<PAGE>
Annual
Report
- --------------
October 31, 1995
[PHOTOS]
[LOGO -- COMMON SENSE TRUST
FAMILY OF FUNDS]
COMMON SENSE(R)
<PAGE>
Common Sense Trust Highlights
Common Sense Trust Performance
<TABLE>
<CAPTION>
For the Period
For Period Ended 10/31/95 Ended 9/30/95
---------------------------------------------------------------
With Maximum With Maximum
At Net Asset Value Sales Charge* Sales Charge*
---------------------------------------------------------------
Cumulative Average Annual Average Annual Average Annual
Total Return Total Return Total Return Total Return
<S> <C> <C> <C> <C>
Common Sense Growth Fund
One Year............................. 24.01% 24.01% 13.48% 17.74%
Five Years........................... 122.16% 17.31% 15.24% 15.38%
Inception (4/14/87).................. 137.80% 10.66% 9.52% 9.85%
Common Sense Growth and Income Fund
One Year............................. 22.45% 22.45% 12.07% 15.53%
Five Years........................... 104.02% 15.33% 13.29% 13.52%
Inception (4/14/87).................. 122.84% 9.83% 8.69% 8.98%
Common Sense Government Fund
One Year............................. 14.27% 14.27% 6.59% 5.10%
Five Years........................... 50.36% 8.50% 7.00% 7.14%
Inception (4/14/87).................. 91.46% 7.89% 7.02% 6.94%
Common Sense Municipal Bond Fund
One Year............................. 12.72% 12.72% 7.39% 4.00%
Five Years........................... 49.11% 8.32% 7.26% 7.08%
Inception (7/13/88).................. 74.77% 7.95% 7.24% 7.03%
Common Sense Money Market Fund
One Year............................. 5.01% 5.01% ** 4.92%**
Five Years........................... 20.66% 3.83% ** 3.87%**
Inception (12/15/87)................. 49.49% 5.23% ** 5.24%**
</TABLE>
Performance data quoted represents past performance, which is not indicative of
future performance. On portfolios other than the Money Market Fund, the
investment return and principal value may fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original value.
*Maximum sales charges range from 4.75% to 8.50%.
**The 7-day yield for Common Sense Money Market Fund was 4.79% as of 10/31/95.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share. There is a one-time $15 set-up fee
for the Money Market Fund.
<PAGE>
Shareholders' Message
November 30, 1995
Dear Shareholder,
The past twelve months have been very positive for most investors. Both the
fixed-income and equity markets have made considerable gains during the period
ended October 31, 1995.
This year serves as a reminder of just how quickly markets can move and how
difficult it can be to predict the timing of those movements. Moreover, this
year reinforces the importance of maintaining a long-term perspective and
reaffirms the principle that it is time--not timing--that leads to investment
success.
Economic Overview
Although the third quarter posted a stronger-than-expected gross domestic
product annual growth rate of 4.2 percent, the economy has slowed significantly
this year. This slowdown is due in large part to the Federal Reserve Board's
efforts to tighten monetary supply in 1994--a measure that proved successful, as
economic growth during the first half of 1995 was substantially lower than the
fourth quarter 1994 rate of 5.1 percent. And, while other key economic data,
including unemployment rates and housing starts have shown mixed signs during
recent months, the general economic trends for the year continue to support a
"soft landing" scenario.
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed its trend of raising interest rates and lowered short-term rates by a
quarter percent on July 6. The financial markets, perceiving that the Fed's
monetary initiatives had taken hold without driving the economy into a
recession, rallied through much of the year. With slowing growth, interest rates
declined and the value of many fixed-income investments rose (bond yields and
prices move in opposite directions). For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December 1994 to 6.33 percent at
the end of October 1995, while its price rose more than 19 percent.
In a low inflation, low interest rate environment, corporate earnings
remained quite strong during the year, helping to push stocks to new highs. The
strongest performance has been in the technology sector of the market and in
stocks of large companies. As the U.S. dollar plunged against several foreign
currencies earlier in the year, U.S. companies that had diversified globally
were able to capture additional earnings, while technology stocks benefited from
the continued booming growth in computers and telecommunications throughout the
world.
