based upon Net Asset Value which does not include payment
of maximum sales charge or contingent deferred sales charge.
(b) Represents the average brokerage commission paid on equity transactions
entered into during the period for trades where commissions were
applicable. This disclosure was not required in fiscal years prior to 1996.
(c) Class A and B Shares commenced distribution on August 8, 1996.
See Notes to Financial Statements
39
<PAGE>
INTERNATIONAL EQUITY FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK AND EQUIVALENTS 95.1%
AUSTRALIA 3.8%
Coca-Cola Amatil........................................... 50,781 $ 698,360
-----------
AUSTRIA 3.6%
Wolford, AG................................................ 5,000 659,346
-----------
CHILE 1.3%
Embotelladora Andina, SA, ADR.............................. 7,000 241,500
-----------
FINLAND 1.1%
Nokia (AB), Series A, Preferred Stock...................... 4,100 189,314
Nokia (AB), Series K....................................... 400 18,876
-----------
208,190
-----------
FRANCE 3.0%
Castorama Dubois........................................... 1,674 286,504
Sidel, SA.................................................. 4,000 266,875
-----------
553,379
-----------
GERMANY 5.2%
SAP AG..................................................... 500 67,684
SAP AG, Preferred Stock.................................... 2,500 336,437
SGL Carbon................................................. 5,000 562,929
-----------
967,050
-----------
HONG KONG 10.8%
HKR International.......................................... 314,160 398,175
Cheung Kong Holdings....................................... 50,000 400,921
HSBC Holdings.............................................. 20,261 412,704
Hutchison Whampoa.......................................... 50,000 349,189
Sun Hung Kai Properties.................................... 20,000 227,619
Swire Pacific.............................................. 25,000 220,668
-----------
2,009,276
-----------
INDIA 1.8%
Mahindra & Mahindra, Ltd, GDR (a).......................... 30,000 330,000
-----------
IRELAND 5.4%
Bank of Ireland............................................ 31,285 258,797
CRH PLC.................................................... 12,220 125,961
Greencore Group............................................ 50,660 292,031
Independent News........................................... 60,639 317,958
-----------
994,747
-----------
ITALY 8.3%
De Rigo SPA, ADR (a)....................................... 10,000 108,750
Fila Holdings SPA, ADR..................................... 6,000 432,000
Gucci Group, NV............................................ 7,000 483,000
Luxottica Group SPA, ADR................................... 5,000 317,500
Telecom Italia, Mobile..................................... 100,000 206,658
-----------
1,547,908
-----------
JAPAN 4.0%
Bank of Tokyo.............................................. 550 11,208
Noritsu Koki Co............................................ 6,000 313,556
Ohmoto Gumi Co............................................. 6,600 99,706
Sato Corp.................................................. 7,700 155,549
Trans Cosmos, Inc.......................................... 4,400 164,244
-----------
744,263
-----------
MALAYSIA 6.4%
Leiusure Management........................................ 75,000 280,526
Seal, Inc.................................................. 100,000 241,441
Sungei Way Holdings........................................ 75,000 427,469
Sunway Building Technology................................. 75,000 235,998
-----------
1,185,434
-----------
MEXICO 1.7%
Gruma, Series B (a)........................................ 65,102 323,182
-----------
</TABLE>
See Notes to Financial Statements
40
<PAGE>
INTERNATIONAL EQUITY FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
NETHERLANDS 10.1%
Baan Co., NV (a).................................... 7,500 $ 277,500
Getronics, NV....................................... 17,132 421,055
Hunter Douglas, NV.................................. 7,500 530,441
IHC Caland, NV...................................... 10,000 558,142
Xeikon, NV (a)...................................... 10,000 93,750
-----------
1,880,888
NORWAY 4.4%
Tomra Systems, AS................................... 35,000 496,411
Transocean Offshore, Inc............................ 5,000 316,250
-----------
812,661
-----------
SINGAPORE 2.2%
Cerebos Pacific..................................... 25,000 193,468
Singapore Technologies.............................. 100,000 217,252
-----------
410,720
-----------
SWEDEN 4.9%
Astra, AB, Series A................................. 7,500 344,450
Autoliv, AB......................................... 7,000 297,002
Ericsson (LM) Telephone, Series B................... 10,000 270,694
-----------
912,146
-----------
SWITZERLAND 3.7%
Ciba Geigy, AG...................................... 500 615,902
Roche Holdings, Ltd................................. 1,000 76,125
-----------
692,027
-----------
THAILAND 1.3%
Quality Houses Co................................... 45,000 40,596
Siam Makro.......................................... 50,000 209,845
-----------
250,441
-----------
UNITED KINGDOM 12.1%
Boxmore International............................... 132,000 672,461
British Biotech (a)................................. 123,750 455,200
Powerscreen International........................... 60,000 593,750
Rentokil Initial PLC................................ 25,000 167,847
Serco Group......................................... 35,000 359,456
-----------
2,248,714
-----------
TOTAL LONG-TERM INVESTMENTS 95.1%
(Cost $14,826,542) (b).......................................... 17,670,232
REPURCHASE AGREEMENT 2.6%
State Street Bank & Trust (U.S. Treasury Note, $500,000 par,
4.750% coupon, due 8/31/98, dated 10/31/96, to be sold on
11/01/96 at $482,026)........................................... 482,000
FOREIGN CURRENCY 1.2%............................................
(Various Denominations, Cost $221,205).......................... 224,537
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%....................... 196,643
-----------
NET ASSETS 100.0%................................................ $18,573,412
-----------
</TABLE>
(a) Non-income producing security as this stock currently does not declare
dividends.
(b) At October 31, 1996, the cost for federal income tax purposes is
$14,826,542; the aggregate gross unrealized appreciation is $3,484,616 and
the aggregate gross unrealized depreciation is $638,562, resulting in net
unrealized appreciation on investments, including foreign currency
translation of other assets and liabilities, of $2,846,054.
See Notes to Financial Statements
41
<PAGE>
INTERNATIONAL EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $14,826,542) (Note 1).......... $17,670,232
Repurchase Agreement (Note 1)..................................... 482,000
Foreign Currency, at Market Value (Cost $221,205)................. 224,537
Cash.............................................................. 316
Receivables:
Fund Shares Sold................................................. 532,482
Securities Sold.................................................. 78,807
Dividends........................................................ 18,895
Unamortized Organizational Expenses (Note 1)...................... 13,921
-----------
Total Assets..................................................... 19,021,190
-----------
LIABILITIES:
Payables:
Securities Purchased............................................. 239,568
Fund Shares Repurchased.......................................... 98,561
Distributor and Affiliates (Notes 2 and 6)....................... 19,242
Accrued Expenses.................................................. 87,808
Retirement Plan (Note 2).......................................... 2,599
-----------
Total Liabilities................................................ 447,778
-----------
NET ASSETS........................................................ $18,573,412
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $15,761,457
Net Unrealized Appreciation on Securities......................... 2,846,054
Accumulated Net Realized Loss on Securities....................... (33,287)
Accumulated Net Investment Loss................................... (812)
-----------
NET ASSETS........................................................ $18,573,412
-----------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value and redemption price per share (Based on net
assets of $162,078 and 9,813 shares of beneficial interest issued
and outstanding) (Note 3)........................................ $ 16.52
Maximum sales charge (8.50%* of offering price).................. 1.53
-----------
Maximum offering price to public................................. $ 18.05
-----------
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $10,371,854 and 626,946 shares of beneficial interest
issued and outstanding) (Note 3)................................. $ 16.54
Maximum sales charge (5.50%* of offering price).................. .96
-----------
Maximum offering price to public................................. $ 17.50
-----------
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $8,039,480 and 491,294 shares of beneficial interest issued
and outstanding) (Note 3)........................................ $ 16.36
-----------
*On sales of $10,000 or more for Class 1 shares and $50,000 or
more for Class A shares, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
42
<PAGE>
INTERNATIONAL EQUITY FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of $18,975)............ $ 140,260
Interest........................................................... 15,175
----------
Total Income...................................................... 155,435
----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 130,149
Registration and Filing Fees....................................... 101,643
Custody............................................................ 92,664
Shareholder Services (Note 2)...................................... 80,198
Distribution (12b-1) and Service Fees (Attributed to Classes A and
B of $18,784 and $54,930, respectively) (Note 6)................... 73,714
Accounting (Note 2)................................................ 30,600
Trustees Fees and Expenses (Note 2)................................ 17,663
Amortization of Organization Expenses (Note 1)..................... 4,179
Other ............................................................. 46,424
----------
Total Expenses.................................................... 577,234
Less Fees Waived and Expenses Reimbursed ($130,149 and $47,998,
respectively) (Note 2)............................................ 178,147
----------
Net Expenses...................................................... 399,087
----------
NET INVESTMENT LOSS................................................ $ (243,652)
----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments....................................................... $ (33,287)
Foreign Currency Transactions..................................... (11,703)
----------
Net Realized Loss on Securities.................................... (44,990)
----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 605,490
----------
End of the Period:
Investments....................................................... 2,843,690
Foreign Currency Translation...................................... 2,364
----------
2,846,054
----------
Net Unrealized Appreciation on Securities During the Period........ 2,240,564
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... $2,195,574
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $1,951,922
----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1996 and the Period February 21, 1995
(Commencement of Investment Operations) to October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Period Ended
October 31, 1996 October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Loss........................ $ (243,652) $ (59,847)
Net Realized Gain/Loss on Securities....... (44,990) 13,225
Net Unrealized Appreciation on Securities
During the Period......................... 2,240,564 605,490
----------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................. 1,951,922 558,868
----------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................. 11,512,611 8,899,218
Cost of Shares Repurchased................. (4,212,850) (136,557)
----------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................... 7,299,761 8,762,661
----------- ----------
TOTAL INCREASE IN NET ASSETS............... 9,251,683 9,321,529
NET ASSETS:
Beginning of the Period.................... 9,321,729 200
----------- ----------
End of the Period (Including undistributed
net investment loss of $812 and $0,
respectively)............................. $18,573,412 $9,321,729
----------- ----------
</TABLE>
See Notes to Financial Statements
43
<PAGE>
INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the period indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 8, 1996
(Commencement of
Distribution) to
Class 1 Shares October 31, 1996 (a)
- ------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of the Period............... $16.00
-------
Net Investment Loss................................... (.028)
Net Realized and Unrealized Gain on Securities........ .545
-------
Total from Investment Operations....................... .517
-------
Net Asset Value, End of the Period..................... $16.517
-------
Total Return* (b)...................................... 3.25%**
Net Assets at End of the Period (In millions).......... $.2
Ratio of Expenses to Average Net Assets*............... 2.50%
Ratio of Net Investment Loss to Average Net Assets*.... (1.31%)
Portfolio Turnover..................................... 78%
Average Commission Paid Per Equity Share Traded (c).... $.0314
*If certain expenses had not been waived or reimbursed
by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets................ 3.87%
Ratio of Net Investment Loss to Average Net Assets..... (2.67%)
</TABLE>
**Non-Annualized
(a) Based on average month-end shares outstanding.
(b)Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c)Represents the average brokerage commissions paid on equity transactions
entered into during the period for trades where commissions were applicable.
See Notes to Financial Statements
44
<PAGE>
INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
February 21, 1995
(Commencement of
Investment
Year Ended Operations) to
Class A Shares October 31, 1996 October 31, 1995 (a)
- -----------------------------------------------------------------------
<S> <C> <C>
Net Asset Value,
Beginning of the Period.. $13.86 $11.81
------- ------
Net Investment Loss..... (.189) (.14)
Net Realized and
Unrealized Gain on
Securities............. 2.872 2.19
------- ------
Total from Investment
Operations............... 2.683 2.05
------- ------
Net Asset Value, End of
the Period............... $16.543 $13.86
------- ------
Total Return* (b)........ 19.34% 16.28%**(c)
Net Assets at End of the
Period (In millions)..... $10.4 $6.6
Ratio of Expenses to
Average Net Assets*...... 2.75% 3.64%
Ratio of Net Investment
Loss to Average Net
Assets*.................. (1.56%) (1.40%)
Portfolio Turnover....... 78% 17%**
Average Commission Paid
Per Equity Share Traded
(d)...................... $.0314 --
*If certain expenses had
not been waived or
reimbursed by VKAC, total
return would have been
lower and the ratios
would have been as
follows:
Ratio of Expenses to
Average Net Assets....... 4.12% 5.97%
Ratio of Net Investment
Loss to Average Net
Assets................... (2.92%) (3.73%)
- -----------------------------------------------------------------------
<CAPTION>
February 21, 1995
(Commencement of
Investment
Year Ended Operations) to
Class B Shares October 31, 1996 October 31, 1995 (a)
- -----------------------------------------------------------------------
<S> <C> <C>
Net Asset Value,
Beginning of the Period.. $13.79 $11.81
------- ------
Net Investment Loss..... (.254) (.21)
Net Realized and
Unrealized Gain on
Securities............. 2.828 2.19
------- ------
Total from Investment
Operations............... 2.574 1.98
------- ------
Net Asset Value, End of
the Period............... $16.364 $13.79
------- ------
Total Return* (b)........ 18.64% 15.69%**(c)
Net Assets at End of the
Period (In millions)..... $8.0 $2.7
Ratio of Expenses to
Average Net Assets*...... 3.50% 4.33%
Ratio of Net Investment
Loss to Average Net
Assets*.................. (2.31%) (2.80%)
Portfolio Turnover....... 78% 17%**
Average Commission Paid
Per Equity Shares
Traded (d)............... $.0314 --
*If certain expenses had
not been waived or
reimbursed by VKAC, total
return would have been
lower and the ratios
would have been as
follows:
Ratio of Expenses to
Average Net Assets....... 4.87% 6.67%
Ratio of Net Investment
Loss to Average Net
Assets................... (3.67%) (5.13%)
</TABLE>
**Non-Annualized
(a)Based on average month-end shares outstanding.
(b)Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c)Total return from March 17, 1995 (date the Fund's investment strategy was
implemented) through October 31, 1995.
(d) Represents the average brokerage commissions paid on equity transactions
entered into during the period for trades where commissions were
applicable. This disclosure was not required in fiscal years prior to 1996.
See Notes to Financial Statements
45
<PAGE>
MONEY MARKET FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Date of Amortized
(000) Description Maturity Purchase Cost
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 68.7%
$2,000 Federal Home Loan Bank.................. 03/17/97 5.57% $ 1,958,748
5,000 Federal Home Loan Mortgage Corp......... 11/08/96 5.19 4,994,256
7,000 Federal Home Loan Mortgage Corp......... 11/19/96 5.21 6,980,826
3,000 Federal Home Loan Mortgage Corp......... 01/07/97 5.30 2,970,307
4,000 Federal Home Loan Mortgage Corp......... 02/10/97 5.33 3,940,670
5,000 Federal National Mortgage Assn.......... 11/05/96 5.39 4,996,362
5,000 Federal National Mortgage Assn.......... 11/13/96 5.20 4,990,638
2,000 Federal National Mortgage Assn.......... 12/10/96 5.44 1,988,244
2,000 Federal National Mortgage Assn.......... 01/17/97 5.38 1,977,120
2,000 Federal National Mortgage Assn.......... 02/18/97 5.43 1,967,550
2,000 Federal National Mortgage Assn.......... 03/06/97 5.64 1,961,640
3,000 Federal National Mortgage Assn.......... 03/27/97 5.46 2,934,953
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS............... 41,661,314
-----------
COMMERCIAL PAPER 19.4%
2,900 Chevron Oil Finance Co.................. 11/05/96 5.25 2,897,889
2,900 General Electric Capital Corp........... 11/04/96 5.29 2,898,302
3,000 General Electric Co. ................... 11/14/96 5.36 2,993,828
3,000 Metlife Funding Inc..................... 12/09/96 5.27 2,983,003
-----------
TOTAL COMMERCIAL PAPER..................................... 11,773,022
-----------
REPURCHASE AGREEMENTS 12.1%
Lehman Brothers Inc. ($3,675,000 par collateralized by
U.S. Government obligations in a pooled cash
account, dated 10/31/96, to be sold on 11/01/96 at
$3,675,582)................................................ 3,675,000
SBC Capital Markets Inc. ($3,670,000 par collateralized by
U.S. Government obligations in a pooled cash
account, dated 10/31/96, to be sold on 11/01/96 at
$3,670,581)................................................ 3,670,000
-----------
TOTAL REPURCHASE AGREEMENTS................................ 7,345,000
-----------
TOTAL INVESTMENTS (A) 100.2%...................................... 60,779,336
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2%)...................... (123,512)
-----------
NET ASSETS 100.0%................................................. $60,655,824
-----------
</TABLE>
(a)At October 31, 1996, cost is identical for both book and federal income tax
purposes.
See Notes to Financial Statements
46
<PAGE>
MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Amortized Cost which Approximates Market (Note 1). $53,434,336
Repurchase Agreements (Note 1).................................... 7,345,000
Cash.............................................................. 484
Receivable for Fund Shares Sold................................... 272,791
Other............................................................. 8,684
-----------
Total Assets..................................................... 61,061,295
-----------
LIABILITIES:
Payables:
Income Distributions............................................. 226,440
Distributor and Affiliates (Note 2).............................. 121,628
Fund Shares Repurchased.......................................... 43,698
Retirement Plan (Note 2).......................................... 1,627
Accrued Expenses.................................................. 12,078
-----------
Total Liabilities................................................ 405,471
-----------
NET ASSETS........................................................ $60,655,824
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $60,654,421
Accumulated Undistributed Net Investment Income................... 1,403
-----------
NET ASSETS ....................................................... $60,655,824
-----------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value per share (Based on net assets of $59,913,334 and
59,912,205 shares of beneficial interest issued and
outstanding).................................................... $ 1.00
-----------
Class A Shares:
Net asset value per share (Based on net assets of $728,835 and
728,810 shares of beneficial interest issued and outstanding)... $ 1.00
-----------
Class B Shares:
Net asset value per share (Based on net assets of $13,655 and
13,654 shares of beneficial interest issued and outstanding).... $ 1.00
-----------
</TABLE>
See Notes to Financial Statements
47
<PAGE>
MONEY MARKET FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $3,378,363
----------
EXPENSES:
Shareholder Services (Note 2)...................................... 578,482
Investment Advisory Fee (Note 2)................................... 308,356
Registration and Filing Fees....................................... 97,800
Accounting (Note 2)................................................ 62,857
Trustees Fees and Expenses (Note 2)................................ 21,914
Distribution (12b-1) and Service Fees (Attributed to Classes A and
B of $54 and $4, respectively) (Note 6)............................ 58
Other.............................................................. 75,169
----------
Total Expenses.................................................... 1,144,636
Less Fees Waived and Expenses Reimbursed ($308,356 and $219,511,
respectively) (Note 2)............................................ 527,867
----------
Net Expenses...................................................... 616,769
----------
NET INVESTMENT INCOME.............................................. $2,761,594
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $2,761,594
----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................... $ 2,761,594 $ 2,753,676
Distributions from Net Investment Income
(Note 1).................................. (2,761,337) (2,753,721)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................ 257 (45)
----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................. 68,178,381 63,147,486
Net Asset Value of Shares Issued Through
Dividend Reinvestment..................... 2,715,171 2,705,499
Cost of Shares Repurchased................. (70,542,884) (61,949,391)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................... 350,668 3,903,594
----------- -----------
TOTAL INCREASE IN NET ASSETS............... 350,925 3,903,549
NET ASSETS:
Beginning of the Period.................... 60,304,899 56,401,350
----------- -----------
End of the Period (Including undistributed
net investment income of $1,403 and
$1,146, respectively)..................... $60,655,824 $60,304,899
----------- -----------
</TABLE>
See Notes to Financial Statements
48
<PAGE>
MONEY MARKET FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------
Class 1 Shares 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ------ ----- ------
Net Investment Income................... .045 .0492 .0288 .023 .0324
Less Distributions from Net Investment
Income.................................. (.045) (.0492) (.0288) (.023) (.0324)
----- ------ ------ ----- ------
Net Asset Value, End of the Period...... $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ------ ----- ------
Total Return*........................... 4.57% 5.01% 2.91% 2.31% 3.29%
Net Assets at End of the Period (In
millions)............................... $59.9 $60.3 $56.4 $59.2 $72.5
Ratio of Expenses to Average Net
Assets*................................. 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of Net Investment Income to
Average Net Assets*..................... 4.48% 4.89% 2.87% 2.30% 3.27%
*If certain expenses had not been waived
or reimbursed by VKAC, total return
would have
been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net Assets. 1.86% 1.71% 1.84% 1.74% 1.60%
Ratio of Net Investment Income to
Average Net Assets...................... 3.62% 4.18% 2.03% 1.56% 2.67%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------- -------------------
Period Ended Period Ended
October 31, 1996(a) October 31, 1996(a)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period................................ $1.00 $1.00
----- -----
Net Investment Income................. .010 .007
Less Distributions from Net Investment
Income................................ (.010) (.007)
----- -----
Net Asset Value, End of the Period.... $1.00 $1.00
----- -----
Total Return*(b)...................... 1.00%** .73%**
Net Assets at End of the Period (In
millions)............................. $.7 $.0
Ratio of Expenses to Average Net
Assets*............................... 1.09% 1.75%
Ratio of Net Investment Income to
Average Net Assets*................... 4.49% 4.17%
*If certain expenses had not been
waived or reimbursed by VKAC, total
return would have
been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets................................ 1.96% 2.61%
Ratio of Net Investment Income to
Average Net Assets.................... 3.62% 3.31%
</TABLE>
**Non-Annualized
(a) Class A and Class B Shares commenced distribution on August 8, 1996.
(b) Total return is based upon net asset value which does not include payment
of the contingent deferred sales charge for Class B Shares.