[Photo of Don G. Powell]
1
<PAGE>
Shareholders' Message continued
Economic Outlook
Before taking further monetary action, the Fed is waiting for key indicators to
show that the economy has truly settled into a slow growth pattern. We believe
they will be more likely to lower rather than increase short-term rates.
Meanwhile, as current economic data continues to send mixed signals, we
anticipate the economy will grow at an annual rate of 3 percent in the fourth
quarter and inflation will run under 3 percent.
Based upon a generally modest growth and low inflation outlook, we believe
the outlook for fixed-income markets--including municipal bonds--is positive. We
look for stocks to perform well, particularly those of smaller companies, which
tend to be less cyclical than larger companies. In the near term, we believe
domestic markets will benefit from a stable U.S. dollar and increased business
activity driven in part by a number of recently announced strategic
reorganizations of some of the nation's blue chip industry leaders.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one is certain about what will finally happen. Consequently, in the
near term, there may be periodic market fluctuations as various proposals come
to the forefront, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact they may have on your investments.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.
Once again, thank you for your continued confidence in Common Sense Trust and
for the privilege of working with you in seeking to reach your financial goals.
Sincerely,
/s/ DON G. POWELL
Don G. Powell
President
2
<PAGE>
Portfolio Perspective
- --------------------------------------------------------------------------------
The following is an interview with the portfolio management team of the Common
Sense Trust stock funds. The team includes: Stephen L. Boyd, Common Sense Growth
Fund; James A. Gilligan, Common Sense Growth and Income Fund; and Alan T.
Sachtleben, executive vice president, equity investments.
- --------------------------------------------------------------------------------
Q. What factors had the greatest impact on the performance of the stock funds
during the 12 months ended October 31, 1995?
A. The stock market as a whole benefited from continuing economic growth that
generated strong corporate profits without increased inflation. The Common
Sense Trust stock funds, in particular, benefited from being heavily invested
in technology and finance stocks, which were two of the best performing
sectors of the market during the past year.
One of the most positive aspects of the performance of technology stocks
is that the rally has been driven by strong fundamentals--not speculation.
There is tremendous demand for real products that likely will be with us for
some time to come. It's not just Microsoft's Windows 95, which is positively
impacting a variety of industries from hardware to software to retail.
There's also the Internet, which practically no one had heard of only a year
ago but is now changing the direction of telecommunications.
During the latter part of the reporting period, the Common Sense stock
funds shifted their emphasis within technology from hardware to software
companies, which we believe offer more growth potential.
[PIECHART FOR COMMON SENSE GROWTH FUND HOLDINGS BY SECTOR]
PERCENTAGE OF NET ASSETS 10/31/95
ENERGY 7 %
OTHER 15%
UTILITIES 6%
HEALTH CARE 12%
FINANCE 16%
CONSUMER SERVICES 5%
CONSUMER NON-DURABLES 9%
CONSUMER DISTRIBUTION 5%
TECHNOLOGY 18%
PRODUCER MANUFACTURING 7%
Q. What is your outlook for technology stocks?
A. We still like technology. The sector has produced the biggest earnings gains,
product demand continues to be strong, and stock prices are not high compared
to the underlying value of the companies. Still, while we are very optimistic
about technology stocks, the Fund remains diversified in line with our equity
investment philosophy. The diversification of the Common Sense Trust stock
funds at the end of October is illustrated by the charts at left.
Q. What changes did you make to the portfolios during the past year?
A. Throughout the year, both the Common Sense Trust Growth Fund and the Common
Sense Trust Growth and Income Fund gradually reduced their holdings of stocks
that are most affected by changing economic conditions, often called cyclical
stocks. As a result, we reduced the percentage of the funds' assets invested
in the stocks of raw materials and manufacturing companies.
[PIECHART FOR COMMON SENSE GROWTH AND INCOME FUND HOLDINGS BY SECTOR]
PERCENTAGE OF NET ASSETS 10/31/95
ENERGY 9%
OTHER 13%
UTILITIES 10%
HEALTH CARE 14%
FINANCE 14%
CONSUMER SERVICES 7%
CONSUMER NON-DURABLES 8%
CONSUMER DISTRIBUTION 5%
TECHNOLOGY 9%
PRODUCER MANUFACTURING 5%
RAW MATERIALS/PROCESSING INDUSTRIES 6%
3
<PAGE>
These funds were invested instead in a broader range of stocks, including
those of health care and retail companies. We expect the retail industry to
be one of the next sectors to benefit from continued economic growth.