See Notes to Financial Statements
49
<PAGE>
MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALASKA 0.9%
$1,000 Valdez, AK Marine Term Rev Sohio
Pipeline Rfdg........................... 7.125% 12/01/25 $ 1,105,080
------------
ARIZONA 0.5%
400 Maricopa Cnty, AZ Indl Dev Auth Multi
Family Hsg Rev Rfdg..................... 6.500 07/01/09 416,252
225 Scottsdale, AZ Indl Dev Auth Rev Mtg
Westminster Village Ser A............... 8.250 06/01/15 238,300
------------
654,552
------------
CALIFORNIA 5.3%
2,000 California Hlth Fac Fin Auth Rev Insd
Hlth Fac Catholic Ser B Rfdg (AMBAC
Insd)................................... 5.000 07/01/14 1,864,200
100 California Spl Dists Fin Auth Ctfs Partn
Ser A................................... 8.500 07/01/18 107,253
500 Compton, CA Ctfs Partn Ser B............ 7.500 08/01/15 529,000
560 Del Mar, CA Race Track Auth Rev Rfdg.... 6.000 08/15/01 561,092
1,230 Los Angeles Cnty, CA Pub Wks Fin Auth
Lease Rev Ser B Rfdg (MBIA Insd)........ 5.250 09/01/13 1,187,258
1,000 Orange Cnty, CA Recovery Ctfs Ser A
(MBIA Insd)............................. 6.000 07/01/08 1,079,690
1,000 Orange Cnty, CA Recovery Ser A Rfdg
(MBIA Insd)............................. 6.000 06/01/09 1,072,680
------------
6,401,173
------------
COLORADO 4.1%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund
Hwy Rev E-470 Proj Ser B................ 7.000 08/31/26 1,085,080
7,000 Arapahoe Cnty, CO Cap Impt Trust Fund
Hwy Rev E-470 Proj Ser C................ * 08/31/26 823,607
500 Arvada, CO Sales & Use Tax Rev (FGIC
Insd)................................... 6.250 12/01/12 526,656
250 Berry Creek Metro Dist CO............... 8.250 12/01/11 275,760
400 Edgewater, CO Redev Auth Tax Increment
Rev..................................... 6.750 12/01/08 428,428
500 Highlands Ranch Metro Dist No 1 CO
(Prerefunded @ 09/01/02)................ 7.300 09/01/12 572,750
1,000 Highlands Ranch Metro Dist No 2 CO (FSA
Insd)................................... 6.500 06/15/10 1,125,170
100 Jefferson Cnty, CO Districtwide Sales
Tax Rev (Prerefunded @ 12/01/98)........ 8.200 12/01/13 107,934
------------
4,945,385
------------
CONNECTICUT 2.1%
1,000 Connecticut St Hlth & Edl Fac Auth Rev
Day Kimball Hosp Ser A (FSA Insd)....... 5.375 07/01/26 961,260
500 Connecticut St Hlth & Edl Fac Auth Rev
Univ Hartford Ser D Rfdg................ 6.750 07/01/12 513,305
1,000 Mashantucket Western Pequot Tribe CT.... 6.500 09/01/05 1,028,620
------------
2,503,185
------------
DELAWARE 0.2%
250 Delaware St Econ Dev Auth Rev
Osteopathic Hosp Assoc DE Ser A......... 6.750 01/01/13 277,435
------------
DISTRICT OF COLUMBIA 0.9%
500 District of Columbia Rev Howard Univ Ser
A (MBIA Insd)........................... 8.000 10/01/17 527,375
500 District of Columbia Ser A (Prerefunded
@ 06/01/00)
(AMBAC Insd)............................ 7.500 06/01/10 560,020
------------
1,087,395
------------
FLORIDA 2.1%
425 Broward Cnty, FL Res Recovery Rev....... 7.950 12/01/08 468,563
1,160 Dade Cnty, FL Professional Sports
Franchise Fac Tax Rev (MBIA Insd)....... * 10/01/19 311,170
1,155 Dade Cnty, FL Professional Sports
Franchise Fac Tax Rev (MBIA Insd)....... * 10/01/21 275,213
1,000 Florida St Correctional Privatization
Comm Ctfs Partn (AMBAC Insd)............ 5.000 08/01/17 935,560
500 Saint Petersburg, FL Hlth Fac Auth Rev
(Prerefunded @ 12/01/99)................ 7.750 12/01/15 559,405
------------
2,549,911
------------
HAWAII 0.8%
1,000 Hawaii St Ser CD Rfdg................... 5.000 02/01/03 1,017,370
------------
ILLINOIS 7.2%
500 Chicago, IL Metropolitan Wtr Reclamation
Dist Gtr Chicago........................ 7.000 01/01/11 581,435
2,650 Chicago, IL Wastewtr Transmission Rev
(FGIC Insd)............................. 5.125 01/01/25 2,435,615
500 Chicago, IL Wastewtr Transmission Rev
(Prerefunded @ 01/01/03) (FGIC Insd).... 6.300 01/01/12 550,010
500 Cook Cnty, IL (Prerefunded @ 11/01/00)
(MBIA Insd)............................. 7.000 11/01/10 555,320
500 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd).......... 8.750 01/01/07 638,735
250 Crestwood, IL Tax Increment Rev Rfdg.... 7.250 12/01/08 252,835
500 DuPage Cnty, IL Alt Rev Stormwtr Proj
(Prerefunded @ 01/01/02)................ 6.550 01/01/21 553,300
</TABLE>
See Notes to Financial Statements
50
<PAGE>
MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 250 Illinois Dev Fin Auth Rev Columbus Cuneo
Cabrini Med Cent Rfdg (Prerefunded @
02/01/00)............................... 8.500% 02/01/15 $ 284,303
500 Illinois Hlth Fac Auth Rev Delnor Cmnty
Hosp Proj (Prerefunded @ 05/15/99)...... 8.000 05/15/19 553,380
500 Illinois Hlth Fac Auth Rev IL Masonic
Med Cent Ser B (Prerefunded @ 10/01/99). 7.700 10/01/19 554,855
500 Illinois Hlth Fac Auth Rev Lutheran Hlth
Sys Ser B Rfdg (MBIA Insd).............. 6.000 04/01/18 502,180
250 Illinois Hlth Fac Auth Rev Mem Hosp..... 7.250 05/01/24 262,048
300 Illinois Hlth Fac Auth Rev Mercy Cent
for Hlth Care Svcs...................... 6.625 10/01/12 305,424
500 Illinois Hlth Fac Auth Rev Northwestern
Mem Hosp................................ 6.750 08/15/11 531,810
100 Illinois Hlth Fac Auth Rev Ser A (MBIA
Insd)................................... 7.900 08/15/03 102,329
40 Illinois Hlth Fac Auth Rev Ser A Rfdg
(MBIA Insd)............................. 7.900 08/15/03 45,509
------------
8,709,088
------------
INDIANA 3.3%
1,900 Avon, IN Cmnty Sch Bldg Corp First Mtg
(AMBAC Insd)............................ 5.250 01/01/22 1,762,402
100 Carmel, IN Retirement Rental Hsg Rev
Beverly Enterprises IN Proj............. 8.750 12/01/08 110,345
1,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty
Hosp Proj (MBIA Insd)................... 6.850 07/01/22 1,101,430
500 Merrillville, IN Multi Sch Bldg Corp 1st
Mtg (Prerefunded @ 07/15/00)............ 7.500 07/15/09 561,570
500 Saint Joseph Cnty, IN Hosp Auth Hosp Fac
Rev Mem Hosp South Bend Proj (MBIA
Insd)................................... 6.250 08/15/22 516,080
------------
4,051,827
------------
IOWA 0.9%
1,000 Des Moines, IA Pkg Fac Rev Ser A (FGIC
Insd)................................... 7.250 07/01/15 1,088,300
------------
KANSAS 0.2%
250 Newton, KS Hosp Rev Newton Hlth Care
Corp Ser A.............................. 7.375 11/15/14 262,830
------------
LOUISIANA 0.2%
220 Louisiana Pub Fac Auth Rev Indl Dev
Beverly Enterprise Rfdg................. 8.250 09/01/08 238,011
------------
MAINE 0.4%
250 Maine St Hsg Auth Mtg Pur Ser B......... 7.900 11/15/06 262,233
250 Regional Waste Sys Inc Maine Solid Waste
Resources Recovery Rev.................. 7.950 07/01/10 272,900
------------
535,133
------------
MASSACHUSETTS 2.2%
500 Boston, MA Rev Boston City Hosp (FHA
Gtd).................................... 7.625 02/15/21 564,050
1,000 Holyoke, MA Ser B Rfdg (FSA Insd)....... 6.000 06/15/07 1,065,440
5 Massachusetts Muni Wholesale Elec Co Pwr
Supply Sys Rev Ser A.................... 8.750 07/01/18 6,164
250 Massachusetts St Hsg Fin Agy Hsg Rev
Single Family Ser 31.................... 6.450 12/01/16 259,570
250 Massachusetts St Indl Fin Agy Indl Rev
Beverly Enterprises Rfdg................ 8.000 05/01/02 262,620
500 Massachusetts St Wtr Res Auth Ser A
(Prerefunded @ 04/01/00)................ 7.500 04/01/16 558,435
------------
2,716,279
------------
MICHIGAN 2.9%
500 Detroit, MI Area No 1 Ser A (Prerefunded
@ 07/01/99)............................. 7.600 07/01/10 550,490
2,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No 1 Projs Ser
C1...................................... 6.250 07/01/25 2,040,480
200 Huron Vly, MI Sch Dist (Prerefunded @
05/01/01) (FGIC Insd)................... 7.100 05/01/08 224,638
500 Kent Hosp Fin Auth MI Hosp Fac Rev Ser A
(Prerefunded @ 01/15/00)................ 7.250 01/15/12 551,615
195 Michigan St Hosp Fin Auth Rev Detroit
Med Cent Ser A Rfdg (Prerefunded @
08/15/98)............................... 8.125 08/15/12 211,846
------------
3,579,069
------------
MINNESOTA 0.1%
150 Minneapolis, MN Hlth Care Fac Rev
Ebenezer Society Proj Ser A............. 7.000 07/01/12 154,371
------------
MISSISSIPPI 0.8%
500 Mississippi Hosp Equip & Fac Auth Rev
Magnolia Hosp Proj Ser A................ 7.375 10/01/21 507,235
500 Ridgeland, MS Urban Renewal Rev The
Orchard Ltd Proj Ser A Rfdg............. 7.750 12/01/15 518,630
------------
1,025,865
------------
MISSOURI 4.7%
1,245 Cape Girardeau Cnty, MO Indl Dev Auth
Multi Family Rev Hsg Cape Lacroix Ser A
Rfdg (GNMA Collateralized).............. 6.400 06/20/31 1,274,643
2,750 Kansas City, MO Muni Assist Corp Rev
Rfdg (MBIA Insd)........................ 5.000 04/15/20 2,554,558
250 Missouri St Hlth & Edl Fac Auth......... 8.125 10/01/10 279,330
500 Missouri St Hlth & Edl Fac Auth Hlth Fac
Rev..................................... 6.000 02/15/06 505,940
</TABLE>
See Notes to Financial Statements
51
<PAGE>
MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$ 500 Missouri St Hlth & Edl Fac Auth Hlth Fac
Rev (Prerefunded @ 02/15/99)............ 8.000% 02/15/11 $ 549,610
500 Missouri St Hlth & Edl Fac Auth Hlth Fac
Rev Heartland Hlth Sys Proj............. 6.875 11/15/04 533,635
------------
5,697,716
------------
NEBRASKA 2.3%
2,855 Nebraska Pub Pwr Dist Rev Elec Sys Ser A
(MBIA Insd)............................. 5.250 01/01/22 2,733,777
------------
NEVADA 1.9%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co
Proj C Rfdg (AMBAC Insd)................ 7.200 10/01/22 2,273,140
------------
NEW HAMPSHIRE 0.8%
520 New Hampshire Higher Edl & Hlth Fac Auth
Rev..................................... 7.500 06/01/05 563,893
370 New Hampshire Higher Edl & Hlth Fac Auth
Rev..................................... 9.000 06/01/14 413,120
------------
977,013
------------
NEW JERSEY 3.1%
1,000 Jersey City, NJ Ser A Rfdg (AMBAC Insd). 6.000 10/01/06 1,074,560
1,500 Mercer Cnty, NJ Impt Auth Rev Cap
Apprec.................................. * 04/01/11 677,490
880 New Jersey Econ Dev Auth Holt Hauling &
Warehsg Rev Ser G Rfdg.................. 8.400 12/15/15 919,169
1,000 New Jersey St Tpk Auth Tpk Rev Ser C
Rfdg (MBIA Insd)........................ 6.500 01/01/16 1,128,310
------------
3,799,529
------------
NEW MEXICO 0.9%
1,000 Farmington, New Mexico Pollutn Ctl Rev
Southern CA Edison Co Ser A Rfdg........ 7.200 04/01/21 1,089,140
------------
NEW YORK 6.0%
350 New York City Indl Dev Agy Civic Fac
Marymount Manhattan College Proj........ 7.000 07/01/23 362,467
500 New York City Muni Wtr Fin Auth & Swr
Sys Rev (Prerefunded @ 06/15/01)........ 7.750 06/15/20 574,670
1,000 New York City Ser C..................... 7.000 08/15/16 1,077,710
500 New York St Dorm Auth Rev City Univ Sys
Ser C................................... 6.000 07/01/16 492,300
3,000 New York St Dorm Auth Rev Mental Hlth
Svcs Fac Impt Ser B..................... 5.375 02/15/26 2,744,460
750 New York St Dorm Auth Rev St Univ Edl
Fac Ser A (Prerefunded @ 05/15/00)...... 7.700 05/15/12 844,583
500 New York St Med Care Fac Fin Agy Rev
Hosp & Nursing Home (FHA Gtd)........... 7.250 02/15/24 534,220
500 Triborough Bridge & Tunnel Auth New York
Rev Ser R (Prerefunded @ 01/01/00)...... 7.375 01/01/16 551,800
150 Triborough Bridge & Tunnel Auth New York
Spl Oblig Mtg Recording Tax Ser A
(Prerefunded @ 01/01/98)................ 8.000 01/01/18 159,300
------------
7,341,510
------------
NORTH CAROLINA 1.2%
500 North Carolina Eastn Muni Pwr Agy Pwr
Sys Rev (Prerefunded @ 01/01/22)........ 4.500 01/01/24 423,830
400 North Carolina Eastn Muni Pwr Agy Pwr
Sys Rev Ser A Rfdg...................... 8.000 01/01/21 426,333
250 North Carolina Med Care Comm Hlth Care
Fac Rev (Prerefunded @ 10/01/99)........ 7.800 10/01/19 278,530
250 North Carolina Muni Pwr Agy No 1 Catawba
Elec Rev................................ 7.875 01/01/19 266,449
------------
1,395,142
------------
OHIO 6.6%