Q. How did the Funds perform during the year ended October 31, 1995?
A. The Common Sense Growth Fund achieved a total return at net asset value
(without a sales charge) of 24.01 percent, including reinvestment of
dividends totaling $0.155 per share and a capital gains distribution of
$1.035 per share. The Common Sense Growth and Income Fund achieved a total
return at net asset value of 22.45 percent for the same period, including
reinvestment of dividends totaling $0.30 per share and a capital gains
distribution of $1.595 per share.
By comparison, the Standard & Poor's 500-Stock Index, a broad-based,
unmanaged index that reflects general stock market performance, achieved a
total return of 26.36 percent for the period. The Index does not reflect any
commissions or fees that would be paid by an investor purchasing the
securities it represents. For more detailed performance information, please
see the inside front cover of this report.
Q. What is the outlook for stocks?
A. The outlook is excellent, which is not to say that a correction could not
occur in the near term. However, some very positive forces are present:
moderate economic growth, low inflation and acceptable levels of interest
rates. These should limit any decline to a modest one. Looking farther into
the future, these three conditions--perhaps aided by another move by the
Federal Reserve Board to lower short-term interest rates--should lead to
higher stock prices.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ ALAN T. SACHTLEBEN /s/ STEPHEN L. BOYD /s/ JAMES A. GILLIGAN
Alan T. Sachtleben Stephen L. Boyd James A. Gilligan
Executive Vice President Portfolio Manager Portfolio Manager
Equity Securities Common Sense Growth Fund Common Sense Growth and Income Fund
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
The following is an interview with the portfolio management team of the Common
Sense Trust fixed-income funds. The team includes: John R. Reynoldson, Common
Sense Government Fund; David C. Johnson, Common Sense Municipal Bond Fund;
David R. Troth, Common Sense Money Market Fund; Robert C. Peck, Jr., executive
vice president, co-chief investment officer of fixed-income investments, and
Peter W. Hegel, executive vice president, co-chief investment officer of fixed-
income investments.
- --------------------------------------------------------------------------------
Q. What factors had the greatest impact on the performance of the Common Sense
Trust fixed-income funds during the year ended October 31, 1995?
A. The past year was characterized, almost entirely, by falling interest rates
and lower inflation. The period started with 10-year U.S. Treasury note
yields near 8 percent and ended with yields near 6 percent. As a consequence,
most fixed-income market indices experienced double-digit total rates of
return (the combined value of dividends received on a fixed-income security
and any increase in the value of the security itself).
Yields on 10-Year Treasury Notes
11/4/94 - 10/27/95
PLOT POINTS TO COME FROM DTP
Source: Bloomberg
The rally occurred as it became clear that the Federal Reserve Board's
efforts to slow both economic growth and inflation rates were working. Most
measures of inflation showed an annualized rate below 3 percent.
In terms of municipal bonds, supply and retail demand were two major factors
impacting the market. The volume of new municipal bonds issued in the first
nine months of 1995 totaled $105 billion-- down 17.8 percent from 128 billion
for the first nine months of 1994, with supply in September at the lowest
monthly level since February. Record levels of both outstanding municipal
debt and pre-refunded bonds continued to mature, increasing demand for new
tax-exempt bonds.
Retail demand kept pace with supply levels but was somewhat diminished,
primarily for two reasons. First, credit concerns continue to play a major
role in lackluster demand as news about Orange County, California, and the
weakening financial condition of Los Angeles County, appeared in the news.
Second, the fear of tax reform was the number one concern of individuals, and
remains the single largest constraint on the municipal bond market.
Q. What changes did you make to the portfolios in light of the slower economic
growth and inflation rates?
A. In the Common Sense Government Fund, we responded early in the reporting
period by increasing the Fund's sensitivity to changes in interest rates, as
it became more apparent that the fundamental background was becoming more
positive for bonds. The sensitivity, called duration, was set so that the
Fund's net asset value moved about the same as that of a seven-year Treasury
note, a level that is somewhat above its long-term average.
In addition, the CST Government Fund increased its holdings in federally
sponsored mortgage-backed securities, such as Government National Mortgage
Association notes and bonds, during the fourth quarter of 1994 and first
quarter of 1995. We purchased 30-year securities which we believed had
minimal risk of being prepaid by homeowners as interest rates fell.
The average yield of securities purchased by Common Sense Municipal Bond
Fund during the reporting period was 6.65 percent. This was significantly
higher than current market levels, so the core position of the portfolio
remained relatively unchanged. The five sectors of municipal bonds
5
<PAGE>
in which your Fund was most heavily invested at the end of the period were
hospitals, 24 percent; utilities, 18 percent; health care, 9 percent;
education, 8 percent; and, housing, 6 percent. Rating distribution changed
slightly with triple-A rated holdings increasing to over 46 percent of assets
from 38 percent of assets at the end of October 1994:
Purchases focused on insured securities for two primary reasons. First, the
yield spread between quality paper and lower rated securities over the past
year was narrower than historical levels. Given this, we did not feel the
yields offered on some lower rated securities adequately compensated the
investor for the additional credit risk assumed. Secondly, insured paper
helped to minimize market volatility due to its triple-A rated credit status
and allowed these assets to remain highly liquid. The quality of the
securities in the Fund at the end of October is illustrated by the chart at
right.
The Common Sense Money Market Fund lengthened its average maturity slightly
during the reporting period, from 26 days on October 31, 1994, to 34 days on
October 31, 1995. The longer maturity allowed the Fund to capture some of the
higher rates available while remaining flexible enough to react to any
further change in short-term interest rates.
[Piechart For Common Sense Municipal Bond Fund Quality Rating]
Percentage of the Portfolio
As of 10/31/95
Municipal Variable Rate
Demand Notes 2%
AAA 49%
AA 13%
A 15%
BBB 15%
NOT RATED 6%
The portfolio's composition changed substantially during the reporting
period. As of October 31, 1995, 32 percent of the Fund's net assets were
invested in U.S. Government Agency obligations, down from 63 percent a year
earlier. We focused instead on repurchase agreements, which accounted for 50
percent of the Fund's assets at year-end compared with 9 percent on October
31, 1994. The percentage of assets invested in commercial paper dropped from
29 percent a year ago to 18 percent on October 31, 1995.
Yield on 3-Month Treasury Bills
11/4/94 - 10/27/95
PLOT POINTS TO COME FROM DTP
The Fund's seven-day subsidized yield as of October 31, 1995, was 4.79
percent compared to 3.85 percent a year earlier. The Fund's seven-day non-
subsidized yield as of October 31, 1995, was 4.50 percent compared to 3.57
percent a year earlier. The change in yield on a three-month Treasury bill
during the same period is illustrated by the chart at right.
Q. How did the Funds perform during the twelve months ended October 31, 1995?
A. Common Sense Government Fund achieved a total return at net asset value of
14.27 percent for the 12 months ended October 31, 1995, including
reinvestment of dividends totaling $0.6979 per share. By comparison, the
Lehman Brothers General U.S. Government Index achieved a total return of
15.40 percent. This unmanaged index is used as a benchmark for many
government funds, but it does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents.
Common Sense Municipal Bond Fund achieved a total return at net asset value
of 12.72 percent for the same period, including reinvestment of dividends
totaling $0.727 per share. By comparison, the Lehman Brothers Municipal Bond
Index achieved a total return of 14.84 percent. This unman-
6
<PAGE>
Portfolio Perspective
aged index is used as a benchmark for many municipal bonds funds, but it does
not reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents.
Common Sense Money Market Fund achieved a total return at net asset value
of 5.01 percent. For more complete performance information, please see the
inside front cover of this report.
Q. What is the outlook for fixed-income securities?
A. Our outlook for the next six months is positive. Economic growth and
inflation rates are projected to remain moderate, and political leaders in
Washington appear to be serious about passing measures that should improve
the country's long-term fiscal strength. Additionally, the Fed may reduce
short-term interest rates again in the near future, providing a further boost
to the economy. The major short-term concern is that the bond market, because
of the rally it has enjoyed in recent months, is vulnerable to any unexpected
bad news.