1,840 Brecksville Broadview Heights, OH City
Sch Dist (FGIC Insd).................... 6.500 12/01/16 2,040,781
500 Cleveland, OH Pkg Fac Rev (Prerefunded @
09/15/02)............................... 8.000 09/15/12 592,665
250 Coshocton Cnty, OH Solid Waste Disp Rev
Stone Container Corp Proj Rfdg.......... 7.875 08/01/13 267,670
500 Cuyahoga Cnty, OH Hlth Care Fac Rev
Judson Retirement Cmnty Rfdg............ 7.000 11/15/10 499,980
660 Delaware Cnty, OH Hlth Care Fac Rev Mtg
Centrum at Willow Brook (FHA Gtd)....... 6.550 02/01/35 676,546
1,000 Dublin, OH City Sch Dist (FGIC Insd).... 5.000 12/01/18 931,040
1,000 Greater Cincinnati OH Elderly Hsg Dev
Corp Mtg Rev (FSA Insd)................. 6.600 08/01/25 1,041,060
1,000 Miami Cnty, OH Hosp Fac Rev Upper Vly
Med Cent Ser A Rfdg & Impt.............. 6.000 05/15/06 1,012,930
1,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev
OH Edison Co Proj Rfdg.................. 5.950 05/15/29 955,110
------------
8,017,782
------------
OKLAHOMA 0.5%
500 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl
Med Cent (Prerefunded @ 06/01/03)....... 7.200 06/01/17 574,190
------------
</TABLE>
See Notes to Financial Statements
52
<PAGE>
MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OREGON 4.9%
$1,675 Emerald Peoples Util Dist OR Elec Sys
(FGIC Insd)............................. 7.350% 11/01/13 $ 2,017,337
1,920 Jackson Cnty, OR Sch Dist No 549C (FSA
Insd)................................... 6.000 06/01/04 2,064,288
2,000 Oregon Hlth Sciences Univ Rev Ser B
(MBIA Insd)............................. 5.250 07/01/28 1,912,260
------------
5,993,885
------------
PENNSYLVANIA 4.9%
250 Emmaus, PA Genl Auth Rev Ser A (BIGI
Insd)................................... 8.150 05/15/18 267,490
Erie Cnty, PA Higher Ed Bldg Auth
500 College Rev Ser A (Prerefunded @
06/01/99)............................... 8.500 06/01/15 561,190
250 Erie Cnty, PA Hosp Auth Rev Metro Hlth
Cent.................................... 7.250 07/01/12 226,430
500 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent
Rev United Church of Christ Homes Rfdg.. 6.750 10/01/10 506,115
280 Montgomery Cnty, PA Indl Dev Auth Rev
Pennsburg Nursing & Rehab Cent.......... 7.625 07/01/18 288,733
100 Northeastern PA Hosp Auth Hosp Rev...... 7.500 07/01/12 111,061
500 Northeastern PA Hosp Auth Rev Wilkes
Barre Genl Hosp (Prerefunded @
07/01/97)............................... 8.375 07/01/06 524,035
500 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Hahnemann Univ Proj
(Prerefunded @ 07/01/99) (MBIA Insd).... 7.200 07/01/19 546,435
150 Pennsylvania St Higher Edl Fac Auth Hosp
Rev (Prerefunded @ 01/01/98)............ 8.000 01/01/18 159,875
250 Pennsylvania St Higher Edl Fac Auth Rev
Med College PA Ser A (Prerefunded @
03/01/99)............................... 8.375 03/01/11 276,950
500 Philadelphia, PA Hosps & Higher Ed Fac
Auth Hosp Rev........................... 6.250 07/01/06 513,815
250 Scranton Lackawanna, PA Hlth & Welfare.. 8.500 07/01/20 270,688
500 Shenandoah Vly Sch Dist PA Ser B........ * 02/01/12 206,915
1,000 South Fork Muni Auth PA Hosp Good
Samaritan Med Cent Ser B Rfdg (MBIA
Insd)................................... 5.250 07/01/26 941,990
500 Warren Cnty, PA Hosp Auth Rev Warren
Genl Hosp Proj Ser A.................... 6.900 04/01/11 518,155
------------
5,919,877
------------
RHODE ISLAND 0.5%
500 Rhode Island Depositors Econ Protection
Corp Spl Oblig Ser A (Prerefunded @
08/01/02)
(FSA Insd).............................. 6.625 08/01/19 558,570
------------
SOUTH DAKOTA 0.7%
500 South Dakota St Hlth & Edl Fac Auth Rev
Huron Regl Med Cent..................... 7.250 04/01/20 526,065
20 South Dakota St Hlth & Edl Fac Auth Rev
Sioux Vly Hosp.......................... 7.625 11/01/13 21,661
230 South Dakota St Hlth & Edl Fac Auth Rev
Sioux Vly Hosp (Prerefunded @ 11/01/98). 7.625 11/01/13 249,877
------------
797,603
------------
TENNESSEE 2.4%
1,000 Metro Nashville & Davidson Cnty, TN Hlth
& Edl Fac Brd Rev (AMBAC Insd).......... 5.000 12/01/24 909,620
1,000 Sullivan Cnty, TN Indl Dev Brd Rev
Brandymill Rfdg (GNMA Collateralized)... 6.350 07/20/27 1,029,360
890 Tennessee Hsg Dev Agy Homeownership Pgm. 6.800 07/01/17 931,474
------------
2,870,454
------------
TEXAS 10.2%
685 Austin, TX Hsg Fin Corp Multi Family Hsg
Rev Stassney Woods Apartments Proj Rfdg. 6.500 10/01/10 703,379
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp
Rev Saint Lukes Lutheran Hosp
(Prerefunded @ 05/01/03)................ 7.900 05/01/18 587,351
250 Brazoria Cnty, TX Muni Util Dist No 2... 7.000 09/01/08 265,320
500 Brownsville, TX Util Sys Rev
(Prerefunded @ 09/01/00) (AMBAC Insd)... 6.500 09/01/17 545,930
500 Ector Cnty, TX Hosp Dist Hosp Rev Med
Cent Hosp............................... 7.125 04/15/02 532,700
1,000 El Paso Cnty, TX Pkg Fac Rev Ctfs Oblig
(Prerefunded @ 08/15/99)................ 6.500 08/15/11 1,073,800
500 Frenship, TX Indpt Sch Dist............. 5.500 02/15/03 518,855
500 Frenship, TX Indpt Sch Dist............. 5.500 02/15/04 516,490
250 Harris Cnty, TX Hlth Fac Dev Corp Hosp
Rev..................................... 7.125 06/01/15 269,908
1,250 Harris Cnty, TX Hlth Fac Dev Corp
Thermal Util Rev Teco Proj Ser A (AMBAC
Insd)................................... 7.250 02/15/15 1,365,213
500 Houston, TX Wtr Sys Rev (Prerefunded @
12/01/97)............................... 7.250 12/01/07 528,125
1,500 Irving, TX Flood Ctl Dist Section 3
(AMBAC Insd)............................ * 09/01/08 794,790
250 Rusk Cnty, TX Hlth Fac Corp Hosp Rev.... 7.750 04/01/13 261,510
500 Sam Rayburn, TX Muni Pwr Agy Pwr Supply
Sys Rev................................. 6.750 10/01/14 468,220
500 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp
Rev Fort Worth Osteopathic Rfdg & Impt.. 7.000 05/15/28 518,485
1,370 Temple, TX Junior College Dist Hsg Sys &
Use Fee Rev (MBIA Insd)................. 5.375 07/01/21 1,324,489
</TABLE>
See Notes to Financial Statements
53
<PAGE>
MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 130 Texas Genl Svcs Comm Partn Interests
Office Bldg & Land Aquisition Proj...... 7.000% 08/01/14 $ 133,923
330 Texas Genl Svcs Comm Partn Interests
Office Bldg & Land Aquisition Proj...... 7.000 08/01/24 339,959
230 Texas Hsg Agy Mtg Rev Ser A............. 7.150 09/01/12 239,361
485 Texas Hsg Agy Residential Dev Rev Ser A
(GNMA Collateralized)................... 7.600 07/01/16 514,003
500 Texas Wtr Resources Fin Auth Rev (AMBAC
Insd)................................... 7.500 08/15/13 536,890
250 Winters, TX Wtrwks & Swr Sys Rev
(Prerefunded @ 08/01/03)................ 8.500 08/01/17 305,430
------------
12,344,131
------------
UTAH 0.3%
250 Utah St Bldg Ownership Auth Lease Rev
Dept Employment Security Proj
(Prerefunded @ 08/15/98)................ 7.800 08/15/10 266,275
70 Utah St Hsg Fin Agy Mtg Ser G........... 8.100 07/01/16 71,940
------------
338,215
------------
VIRGINIA 4.4%
3,500 Chesapeake Bay Bridge & Tunnel Comm VA
Dist Rev (MBIA Insd).................... 5.000 07/01/22 3,213,350
1,000 Norfolk, VA Indl Dev Auth Rev Hosp Rfdg
Santara Hosp Ser A...................... 6.500 11/01/13 1,059,950
1,000 Peninsula Ports Auth VA Coal Terminal
Rev..................................... 7.375 06/01/20 1,063,820
------------
5,337,120
------------
WASHINGTON 3.6%
1,120 King Cnty, WA Sch Dist No 412 Shoreline
Ser A (FSA Insd)........................ 6.000 12/01/05 1,203,877
2,750 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev (FGIC Insd)............... 5.375 07/01/15 2,623,583
250 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev (FGIC Insd)............... 7.125 07/01/16 297,585
250 Washington St Pub Pwr Supply Sys Nuclear
Proj No 2 Rev (Prerefunded @ 01/01/01).. 7.625 07/01/10 283,770
------------
4,408,815
------------
WISCONSIN 2.0%
250 Jefferson, WI Sewage Sys Wtrwks & Elec
Sys Mtg Rev (Prerefunded @ 07/01/01).... 7.400 07/01/16 280,693
150 Wisconsin Hsg & Econ Dev Auth Hsg Rev
Ser B................................... 8.000 11/01/18 157,164
1,000 Wisconsin St Hlth & Edl Fac Auth Rev
Marquette Univ Proj (FGIC Insd)......... 6.450 12/01/19 1,075,510
1,000 Wisconsin St Hlth & Edl Fac Auth
Waukesha Mem Hosp Ser A (AMBAC Insd).... 5.250 08/15/19 949,620
------------
2,462,987
------------
TOTAL LONG-TERM INVESTMENTS 97.0%
(Cost $111,773,576)(a)......................................... 117,832,855
OTHER ASSETS IN EXCESS OF LIABILITIES 3.0%...................... 3,632,775
------------
NET ASSETS 100.0%............................................... $121,465,630
------------
</TABLE>
*Zero coupon bond
(a) At October 31, 1996, cost for federal income tax purposes is $111,773,576;
the aggregate gross unrealized appreciation is $6,210,908 and the aggregate
gross unrealized depreciation is $151,629, resulting in net unrealized
appreciation of $6,059,279.
See Notes to Financial Statements
54
<PAGE>
MUNICIPAL BOND FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $111,773,576) (Note 1)......... $117,832,855
Cash.............................................................. 413,393
Receivables:
Securities Sold.................................................. 2,586,251
Interest......................................................... 2,127,118
Fund Shares Sold................................................. 1,067,641
Options at Market Value (Net premiums paid of $32,012) (Note 5)... 2,922
Other............................................................. 43,014
------------
Total Assets..................................................... 124,073,194
------------
LIABILITIES:
Payables:
Securities Purchased............................................. 1,779,877
Income Distributions............................................. 483,869
Fund Shares Repurchased.......................................... 130,870
Distributor and Affiliates (Note 2).............................. 95,441
Investment Advisory Fee (Note 2)................................. 60,701
Accrued Expenses.................................................. 54,443
Retirement Plan (Note 2).......................................... 2,363
------------
Total Liabilities................................................ 2,607,564
------------
NET ASSETS........................................................ $121,465,630
------------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $115,004,705
Net Unrealized Appreciation on Securities......................... 6,030,189
Accumulated Net Realized Gain on Securities....................... 341,691
Accumulated Undistributed Net Investment Income................... 89,045
------------
NET ASSETS........................................................ $121,465,630
------------
MAXIMUM OFFERING PRICE PER SHARE:
Class 1 Shares:
Net asset value and redemption price per share (Based on net
assets of $118,684,512 and 8,582,302 shares of beneficial
interest issued and outstanding) (Note 3)........................ $13.83
Maximum sales charge (4.75%* of offering price).................. .69
------------
Maximum offering price to public................................. $14.52
------------
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $2,128,552 and 153,942 shares of beneficial interest
issued and outstanding) (Note 3)................................. $13.83
Maximum sales charge (4.50%* of offering price).................. .65
------------
Maximum offering price to public................................. $14.48
------------
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $652,566 and 47,211 shares of beneficial interest issued and
outstanding) (Note 3)............................................ $13.82
------------
</TABLE>
* On sales of $10,000 or more for Class 1 shares and $50,000 or more for Class
A shares, the sales charge will be reduced.