Municipal bond yields are at levels which are still attractive to
individual investors, particularly when viewed as a percentage of taxable
rates. While three- to five-year tax-exempt rates at the end of October
yielded 70 percent of Treasuries, 15-year yields were at 86 percent, and 20-
to 30-year yields exceed 90 percent.
While we believe that municipal bonds may under-perform taxable bonds in
the very short term, we anticipate that investors will return to the market
when concerns about tax reform abate. The commission studying tax reform will
be holding hearings throughout the next few months and should issue its
recommendations by the end of the year. When its recommendations are
released, municipals may trade lower relative to Treasuries, which would
present a buying opportunity for those individuals willing to venture into
the market.
/s/ Robert C. Peck, Jr. /s/ Peter W. Hegel
Robert C. Peck, Jr. Peter W. Hegel
Executive Vice President Executive Vice President
Co-Chief Investment Officer Co-Chief Investment Officer
Fixed Income Investments Fixed Income Investments
/s/ John R. Reynoldson /s/ David C. Johnson /s/ David R. Troth
John R. Reynoldson David C. Johnson David R. Troth
Portfolio Manager Portfolio Manager Portfolio Manager
Common Sense Common Sense Common Sense
Government Fund Municipal Bond Fund Money Market Fund
7
<PAGE>
<TABLE>
<CAPTION>
Growth Fund Statement of Net Assets
October 31, 1995
Number Market
of Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
Common Stock 91.2%
CONSUMER DISTRIBUTION 5.5%
100,000 Dayton Hudson Corp.......................... $ 6,875,000
*500,000 Eckerd Corp................................. 19,812,500
375,000 Gap, Inc.................................... 14,765,625
*173,200 Kohl's Corp................................. 7,858,950
*800,000 Kroger Co................................... 26,700,000
400,000 May Department Stores Co.................... 15,700,000
325,000 Nordstrom, Inc.............................. 12,045,313
*550,000 OfficeMax, Inc.............................. 13,612,500
750,000 Sears, Roebuck & Co......................... 25,500,000
-----------
142,869,888
-----------
CONSUMER DURABLES 1.5%
150,000 Chrysler Corp............................... 7,743,750
400,000 Echlin, Inc................................. 14,300,000
400,000 General Motors Corp......................... 17,500,000
-----------
39,543,750
-----------
CONSUMER NON-DURABLES 9.2%
525,000 ConAgra, Inc................................ 20,278,125
200,000 CPC International, Inc...................... 13,275,000
250,000 Duracell International, Inc................. 13,093,750
300,000 General Mills, Inc.......................... 17,212,500
300,000 Gillette Co................................. 14,512,500
300,000 Heinz (H.J.) Co............................. 13,950,000
950,000 Nabisco Holdings Corp., Class A............. 25,531,250
750,000 PepsiCo, Inc................................ 39,562,500
450,000 Procter & Gamble Co......................... 36,450,000
450,000 Ralston Purina Group........................ 26,718,750
700,000 Sara Lee Corp............................... 20,562,500
-----------
241,146,875
-----------
CONSUMER SERVICES 4.6%
125,000 Capital Cities ABC, Inc..................... 14,828,125
*500,000 Cox Communications, Inc..................... 9,375,000
263,000 Disney (Walt) Co............................ 15,155,375
375,000 Marriott International, Inc................. 13,828,125
600,000 Service Corp. International................. 24,075,000
*510,000 Tele-Communications International, Class A.. 11,538,750
350,000 Time Warner, Inc............................ 12,775,000
150,000 Tribune Co.................................. 9,468,750
*200,000 ViaCom, Inc., Class B....................... 10,000,000
-----------
121,044,125
-----------
ENERGY 6.9%
641,300 Coastal Corp................................ 20,762,088
400,000 Exxon Corp.................................. 30,550,000
300,000 Mobil Corp.................................. 30,225,000
800,000 Panhandle Eastern Corp...................... 20,200,000
</TABLE>
8
<PAGE>
Growth Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY--continued
300,000 Repsol SA, ADR....................................................... $ 8,887,500
200,000 Schlumberger, Ltd.................................................... 12,450,000
325,000 Texaco, Inc.......................................................... 22,140,625
600,000 USX-Marathon Group................................................... 10,650,000
626,500 Williams Companies................................................... 24,198,563
------------
180,063,776
------------
FINANCE 16.4%
300,000 Ahmanson (H.F.) & Co................................................. 7,500,000
350,000 American Express Co.................................................. 14,218,750
190,000 American International Group, Inc.................................... 16,031,250
800,000 Bank of Boston Corp.................................................. 35,600,000
300,000 Bank of New York, Inc................................................ 12,600,000
200,000 BankAmerica Corp..................................................... 11,500,000
430,000 Bankers Trust New York Corp.......................................... 27,412,500
400,000 BayBanks, Inc........................................................ 32,400,000
150,000 Chase Manhattan Corp................................................. 8,550,000
150,000 Chemical Banking Corp................................................ 8,531,250
400,000 CoreStates Financial Corp............................................ 14,550,000
*46,400 Donaldson, Lufkin & Jenrette, Inc.................................... 1,380,400
400,000 Federal National Mortgage Association................................ 41,950,000
750,000 Greenpoint Financial Corp............................................ 20,250,000
900,000 Green Tree Financial Corp............................................ 23,962,500
300,000 Merrill Lynch & Co., Inc............................................. 16,650,000
125,000 Morgan Stanley Group, Inc............................................ 10,875,000
275,000 Morgan (J.P.) & Co., Inc............................................. 21,209,375
8,397,720 Van Kampen American Capital Small Capitalization Fund (see Note 2)... 102,200,258
------------
427,371,283
------------
HEALTH CARE 11.8%
160,000 American Home Products Corp.......................................... 14,180,000
*250,000 Amgen, Inc........................................................... 12,000,000
300,000 Astra, AB, Series A, ADR............................................. 11,025,000
250,000 Baxter International, Inc............................................ 9,656,250
150,000 Becton Dickinson & Co................................................ 9,750,000
850,000 Caremark International, Inc.......................................... 17,531,250
*85,000 Cordis Corp.......................................................... 9,392,500
*500,000 Genzyme Corp......................................................... 29,125,000
210,000 Lilly (Eli) & Co..................................................... 20,291,250
300,000 Mallinckrodt Group, Inc.............................................. 10,425,000
310,000 Medtronic, Inc....................................................... 17,902,500
195,000 Merck & Co., Inc..................................................... 11,212,500
*175,000 Nellcor, Inc......................................................... 10,062,500
425,000 Pfizer, Inc.......................................................... 24,384,375
500,000 Schering-Plough Corp................................................. 26,812,500
625,000 SmithKline Beecham, ADR.............................................. 32,421,875
80,000 St. Jude Medical, Inc................................................ 4,260,000
500,000 U.S. Healthcare, Inc................................................. 19,250,000
225,000 Warner Lambert Co.................................................... 19,153,125
------------
308,835,625
------------
</TABLE>
9
<PAGE>
Growth Fund Statement of Net Assets, continued
Number Market
of Shares Value
- -------------------------------------------------------------------------
PRODUCER MANUFACTURING 6.6%
150,000 Fluor Corp. ..................................... $ 8,475,000
330,000 General Electric Co. ............................ 20,872,500
450,000 Honeywell, Inc. ................................. 18,900,000
175,000 Illinois Tool Works, Inc. ....................... 10,171,875
300,000 ITT Corp. ....................................... 36,750,000
200,000 Rockwell International Corp. .................... 8,900,000
*675,045 Thermo Fibertek, Inc. ........................... 10,631,959
100,000 TRW, Inc. ....................................... 6,575,000
425,000 United Technologies Corp. ....................... 37,718,750
430,000 WMX Technologies, Inc. .......................... 12,093,750
------------
171,088,834
------------
RAW MATERIALS/PROCESSING INDUSTRIES 3.2%
225,000 Champion International Corp. .................... 12,037,500
315,000 Freeport-McMoRan, Copper Gold, Series B.......... 7,166,250
200,000 Grace (W.R.) & Co. .............................. 11,150,000
825,000 James River Corp. ............................... 26,503,125
250,000 Monsanto Co. .................................... 26,187,500
------------
83,044,375
------------
TECHNOLOGY 18.2%
140,000 Adobe Systems, Inc. ............................. 7,980,000
*300,000 Bay Networks, Inc. .............................. 19,875,000
250,000 Boeing Co. ...................................... 16,406,250
*400,000 Cisco Systems, Inc. ............................. 31,000,000
*550,000 Compaq Computer Corp. ........................... 30,662,500
650,000 Computer Associates International, Inc. ......... 35,750,000
*630,000 Dell Computer Corp. ............................. 29,373,750
*580,000 Digital Equipment Corp. ......................... 31,392,500
125,700 DST Systems, Inc. ............................... 2,639,700
350,000 General Motors Corp., Class H.................... 14,700,000
300,000 Hewlett-Packard Co. ............................. 27,787,500
500,000 Intel Corp. ..................................... 34,937,500
320,000 International Business Machines Corp. ........... 31,120,000