See Notes to Financial Statements
55
<PAGE>
MUNICIPAL BOND FUND STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $7,494,525
----------
EXPENSES:
Investment Advisory Fees (Note 2).................................. 728,210
Shareholder Services (Note 2)...................................... 242,636
Registration and Filing Fees....................................... 101,838
Accounting (Note 2)................................................ 99,374
Trustees Fees and Expenses (Note 2)................................ 26,958
Legal (Note 2)..................................................... 3,164
Distribution (12b-1) and Service Fees (Attributed to Classes A and
B of $419 and $762, respectively) (Note 6)......................... 1,181
Other ............................................................. 70,496
----------
Total Expenses.................................................... 1,273,857
----------
NET INVESTMENT INCOME.............................................. $6,220,668
----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments................................... $ 350,316
----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 5,538,937
----------
End of the Period:
Investments....................................................... 6,059,279
Options........................................................... (29,090)
----------
6,030,189
----------
Net Unrealized Appreciation on Securities During the Period........ 491,252
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... $ 841,568
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $7,062,236
----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, October 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 6,220,668 $ 6,314,995
Net Realized Gain on Securities.................... 350,316 401,050
Net Unrealized Appreciation on Securities During
the Period........................................ 491,252 6,922,298
------------ ------------
Change in Net Assets from Operations............... 7,062,236 13,638,343
------------ ------------
Distributions from Net Investment Income (Note 1).. (6,299,276) (6,187,572)
Distributions from Net Realized Gain on Securities
(Note 1).......................................... (373,830) -0-
------------ ------------
Total Distributions............................... (6,673,106) (6,187,572)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 389,130 7,450,771
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.......................... 29,491,790 26,976,160
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 5,768,806 5,355,586
Cost of Shares Repurchased......................... (33,307,016) (32,748,016)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS. 1,953,580 (416,270)
------------ ------------
TOTAL INCREASE IN NET ASSETS....................... 2,342,710 7,034,501
NET ASSETS:
Beginning of the Period............................ 119,122,920 112,088,419
------------ ------------
End of the Period (Including undistributed net
investment income of $89,045 and $158,581,
respectively)..................................... $121,465,630 $119,122,920
------------ ------------
</TABLE>
See Notes to Financial Statements
56
<PAGE>
MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------
Class 1 Shares 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $13.77 $12.89 $14.07 $13.03 $12.84
------- ------ ------- ------ -------
Net Investment Income.................. .704 .74 .71 .728 .725
Net Realized and Unrealized Gain/Loss
on Securities......................... .111 .867 (1.182) 1.038 .2175
------- ------ ------- ------ -------
Total from Investment Operations........ .815 1.607 (.472) 1.766 .9425
Less:
Distributions from Net Investment
Income................................. .713 .727 .708 .726 .7525
Distributions from Net Realized Gain on
Securities (Note 1).................... .043 .000 .000 .000 .000
------- ------ ------- ------ -------
Total Distributions..................... .756 .727 .708 .726 .7525
------- ------ ------- ------ -------
Net Asset Value, End of the Period...... $13.829 $13.77 $12.89 $14.07 $13.03
------- ------ ------- ------ -------
Total Return (a)........................ 6.09% 12.72% (3.38%) 13.84% 7.57%
Net Assets at End of the Period (In
millions)............................... $118.7 $119.1 $112.1 $95.9 $60.3
Ratio of Expenses to Average Net Assets. 1.05% .96% .99% .96% 1.14%
Ratio of Net Investment Income to
Average Net Assets...................... 5.13% 5.58% 5.27% 5.29% 5.56%
Portfolio Turnover...................... 80% 49% 4% 4% 6%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------------- --------------------
Period Ended Period Ended
October 31, 1996 (b) October 31, 1996 (b)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................. $13.780 $13.780
------- -------
Net Investment Income............. .106 .091
Net Realized and Unrealized Gain
on Securities.................... .045 .038
------- -------
Total from Investment Operations... .151 .129
Less Distributions from Net
Investment Income.................. .104 .087
------- -------
Net Asset Value, End of the Period. $13.827 $13.822
------- -------
Total Return (a)................... 1.12%* .93%*
Net Assets at End of the Period (In
millions).......................... $2.1 $0.7
Ratio of Expenses to Average Net
Assets............................. 1.30% 2.05%
Ratio of Net Investment Income to
Average Net Assets................. 4.82% 4.06%
Portfolio Turnover................. 80% 80%
</TABLE>
*Non-Annualized
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) Class A and Class B shares commenced distribution on August 8, 1996.
See Notes to Financial Statements
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
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 com-
pany comprised of seven funds: Emerging Growth Fund ("Emerging Growth"), Gov-
ernment Fund ("Government"), Growth Fund ("Growth"), Growth and Income Fund
("Growth and Income"), International Equity Fund ("International Equity"),
Money Market Fund ("Money Market") and Municipal Bond Fund ("Municipal Bond")
(collectively the "Funds"). Each Fund is accounted for as a separate entity.
During the period, Emerging Growth and International Equity issued Class 1
Shares and were reorganized from a series of the Common Sense Trust II to a se-
ries of the Trust. Also during the period, Government, Growth, Growth and In-
come, Money Market and Municipal Bond issued Class A Shares and Class B Shares.
Each Fund currently offers three classes of shares, Class 1, Class A and Class
B.
The investment goals of each Fund are as follows: Emerging Growth seeks capital
appreciation by primarily investing in common stock of small and medium sized
companies. Government seeks high current return consistent with preservation of
capital by primarily investing in debt securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Growth seeks capital appre-
ciation by investing in common stocks. Growth & Income seeks reasonable growth
and income by primarily investing in equity securities that provide dividend
income and securities that are convertible into common or preferred stocks. In-
ternational Equity seeks growth and income by investing at least 65% of its as-
sets in non-United States equity securities. Money Market seeks protection of
capital and income through investments in short-term money market instruments.
Municipal Bond seeks as high a level of current income exempt from federal in-
come tax as is consistent with preservation of capital.
The following is a summary of significant accounting policies consistently fol-
lowed by the Trust in the preparation of its financial statements. The prepara-
tion of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent as-
sets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual amounts
may differ from the estimates.
A. SECURITY VALUATION-Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Fixed income investments are stated at value using market quotations. Unlisted
securities and listed securities for which the last sales price is not avail-
able are valued at the last bid price. For those securities where quotations or
prices are not available, valuations are determined in accordance with proce-
dures established in good faith by the Board of Trustees. Short-term securities
with remaining maturities of 60 days or less are valued at amortized cost. For
Money Market, all investments are valued at amortized cost.
Investments in foreign securities involve certain risks not ordinarily associ-
ated with investments in securities of domestic issuers, including fluctuations
in foreign exchange rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions.
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 prin-
cipal and interest payments. At the end of the period, debt securities rated
below investment grade and comparable unrated securities represented approxi-
mately 10.3% of Municipal Bond's investment portfolio. Issuers of certain secu-
rities owned by Municipal Bond have obtained insurance guaranteeing their
timely payment of principal at maturity and interest. The insurance reduces fi-
nancial risk but not market risk of these securities.
B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date ba-
sis. Realized gains and losses are determined on an identified cost basis. Gov-
ernment and Municipal Bond may purchase and sell securities on a "when issued"
or "delayed delivery" basis, with settlement to occur at a later date. The
value of the security so purchased is
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
subject to market fluctuations during this period. Government and Municipal
Bond will maintain, in a segregated account with its custodian, assets having
an aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made. At October 31, 1996, Mu-
nicipal Bond had no when issued or delayed delivery purchase commitments.
The Funds may invest in repurchase agreements which are short-term investments
in which a Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. Each fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with certain 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 fully collateralized by the underlying debt security. Each fund
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 re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due each fund.
C. INVESTMENT INCOME-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Issuers of Payment-in-Kind se-
curities may make dividend or interest payments by issuing additional stocks or
bonds in lieu of cash payments. Original issue discount is amortized over the
expected life of each applicable security. With the exception of Money Market
and Municipal Bond, premiums on debt securities are not amortized. Market dis-
counts are recognized at the time of sale as realized gains for book purposes
and ordinary income for tax purposes.
Under the applicable foreign tax laws, a tax may be imposed on interest, divi-
dends, and realized gains generated from foreign investments. Such taxes are
generally reflected on the Statement of Operations as a reduction of the re-
lated income or gains.
D. ORGANIZATIONAL EXPENSES-Emerging Growth and International Equity have reim-
bursed PFS Distributors or its affiliates (collectively "PFS") for costs in-
curred in connection with each Fund's organization in the amount of $20,906 per
Fund. These costs for Emerging Growth and International Equity are being amor-
tized on a straight line basis over the 60 month period ending February, 2000
and March, 2000, respectively. The Adviser has agreed that in the event any of
the initial shares of these funds originally purchased by Van Kampen American
Capital Distributors, Inc. or its affiliates (collectively "VKAC") are redeemed
during the amortization period, these funds will be reimbursed for any unamor-
tized organizational expenses in the same proportion as the number of shares
redeemed bears to the number of initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES-It is each Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Each Fund intends to utilize provisions of the Federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future capital gains real-
ized by such Fund. The following table presents the realized capital loss
carryforward at October 31, 1996, along with its expiration period.
<TABLE>
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Realized capital loss
carryforward............ $3,686,606 $34,520,669 -- -- $33,287 $4,136 --
Expiration dates of
capital loss
carryforward............ 2003-2004 2002-2004 -- -- 2004 2002-2003 --
</TABLE>
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
F. DISTRIBUTION OF INCOME AND GAINS-Government, Money Market and Municipal Bond
declare dividends from net investment income on each business day. Growth and
Income declares dividends quarterly. Emerging Growth, Growth and International
Equity declare dividends annually. Dividends and distributions to shareholders
are recorded on the record date. Distributions from net realized gains for book
purposes may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.
For the year ended October 31, 1996, distributions were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM
AND IN EXCESS OF
NET INVESTMENT INCOME
Class 1................ $ -0- $21,453,795 $27,245,960 $17,403,926 $ -0- $2,758,939 $6,288,593
Class A................ -0- 153,693 -0- 103,649 -0- 2,375 7,781
Class B................ -0- 174,701 -0- 121,982 -0- 23 2,902
-------- ----------- ------------ ----------- ------------- ---------- ----------
Total.................. $ -0- $21,782,189 $27,245,960 $17,629,557 $ -0- $2,761,337 $6,299,276
-------- ----------- ------------ ----------- ------------- ---------- ----------
DISTRIBUTIONS FROM
NET REALIZED GAIN
ON SECURITIES
Class 1................ $ -0- $ -0- $358,762,393 $85,264,726 $ -0- $ -0- $373,830
Class A................ -0- -0- -0- -0- -0- -0- -0-
Class B................ -0- -0- -0- -0- -0- -0- -0-
-------- ----------- ------------ ----------- ------------- ---------- ----------
Total.................. $ -0- $ -0- $358,762,393 $85,264,726 $ -0- $ -0- $373,830
-------- ----------- ------------ ----------- ------------- ---------- ----------
</TABLE>
The distributions from net realized gain on securities include distributions
from long-term capital gains for Class 1 shares on Growth, Growth and Income
and Municipal Bond in the amounts of $100,252,969, $57,961,436 and $104,979,
respectively.
For the year ended October 31, 1995, distributions were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS FROM
AND IN EXCESS OF
NET INVESTMENT INCOME
Class 1................ -- $22,389,062 $22,053,177 $14,344,183 -- $2,753,721 $6,187,572
Class A................ $ -0- -- -- -- $ -0- -- --
Class B................ -0- -- -- -- -0- -- --
-------- ----------- ------------ ----------- ------------- ---------- ----------
Total.................. $ -0- $22,389,062 $22,053,177 $14,344,183 $ -0- $2,753,721 $6,187,572
-------- ----------- ------------ ----------- ------------- ---------- ----------
DISTRIBUTIONS FROM
NET REALIZED GAIN
ON SECURITIES
Class 1................ -- $ -0- $147,259,430 $71,729,488 -- $ -0- $ -0-
Class A................ $ -0- -- -- -- $ -0- -- --
Class B................ -0- -- -- -- -0- -- --
-------- ----------- ------------ ----------- ------------- ---------- ----------
Total.................. $ -0- $ -0- $147,259,430 $71,729,488 $ -0- $ -0- $ -0-
-------- ----------- ------------ ----------- ------------- ---------- ----------
</TABLE>
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
Due to inherent differences in the recognition of income, expenses and realized
gains/losses under generally accepted accounting principles and federal income
tax purposes, the following permanent differences between book and tax basis
reporting for the 1996 fiscal year have been identified and appropriately re-
classified.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ---------------------------------------------------------------------------------------------------------------
Accumulated Undistributed Net
Investment Income (a,b,c,d)... $1,067,479 $118,304 $ (924) $ 208,297 $ 242,840 -- $ 9,072
Accumulated Net Realized
Gain/Loss on Securities (b,c). -- (239,533) (407,610) (258,709) 11,703 -- (9,072)
Capital (a,b,c,d) --
Class 1....................... (580) (82,125) -- -- (763) -- --
Class A....................... (492,878) 90,576 159,328 19,368 (146,617) -- --
Class B....................... (574,021) 112,778 249,206 31,044 (107,163) -- --
</TABLE>
(a) For federal income tax purposes, net operating losses may not be used to
offset income generated in future tax years, therefore, these losses have
been reclassified from accumulated net investment income to capital.
(b) For federal income tax purposes, realized gains and losses on transactions
in foreign currencies are included as ordinary income. These realized gains
and losses are included in net realized gain/loss on securities for
financial reporting purposes and have been reclassified from accumulated
net realized gain/loss on securities to accumulated undistributed net
investment income.
(c) Accretion of market discounts on bonds and paydowns of mortgage pool
obligations are recognized as ordinary income for federal income tax
purposes but as realized gains or losses for book purposes. These permanent
differences have been reclassified from accumulated net realized gain/loss
on securities to accumulated undistributed net investment income.
(d) Due to the Trust reorganization (see note 3), certain temporary differences
of the Target Funds became permanent differences as a result of the merger.
These items have been reclassified between accumulated undistributed net
investment income, accumulated net realized gain/loss on securities and
capital.
G. FOREIGN CURRENCY TRANSLATION-The market values of foreign securities, for-
ward currency exchange contracts and other assets and liabilities denominated
in a 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 his-
torical exchange rates. Income and expenses are translated at prevailing ex-
change 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 in-
cludes the net realized amount from the sale of currency and the amount real-
ized between trade date and settlement date on security transactions.
H. PRIVATE PLACEMENTS-A Fund may own securities purchased in private placement
transactions, which have not been registered under the Securities Act of 1933.
Such securities generally may be resold only in a privately negotiated transac-
tion with a limited number of purchasers or in a public offering after they
have been registered under the Securities Act of 1933. The issuers of privately
placed debt securities held by a Fund generally have agreed to register the se-
curities within specified time periods or increase the interest paid on such
securities.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee, pay-
able monthly, based on the average daily net assets of the Funds as follows:
<TABLE>
<CAPTION>
EMERGING GROWTH, GROWTH
&
GROWTH AND INCOME
- ------------------------
AVERAGE DAILY ANNUAL
NET ASSETS RATE
- ------------------------
<S> <C>
First $1 bil-
lion........... .65%
Next $1 billion. .60%
Next $1 billion. .55%
Next $1 billion. .50%
Over $4 billion. .45%
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT
---
AVERAGE DAILY ANNUAL
NET ASSETS RATE
---
<S> <C>
First $1 bil-
lion........... .60%
Next $1 billion. .55%
Next $1 billion. .50%
Next $1 billion. .45%
Next $1 billion. .40%
Over $5 billion. .35%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET
AVERAGE DAILY ANNUAL
NET ASSETS RATE
<S> <C>
First $2 bil-
lion........... .50%
Next $2 billion. .475%
Over $4 billion. .45%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL BOND
--
AVERAGE DAILY ANNUAL
NET ASSETS RATE
--
<S> <C>
First $1 bil-
lion........... .60%
Next $1 billion. .55%
Next $1 billion. .50%
Over $3 billion. .45%
</TABLE>
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
The Adviser has entered into a subadvisory agreement with Smith Barney Mutual
Funds Management, Inc. (the "Subadviser"), who provides advisory services to
International Equity and the Adviser with respect to its investments in foreign
securities. Advisory fees for International Equity 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 voluntarily elected to reimburse Money Market for any ordinary
business expenses in excess of 1.00% of its average daily net assets. The Ad-
viser may modify or terminate this election at any time without prior notice.
During the period, the adviser waived advisory fees of $308,356 and reimbursed
other expenses of $219,511.
The Adviser has agreed that it will reimburse the Funds for any expenses (in-
cluding the advisory fee, but excluding interest, brokerage commissions, dis-
tribution 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 International Equity, the Subadviser may, from time
to time, agree to waive their respective investment advisory fees or any por-
tion thereof or elect to reimburse a Fund for ordinary business expenses in ex-
cess of an agreed upon amount. For International Equity, $46,643 of the expense
reduction was voluntary and $131,504 was reimbursed due to the contractual ex-
pense limitation. The Adviser prepaid the Fund's initial registration and fil-
ing expenses. Emerging Growth and International Equity amortized their portion
of such expenses over a ten month period that ended December 1995.
Amounts paid by the Funds to PFS and VKAC during the period were as follows:
<TABLE>
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounting services..... $ 79,620 $ 93,056 $ 406,931 $ 168,039 $ 30,600 $ 62,857 $ 99,374
Shareholder servicing
fees.................... 404,745 419,709 6,662,929 1,511,492 65,341 498,131 194,704
</TABLE>
For the year ended October 31, 1996, the Funds incurred expenses as shown in
the table above representing VKAC's cost of providing accounting and cash man-
agement services to the Funds. These services are provided by VKAC at cost.
PFS Distributors (the "Distributor"), a wholly owned subsidiary of Travelers
Group, Inc. serves as Distributor of the Fund'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 $345,196 to
companies which are deemed affiliates of the Distributor's parent because it
owns more than 5% of the companies' outstanding voting securities.
PFS Shareholder Services ("PFSS"), an affiliate of the Distributor, serves as
the shareholder servicing agent for the Funds. For the year ended October 31,
1996, the Funds incurred expenses as shown in the table above, representing
PFSS' cost of providing transfer agency and shareholder services plus a profit.
Certain officers and trustees of the Funds are also officers and directors of
PFS and VKAC. The Funds do not compensate their officers or trustees who are
officers of PFS and VKAC.
The Trustees of the Trust instituted a Retirement Plan effective April 1, 1996.
The Plan is not funded, and obligations under the Plan will be paid solely out
of the Trust's general account. The Trust will not reserve or set aside funds
for the payment of its obligations under the Plan by any form of trust or es-
crow. For the current Trustees not affiliated with the Adviser, the annual re-
tirement 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 proportionally reduced benefit. Under the
Plan, for the Trustees retiring with the effectiveness of the Plan, the annual
retirement benefit payable per year for a ten year period is equal to 75% of
the total compensation received from the Trust during the 1995 calendar year.
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Funds have three classes of shares of beneficial interest, Classes 1, A and
B, each with a par value of $.01 per share. There are an unlimited number of
shares authorized.
For the year ended October 31, 1996, share transactions were as follows:
<TABLE>
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
Class 1................ 38,105 2,871,610 16,457,335 5,320,300 9,813 67,367,316 1,942,660
Class A................ 2,000,873 1,149,244 2,868,484 1,861,875 396,481 797,434 153,756
Class B................ 1,592,107 1,410,035 4,253,128 2,953,516 335,699 13,631 47,012
--------- ---------- ----------- ---------- -------- ----------- ----------
Total Sales............ 3,631,085 5,430,889 23,578,947 10,135,691 741,993 68,178,381 2,143,428
--------- ---------- ----------- ---------- -------- ----------- ----------
DIVIDEND
REINVESTMENT
Class 1................ -0- 1,767,746 24,543,242 6,129,820 -0- 2,712,773 418,529
Class A................ -0- 14,411 -0- 5,681 -0- 2,375 561
Class B................ -0- 16,399 -0- 6,789 -0- 23 210
--------- ---------- ----------- ---------- -------- ----------- ----------
Total Dividend
Reinvestment........... -0- 1,798,556 24,543,242 6,142,290 -0- 2,715,171 419,300
--------- ---------- ----------- ---------- -------- ----------- ----------
REPURCHASES
Class 1................ -0- (7,862,750) (23,362,241) (8,236,939) -0- (70,471,885) (2,428,730)
Class A................ (283,852) (95,253) (124,234) (73,103) (243,560) (70,999) (375)
Class B................ (178,667) (96,131) (117,684) (81,341) (43,903) -0- (11)
--------- ---------- ----------- ---------- -------- ----------- ----------
Total Repurchases...... (462,519) (8,054,134) (23,604,159) (8,391,383) (287,463) (70,542,884) (2,429,116)
--------- ---------- ----------- ---------- -------- ----------- ----------
For the year ended October 31, 1995, share transactions were as follows:
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MONEY MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MARKET BOND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
Class 1................ -- 3,887,096 19,019,524 6,095,770 -- 63,147,478 2,026,724
Class A................ 1,125,630 -- -- -- 480,871 -- --
Class B................ 732,333 -- -- -- 202,578 -- --
--------- ---------- ----------- ---------- -------- ----------- ----------
Total Sales............ 1,857,963 3,887,096 19,019,524 6,095,770 683,449 63,147,478 2,026,724
--------- ---------- ----------- ---------- -------- ----------- ----------
DIVIDEND
REINVESTMENT
Class 1................ -- 1,865,887 12,278,591 6,153,341 -- 2,705,499 402,352
Class A................ -0- -- -- -- -0- -- --
Class B................ -0- -- -- -- -0- -- --
--------- ---------- ----------- ---------- -------- ----------- ----------
Total Dividend
Reinvestment........... -0- 1,865,887 12,278,591 6,153,341 -0- 2,705,499 402,352
--------- ---------- ----------- ---------- -------- ----------- ----------
REPURCHASES
Class 1................ -- (8,448,288) (23,505,333) (8,600,756) -- (61,949,391) (2,471,996)
Class A................ (70,836) -- -- -- (6,846) -- --
Class B................ (14,613) -- -- -- (3,080) -- --
--------- ---------- ----------- ---------- -------- ----------- ----------
Total Repurchases...... (85,449) (8,448,288) (23,505,333) (8,600,756) (9,926) (61,949,391) (2,471,996)
--------- ---------- ----------- ---------- -------- ----------- ----------
</TABLE>
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
For the year ended October 31, 1996, capital transactions were as follows:
<TABLE>
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MONEY MARKET BOND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
Class 1............. $ 724,896 $ 30,153,836 $ 276,405,770 $ 91,685,267 $ 163,259 $ 67,367,316 $ 26,742,300
Class A............. 34,657,451 11,822,387 44,341,185 29,746,398 6,181,070 797,434 2,109,316
Class B............. 26,926,301 14,598,261 65,291,032 47,348,206 5,168,282 13,631 640,174
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Sales......... $62,308,648 $ 56,574,484 $ 386,037,987 $ 168,779,871 $11,512,611 $ 68,178,381 $ 29,491,790
----------- ------------ --------------- ------------- ----------- ------------ ------------
DIVIDEND
REINVESTMENT
Class 1............. $ -0- $ 18,444,465 $ 383,855,779 $ 101,050,427 $ -0- $ 2,712,773 $ 5,758,155
Class A............. -0- 148,139 -0- 101,172 -0- 2,375 7,749
Class B............. -0- 168,546 -0- 120,825 -0- 23 2,902
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Dividend
Reinvestment........ $ -0- $ 18,761,150 $ 383,855,779 $ 101,272,424 $ -0- $ 2,715,171 $ 5,768,806
----------- ------------ --------------- ------------- ----------- ------------ ------------
REPURCHASES
Class 1............. $ -0- $(81,974,033) $ (392,656,318) $(142,390,951) $ -0- $(70,471,885) $(33,301,708)
Class A............. (4,998,044) (977,331) (2,155,576) (1,300,278) (3,522,695) (70,999) (5,158)
Class B............. (3,094,195) (982,903) (2,036,872) (1,441,770) (690,155) -0- (150)
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Repurchases... $(8,092,239) $(83,934,267) $ (396,848,766) $(145,132,999) $(4,212,850) $(70,542,884) $(33,307,016)
----------- ------------ --------------- ------------- ----------- ------------ ------------
ENDING CAPITAL
Class 1............. $ 724,316 $318,925,659 $ 2,239,161,226 $ 671,692,316 $ 162,496 $ 59,911,957 $112,249,872
Class A............. 43,717,671 11,083,771 42,344,937 28,566,660 8,563,858 728,810 2,111,907
Class B............. 33,313,743 13,896,682 63,503,366 46,058,305 7,035,103 13,654 642,926
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Capital....... $77,755,730 $343,906,112 $ 2,345,009,529 $ 746,317,281 $15,761,457 $ 60,654,421 $115,004,705
----------- ------------ --------------- ------------- ----------- ------------ ------------
For the year ended October 31, 1995, capital transactions were as follows:
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY MONEY MARKET BOND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SALES
Class 1............. $ -- $ 40,107,323 $ 294,906,458 $ 94,833,007 $ -- $ 63,147,486 $ 26,976,160
Class A............. 15,578,206 -- -- -- 6,176,592 -- --
Class B............. 10,263,657 -- -- -- 2,722,626 -- --
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Sales......... $25,841,863 $ 40,107,323 $ 294,906,458 $ 94,833,007 $ 8,899,218 $ 63,147,486 $ 26,976,160
----------- ------------ --------------- ------------- ----------- ------------ ------------
DIVIDEND REINVESTMENT
Class 1............. $ -- $ 19,322,483 $ 168,462,102 $ 84,847,579 $ -- $ 2,705,499 $ 5,355,586
Class A............. -- -- -- -- -- -- --
Class B............. -- -- -- -- -- -- --
----------- ------------ --------------- ------------- ----------- ------------ ------------
Ending Capital...... $ -- $ 19,322,483 $ 168,462,102 $ 84,847,579 $ -- $ 2,705,499 $ 5,355,586
----------- ------------ --------------- ------------- ----------- ------------ ------------
REPURCHASES
Class 1............. $ -- $(87,084,035) $ (365,263,456) $(133,313,425) $ -- $(61,949,391) $(32,748,016)
Class A............. (1,037,611) -- -- -- (94,421) -- --
Class B............. (215,177) -- -- -- (42,136) -- --
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Repurchases... $(1,252,788) $(87,084,035) $ (365,263,456) $(133,313,425) $ (136,557) $(61,949,391) $(32,748,016)
----------- ------------ --------------- ------------- ----------- ------------ ------------
ENDING CAPITAL
Class 1............. $ -0- $352,383,516 $ 1,971,555,995 $ 621,347,573 $ -0- $ 60,303,753 $113,051,125
Class A............. 14,551,142 -0- -0- -0- 6,052,100 -0- -0-
Class B............. 10,055,658 -0- -0- -0- 2,664,139 -0- -0-
----------- ------------ --------------- ------------- ----------- ------------ ------------
Total Capital....... $24,606,800 $352,383,516 $ 1,971,555,995 $ 621,347,573 $ 8,716,239 $ 60,303,753 $113,051,125
----------- ------------ --------------- ------------- ----------- ------------ ------------
</TABLE>
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- -------------------------------------------------------------------------------
Class B shares are offered without a front end sales charge, but are subject
to a contingent deferred sales charge (CDSC). The CDSC will be imposed on most
redemptions made within five years of the purchase as detailed in the
following schedule. Class B shares bear the expense of their respective
deferred sales arrangements, including higher distribution and service fees
and incremental transfer agency costs.