500,000 Loral Corp. ..................................... 14,812,500
*300,000 LSI Logic Corp. ................................. 14,137,500
175,000 McDonnell Douglas Corp. ......................... 14,306,250
*250,000 Microsoft Corp. ................................. 25,000,000
160,000 Motorola, Inc. .................................. 10,500,000
*200,000 National Semiconductor Corp. .................... 4,875,000
150,000 Northrop Grumman Corp. .......................... 8,587,500
*155,700 Oracle System Corp. ............................. 6,792,413
*58,200 Parametric Technology Corp. ..................... 3,899,400
*500,000 Symantec Corp. .................................. 12,156,250
200,000 Texas Instruments, Inc. ......................... 13,650,000
*550,000 3Com Corp. ...................................... 25,850,000
160,000 Varian Associates, Inc. ......................... 8,220,000
------------
476,411,513
------------
10
<PAGE>
Growth Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TRANSPORTATION 1.5%
150,000 Burlington Northern, Inc............................................................................ $ 12,581,250
400,000 Conrail, Inc........................................................................................ 27,500,000
--------------
40,081,250
--------------
UTILITIES 5.8%
160,000 Ameritech Corp. .................................................................................... 8,640,000
500,000 AT&T Corp. ......................................................................................... 32,000,000
*150,000 Cellular Communications, Inc., Class A.............................................................. 8,043,750
800,000 Frontier Corp. ..................................................................................... 21,600,000
1,425,000 MCI Communications Corp. ........................................................................... 35,535,936
160,000 SBC Communications, Inc. ........................................................................... 8,940,000
*1,100,000 WorldCom, Inc. ..................................................................................... 35,887,500
--------------
150,647,186
--------------
TOTAL COMMON STOCK (Cost $2,121,303,425).......................................................... 2,382,148,480
--------------
Preferred Stock 0.5%
*244,130 Cellular Communications, Inc., Class A (Cost $7,632,548)............................................ 13,091,471
--------------
Principal
Amount Short-Term Investments 8.3%
----------
REPURCHASE AGREEMENTS+ 5.7%
$**46,740,000 Lehman Government Securities, 5.90%, repurchase proceeds $46,747,660................................ 46,740,000
15,415,000 SBC Capital Markets, Inc., 5.87%, repurchase proceeds $15,417,514................................... 15,415,000
85,455,000 State Street Bank & Trust Co., 5.88%, repurchase proceeds $85,468,958............................... 85,455,000
--------------
147,610,000
--------------
UNITED STATES AGENCIES & GOVERNMENT OBLIGATIONS 2.6%
**13,000,000 Federal Farm Credit Banks, 5.63%, 1/16/96........................................................... 12,845,170
**7,500,000 Federal Home Loan Banks, 5.61%, 4/12/96............................................................. 7,313,775
**42,000,000 Federal National Mtg. Association, 5.58% to 5.62%, 12/22/95 to 2/12/96.............................. 41,528,369
**6,500,000 Treasury Bills, 5.45%, 3/7/96....................................................................... 6,377,280
--------------
68,064,594
--------------
TOTAL SHORT-TERM INVESTMENTS (Cost $215,677,899).................................................. 215,674,594
--------------
TOTAL INVESTMENTS (Cost $2,344,613,872) 100.0%..................................................... 2,610,914,545
Other assets and liabilities, net 0.0%.............................................................. 590,364
--------------
NET ASSETS, equivalent to $17.46 per share 100%..................................................... $2,611,504,909
==============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
149,533,377 shares outstanding................................................................................... $ 1,495,334
Capital surplus.................................................................................................... 1,970,060,661
Undistributed net realized gain on securities...................................................................... 352,658,120
Net unrealized appreciation of securities
Investments....................................................................................................... 266,300,673
Futures contracts ................................................................................................ 39,318
Undistributed net investment income ............................................................................... 20,950,803
--------------
NET ASSETS ........................................................................................................ $2,611,504,909
==============
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $99.6 million were placed as
collateral for futures contracts (see Note 1B).