<TABLE>
<CAPTION>
EMERGING GROWTH, GROWTH, GOVERNMENT &
GROWTH AND INCOME & MUNICIPAL BOND
INTERNATIONAL EQUITY CLASS B SHARE
CLASS B SHARE CONTINGENT CONTINGENT DEFERRED
YEAR OF REDEMPTION DEFERRED SALES CHARGE SALES CHARGE
- --------------------------------------------------------------------------------
<S> <C> <C>
First.............................. 5.00% 4.00%
Second............................. 4.00% 4.00%
Third.............................. 3.00% 3.00%
Fourth............................. 2.50% 2.50%
Fifth.............................. 1.50% 1.50%
Sixth and Thereafter............... None None
</TABLE>
For the year ended October 31, 1996, PFS, as Distributor for the Funds,
received commissions on sales of the Funds' Class 1 and Class A shares of
approximately $4,702,900 and CDSC on redeemed shares of approximately
$173,800. Sales charges do not represent expenses of the Funds.
On August 9, 1996, Government, Growth and Growth and Income (the "Acquiring
Funds") acquired all of the assets and liabilities of the similarly named
Common Sense Trust II Funds (the "Target Funds"), through a tax free
reorganization approved by Target Funds' shareholders on August 6, 1996. The
Acquiring Funds issued shares in exchange for the Target Funds' net assets as
shown in the table below. Included in these net assets were tax basis capital
loss carryforwards as applicable which are included in accumulated net
realized gain/loss on securities. Shares issued in connection with this
reorganization are included in Class A and Class B shares sales for the
current period. Also shown in the table below are the combined net assets on
the date of acquisition.
<TABLE>
<CAPTION>
GROWTH AND
GOVERNMENT GROWTH INCOME
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED BY ACQUIRING FUNDS
Class A................................... 976,227 2,491,446 1,557,123
Class B................................... 1,280,125 3,884,873 2,628,487
NET ASSETS EXCHANGED BY TARGET FUNDS
Class A................................... $10,103,950 $41,532,398 $26,751,368
Class B................................... $13,249,295 $64,760,829 $45,157,410
CAPITAL LOSS CARRYFORWARD.................. $ 142,818 $ -0- $ -0-
COMBINED NET ASSETS AT AUGUST 9, 1996
(In Thousands)............................ $ 319,050 $ 2,929,999 $ 979,433
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investment
securities, excluding short-term investments and forward purchase commitments,
were:
<TABLE>
<CAPTION>
EMERGING GROWTH AND INTERNATIONAL MUNICIPAL
GROWTH GOVERNMENT GROWTH INCOME EQUITY BOND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases............... $89,935,496 $727,284,219 $5,276,442,545 $1,092,548,420 $17,246,772 $95,587,964
Sales................... 43,054,728 737,176,528 5,290,512,752 1,047,616,562 9,774,072 96,711,008
</TABLE>
65
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Funds have a variety of reasons to use derivative instruments, such as to
attempt to protect the Funds against possible changes in the market value of
its portfolio, manage the portfolio's effective yield, foreign currency expo-
sure, maturity and duration or generate potential gain. All of the Funds' port-
folio holdings, including derivative instruments, are marked to market each day
with the change in value reflected in the unrealized appreciation/depreciation
on securities. Upon disposition, a realized gain or loss is recognized accord-
ingly, except for exercised option contracts where the recognition of gain or
loss is postponed until the disposal of the security underlying the option con-
tract.
Summarized below are the specific types of derivative financial instruments
used by the Funds.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. Municipal Bond generally invests in options on
U.S. Treasury bonds which are generally used to manage the portfolio's effec-
tive maturity and duration. Growth and Growth and Income generally invest in
options on the S&P 500 Index which are used as a substitute for purchasing or
selling specific securities.
Transactions in options for the year ended October 31, 1996, were as follows:
<TABLE>
<CAPTION>
GROWTH GROWTH AND INCOME MUNICIPAL BOND
-------------------- -------------------- --------------------
CONTRACTS PREMIUM CONTRACTS PREMIUM CONTRACTS PREMIUM
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at October
31, 1995................ -0- $ -0- -0- $ -0- -0- $ -0-
Options Written and
Purchased (Net)......... 66,000 (124,017) 84,300 (180,090) 457 (554,703)
Options Exercised....... -0- -0- (75,000) 157,120 -0- -0-
Options Expired......... (66,000) 124,017 (9,300) 22,970 -0- -0-
Options Terminated in
Closing Transactions
(Net)................... -0- -0- -0- -0- (440) 522,691
------- --------- ------- --------- ---- ---------
Outstanding at October
31, 1996................ -0- $ -0- -0- $ -0- 17 $ (32,012)
------- --------- ------- --------- ---- ---------
</TABLE>
The related futures contracts of the outstanding option transactions for Munic-
ipal Bond as of October 31, 1996, and the description and market value are as
follows:
<TABLE>
<CAPTION>
MARKET
EXP. MONTH / VALUE
CONTRACTS EXERCISE PRICE OF OPTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Futures December 1996--
Purchased Puts............................. 17 Dec / 110 $2,922
--- ------
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. Gov-
ernment generally invests in exchange traded futures on U.S. Treasury bonds and
notes which are typically used to manage the portfolio's effective maturity and
duration. Growth and Growth and Income generally invest in futures on the S&P
500 Index as a substitute for purchasing or selling specific securities. Upon
entering into futures contracts, the Funds maintain, in a segregated account
with its custodian, securities with a value equal to its obligation under the
futures contracts. During the period the futures contract is open, payments are
received from or made to the broker based upon changes in the value of the con-
tract (the variation margin). The cost of securities acquired through delivery
under a contract is adjusted by the unrealized gain or loss on the contract.
66
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
For the year ended October 31, 1996, futures transactions were as follows:
<TABLE>
<CAPTION>
GROWTH AND
GOVERNMENT GROWTH INCOME
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at October 31, 1995................. 490 340 110
Futures Opened.................................. 7,238 3,930 414
Futures Closed.................................. (7,123) (3,990) (429)
------ ------ ----
Outstanding at October 31, 1996................. 605 280 95
------ ------ ----
</TABLE>
The futures contracts outstanding as of October 31, 1996, and the description
and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT
U.S. Treasury Bond Futures December 1996 Buy to Open
(Notional Value of $113,000 per contract).............. 409 $1,548,855
Ten-year U.S. Treasury Note Futures December 1996 Buy
to Open (Notional Value of $109,625 per contract)...... 196 229,722
--- ----------
Total Government....................................... 605 $1,778,577
--- ----------
GROWTH
S&P 500 Index Future December 1996 Buy to Open
(Notional Value of $354,825 per contract).............. 280 $ 96,110
--- ----------
GROWTH AND INCOME
S&P 500 Index Future December 1996 Buy to Open
(Notional Value of $354,825 per contract).............. 95 $ 688,687
--- ----------
</TABLE>
C. FORWARD COMMITMENTS-The Government Fund trades certain securities under the
terms of forward commitments, whereby the settlement occurs at a specific
future date. Forward commitments are privately negotiated transactions between
the Fund and dealers. While forward commitments are outstanding, the Fund
maintains sufficient collateral of cash or securities in a segregated account
with its custodian. Forward purchase commitments are included in the portfolio
of investments, with changes in value reflected as a component of unrealized
appreciation/depreciation on securities.
6. DISTRIBUTION AND SERVICE PLANS
The Funds and their shareholders have adopted a distribution plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 and a service plan (collec-
tively the "Plans"). The Plans govern payments for the distribution of such
Fund's shares, ongoing shareholder services and maintenance of shareholder ac-
counts.
Annual fees under the Plans of up to .25% (.10% for Money Market) of Class A
net assets and 1.00% (.75% for Money Market) of Class B net assets are accrued
daily.
67
<PAGE>
RESULTS OF SHAREHOLDER MEETINGS (UNAUDITED)
A Special Meeting of Shareholders of Common Sense Trust - Common Sense II Gov-
ernment Fund, Common Sense II Growth Fund and Common Sense II Growth and Income
Fund was scheduled for July 17, 1996. The meeting was adjourned until August 6,
1996 to provide shareholders additional time to submit their proxies.
The following were voted on at the meeting:
1) Approval of the plan of reorganization providing for the transfer of
assets and liabilities of the Common Sense II Government Fund to Common
Sense Government Fund in exchange for shares of the Common Sense Govern-
ment Fund and the subsequent dissolution of the Common Sense II Govern-
ment Fund.
1,100,795 shares voted for the proposal; 32,062 voted against and
104,615 abstained.
2) Approval of the plan of reorganization providing for the transfer of
assets and liabilities of the Common Sense II Growth Fund to Common
Sense Growth Fund in exchange for shares of the Common Sense Growth Fund
and the subsequent dissolution of the Common Sense II Growth Fund.
3,257,347 shares voted for the proposal; 153,556 voted against and
559,972 abstained.
3) Approval of the plan of reorganization providing for the transfer of
assets and liabilities of the Common Sense II Growth and Income Fund to
Common Sense Growth and Income Fund in exchange for share of the Common
Sense Growth and Income Fund and the subsequent dissolution of the Com-
mon Sense II Growth and Income Fund.
2,226,163 shares voted for the proposal; 96,705 voted against and
333,682 abstained.
A Special Meeting of Shareholders of Common Sense Trust was held on October 29,
1996.
1) With respect to the Trust on behalf of each Fund, approval of a new
investment advisory agreement between Van Kampen American Capital Asset
Management, Inc. and Common Sense Trust.
<TABLE>
<CAPTION>
# OF SHARES
-------------------------------
IN FAVOR AGAINST ABSTAINING
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Growth Fund............................ 2,065,440 47,835 196,370
Government Fund................................. 16,154,057 337,865 1,642,226
Growth Fund..................................... 79,970,124 2,732,551 10,059,999
Growth and Income Fund.......................... 28,035,106 841,617 3,047,768
International Equity Fund....................... 514,311 11,086 55,639
Money Market Fund............................... 30,265,609 1,095,560 3,507,462
Municipal Bond Fund............................. 4,690,133 98,251 451,704
</TABLE>
2) With respect to the Trust on behalf of Common Sense International Eq-
uity Fund, approval of a new investment subadvisory agreement between
Van Kampen American Capital Asset Management, Inc. and Smith Barney Mu-
tual Funds Management, Inc.
516,674 shares voted for the proposal; 9,405 voted against and 54,958
abstained.
3) With respect to the Trust on behalf of Common Sense Municipal Bond
Fund, approval of certain changes to its fundamental investment policies
with respect to investment in other investment companies.
4,647,287 shares voted for the proposal; 141,570 voted against and
451,230 abstained.
4) With respect to the Trust, ratification of the selection of Ernst &
Young LLP as independent accountants for the current fiscal year.
68
<PAGE>
RESULTS OF SHAREHOLDER MEETINGS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
# OF SHARES
-------------------------------
IN FAVOR AGAINST ABSTAINING
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Emerging Growth Fund............................ 2,039,624 42,077 227,945
Government Fund................................. 16,110,137 292,012 1,761,999
Growth Fund..................................... 79,796,788 2,275,273 10,690,614
Growth and Income Fund.......................... 28,176,761 582,189 3,165,542
International Equity Fund....................... 516,876 6,432 57,727
Money Market Fund............................... 30,574,140 766,566 3,527,926
Municipal Bond Fund............................. 4,693,192 69,056 477,840
</TABLE>
69
<PAGE>
FUND PERFORMANCE DATA
Each of the graphs below shows the total return performance of a different Com-
mon Sense Fund compared to a benchmark index. While the Securities and Exchange
Commission requires that we provide this comparison, it may not be meaningful
in evaluating your fund's performance against its specific objectives and your
time frame. The indexes do not reflect any commissions or fees that would be
paid by an investor purchasing the securities they represent. All sales charges
and all other fees and expenses are reflected in the performance shown for
Class 1 or Class A shares of each Common Sense Fund at maximum offering price.
In addition, since investors purchase shares of the Funds with varying sales
charges depending primarily on volume purchased, each Fund's performance at net
asset value also is shown. The performance of the other classes of shares of
each Fund will differ from that of the class shown because of the difference in
sales charges and/or expenses paid by shareholders investing in the various
classes of shares of the Fund. Performance is noted for either Class 1 or Class
A, depending upon which class of shares has the longest performance.
For details on market conditions and each fund's performance during the re-
porting period, see pages 3 through 5 of this report.
Comparison of $10,000 Investment in
Common Sense Emerging Growth Fund
vs. Russell 2000 Stock Index
[Chart Appears Here]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/21/95 6/95 9/95 12/95 3/96 6/96 9/96 10/31/96
Common Sense Emerging Growth Fund
(Class A) at Maximum Offering Price $ 9,448 $10,840 $12,400 $12,760 $13,528 $14,800 $15,376 $14,856
Russell 2000 Stock Index* 10,000 11,126 12,225 12,490 13,131 13,784 13,830 13,617
Common Sense Emerging Growth Fund
(Class A) at Net Asset Value 10,000 11,473 13,124 13,506 14,318 15,665 16,274 15,724
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual
Total Returns-- Inception
Class A 1 Year (2/21/95)
- ------------------------------------
<S> <C> <C>
At Net Asset Value 22.82% 30.71%
- ------------------------------------
With maximum
5.50% sales charge 16.06% 26.39%
</TABLE>
Comparison of $10,000 Investment in
Common Sense Government Fund vs.
Lehman Brothers Mutual Fund General U.S. Government Index
[Chart Appears Here]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/14/87 1987 1988 1989 1990 1991 1992 1993 1994 1995 10/31/96
Common Sense Government
Fund (Class 1) at
Maximum Offering Price $ 9,328 $ 9,371 $ 9,992 $11,422 $12,346 $14,253 $15,220 $16,465 $15,718 $18,384 $18,077
Lehman Brothers
Mutual Fund General
U.S. Government Index* 10,000 10,355 11,083 12,661 13,766 15,877 17,024 18,838 18,203 21,540 22,162
Common Sense Government
Fund (Class 1) at
Net Asset Value 10,000 10,046 10,712 12,245 13,235 15,279 16,316 17,652 16,850 19,709 20,023
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual
Total Returns-- Inception
Class 1 1 Year 5 Years (4/14/87)
- ---------------------------------------------
<S> <C> <C> <C>
At Net Asset Value 4.58% 6.43% 7.54%
- ---------------------------------------------
With maximum
6.75% sales charge (2.46%) 4.95% 6.76%
</TABLE>
Comparison of $10,000 Investment in
Common Sense Growth Fund vs. S&P 500
[Chart Appears Here]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/14/87 1987 1988 1989 1990 1991 1992 1993 1994 1995 10/31/96
Common Sense Growth
Fund (Class 1) at
Maximum Offering Price $ 9,226 $ 7,851 $ 8,787 $11,243 $10,860 $15,050 $16,124 $17,634 $17,230 $22,889 $26,313
Standard & Poor's 500-Stock Index* 10,000 8,510 9,525 12,187 11,771 16,313 17,477 19,114 18,676 24,809 28,521
Common Sense Growth
Fund (Class 1) at
Net Asset Value 10,000 9,059 10,553 13,887 13,454 17,536 18,870 20,763 21,045 28,926 33,675
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual
Total Returns-- Inception
Class 1 1 Year 5 Years (4/14/87)
- --------------------------------------------
<S> <C> <C> <C>
At Net Asset Value 19.94% 13.75% 11.60%
- --------------------------------------------
With maximum
8.50% sales charge 9.76% 11.75% 10.57%
</TABLE>
Comparison of $10,000 Investment in
Common Sense Growth & Income Fund vs. S&P 500
[Chart Appears Here]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/14/87 1987 1988 1989 1990 1991 1992 1993 1994 1995 10/31/96
Common Sense Growth
& Income Fund
(Class 1) at Maximum
Offering Price $ 9,226 $ 8,008 $ 8,817 $11,218 $10,870 $14,272 $15,318 $16,758 $16,227 $22,162 $24,788
Standard & Poor's 500-Stock Index* 10,000 9,059 10,553 13,887 13,454 17,536 18,870 20,763 21,045 28,926 33,675
Common Sense Growth
& Income Fund
(Class 1) at
Net Asset Value 10,000 8,680 9,557 12,159 11,782 15,470 16,603 18,164 17,589 24,022 26,868
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Annual
Total Returns-- Inception
Class 1 1 Year 5 Years (4/14/87)
- --------------------------------------------
<S> <C> <C> <C>
At Net Asset Value 20.58% 13.43% 10.90%
- --------------------------------------------
With maximum
8.50% sales charge 10.35% 11.42% 9.88%
</TABLE>
*Past performance is not indicative of future performance. The comparative
indexes used are broad-based, unmanaged indexes of securities that do not
reflect any commissions or fees that would be paid by an investor purchasing
the securities they represent.
70
<PAGE>
FUND PERFORMANCE DATA (CONTINUED)
Comparison of $10,000 Investment in
Common Sense International Equity Fund
vs. Europe-Australasia-Far East Index + DV
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Common Sense Common Sense
International Equity International Equity
Fund (Class A) Europe Australasia Fund (Class A)
at Maximum Offering Price Far East Index + DV* at Net Asset Value
------------------------- -------------------- --------------------
<S> <C> <C> <C>
3/17/95 9453 10000 10000
6/95 10714 10081 11334
9/95 11182 10509 11829
12/95 11364 10943 12022
3/96 12347 11267 13062
6/96 13148 11454 13909
9/96 13228 11448 13993
10/31/96 13109 11334 13867
</TABLE>
Comparison of $10,000 Investment in
Common Sense Municipal Bond Fund
vs. Lehman Brothers Minicipal Bond Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Common Sense Common Sense
Municipal Bond Municipal Bond Fund
Fund (Class 1) Lehman Brothers (Class 1)
at Maximum Offering Price Municipal Bond Index* at Net Asset Value
------------------------- -------------------- -------------------
<S> <C> <C> <C>
7/13/88 9528 10000 10000
1988 10008 10448 10503
1989 10858 11575 11396
1990 11485 12418 12054
1991 12782 13926 13415
1992 13870 15154 14557
1993 15419 17015 16183
1994 14781 16136 15492
1995 17208 18952 18060
10/31/96 17667 19518 18542
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS-- INCEPTION
CLASS A 1 YEAR (3/17/95)
- ------------------------------------
<S> <C> <C>
At Net Asset Value 19.34% 22.21%
- ------------------------------------
With maximum
5.50% sales charge 12.75% 18.06%
- ------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS-- INCEPTION
CLASS 1 1 YEAR 5 YEARS (7/13/88)
- --------------------------------------------
<S> <C> <C> <C>
At Net Asset Value 6.09% 7.19% 7.72%
- --------------------------------------------
With maximum
4.75% sales charge 1.02% 6.15% 7.10%
- --------------------------------------------
</TABLE>
*Past performance is not indicative of future performance. The comparative
indexes used are broad-based, unmanaged indexes that do not reflect any
commissions or fees that would be paid by an investor purchasing the securities
they represent.
71
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of Common Sense Trust
We have audited the accompanying statements of assets and liabilities
(including the portfolio of investments) of Common Sense Growth Fund, Common
Sense Growth and Income Fund, Common Sense Government Fund, Common Sense
Municipal Bond Fund, Common Sense Money Market Fund, Common Sense Emerging
Growth Fund, and Common Sense International Equity Fund (cumulatively the
"Funds"), constituting the series of the Common Sense Trust (the "Trust"), as
of October 31, 1996, 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 (for the Common Sense
Emerging Growth and International Equity Funds, we audited the statement of
changes in net assets for the year then ended and the period from February 21,
1995 (commencement of investment operations) through October 31, 1996) 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, 1996, 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, 1996, 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 6, 1996
72
<PAGE>
COMMON SENSE TRUST
BOARD OF TRUSTEES
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN RANDOLPH GROSS
JEFFREY B. LANE*
ALAN G. MERTEN
STEVEN MULLER
F. ROBERT PAULSEN
R. RICHARDSON PETTIT
DON G. POWELL*--Chairman
ALAN B. SHEPARD, JR.
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
GERALD BAXTER*
GREGORY PITTS*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
D. RICHARD WILLIAMS*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
INVESTMENT SUBADVISER
(INTERNATIONAL EQUITY FUND)
SMITH BARNEY MUTUAL FUNDS
MANAGEMENT, INC.
388 Greenwich Street
New York, New York 10013
DISTRIBUTOR
PFS DISTRIBUTORS
3100 Breckinridge Blvd.
Duluth, Georgia 30199
SHAREHOLDER SERVICING AGENT
PFS SHAREHOLDER SERVICES
3100 Breckinridge Blvd.
Duluth, Georgia 30199
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02110
LEGAL COUNSEL
SULLIVAN & WORCESTER LLP
1025 Connecticut Avenue N.W.
Washington, D.C. 20036
INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
1221 McKinney Street, Suite 2400
Houston, Texas 77010
Shareholder inquiries should be directed in
writing to the Shareholder Service Agent.
PFS Shareholder Services, 3100
Breckinridge Blvd.,
Duluth, Georgia 30199-
0062, or by calling
(800) 544-5445.
* "Interested" persons of the
Trust, as defined in the
Investment Company Act of 1940.
This report is submitted for the general information of the shareholders of
the Trust. It is not authorized for distribution to prospective investors
unless it has been preceded or is accompanied by an effective prospectus of
the Trust which contains additional information on how to purchase shares and
other pertinent data.
73