+ Dated 10/31/95, due 11/1/95, collateralized by U.S. Government obligations in
a pooled cash account.
See Notes to Financial Statements.
11
<PAGE>
Growth Fund Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Dividends...................................................................................... $ 35,447,186
Interest....................................................................................... 12,456,275
--------------
Investment income............................................................................ 47,903,461
--------------
Expenses
Advisory fees.................................................................................. 14,436,748
Shareholder service agent's fees and expenses.................................................. 7,777,431
Accounting services............................................................................ 277,991
Trustees' fees and expenses.................................................................... 164,063
Audit fees..................................................................................... 27,534
Custodian fees................................................................................. 98,812
Legal fees..................................................................................... 14,778
Reports to shareholders........................................................................ 549,716
Registration and filing fees................................................................... 95,114
Miscellaneous.................................................................................. 74,558
--------------
Total expenses............................................................................... 23,516,745
--------------
Net investment income........................................................................ 24,386,716
--------------
Realized and Unrealized Gain (Loss) on Securities
Net unrealized gain on securities
Investments.................................................................................. 348,559,285
Futures contracts............................................................................ 9,631,709
Net unrealized appreciation (depreciation) of securities during the period
Investments.................................................................................. 132,789,518
Futures contracts............................................................................ (2,562,118)
--------------
Net realized and unrealized gain on securities............................................... 488,418,394
--------------
Increase in net assets resulting from operations............................................. $ 512,805,110
==============
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended October 31
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $2,169,907,302 $2,065,704,741
-------------- --------------
Operations
Net investment income....................................................... 24,386,716 18,949,920
Net realized gain on securities............................................. 358,190,994 150,460,394
Net unrealized appreciation (depreciation) of securities during the period.. 130,227,400 (125,267,340)
-------------- --------------
Increase in net assets resulting from operations........................... 512,805,110 44,142,974
-------------- --------------
Distributions to shareholders from
Net investment income....................................................... (22,053,177) (14,476,435)
Net realized gain on securities............................................. (147,259,430) (151,147,388)
-------------- --------------
Total distributions........................................................ (169,312,607) (165,623,823)
-------------- --------------
Capital transactions
Proceeds from shares sold................................................... 294,906,458 394,956,323
Proceeds from shares issued for distributions reinvested.................... 168,462,102 164,787,271
Cost of shares redeemed..................................................... (365,263,456) (334,060,184)
-------------- --------------
Increase in net assets resulting from capital transactions................. 98,105,104 225,683,410
-------------- --------------
Increase in Net Assets....................................................... 441,597,607 104,202,561
-------------- --------------
NET ASSETS, end of period.................................................... $2,611,504,909 $2,169,907,302
============== ==============
CAPITAL TRANSACTIONS
Shares sold................................................................. 19,019,524 25,712,863
Shares issued for distributions reinvested.................................. 12,278,591 10,798,656
Shares redeemed............................................................. (23,505,333) (21,793,543)
-------------- --------------
Increase in shares outstanding............................................. 7,792,782 14,717,976
============== ==============
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Growth and Income Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------
<C> <S> <C>
Common Stock 81.5%
CONSUMER DISTRIBUTION 4.7%
*92,000 Ann Taylor Stores, Inc.............. $ 1,012,000
45,000 Dayton Hudson Corp.................. 3,093,750
*260,000 Federated Department Stores, Inc.... 6,597,500
90,100 Fleming Companies, Inc.............. 2,038,513
86,000 Gap, Inc............................ 3,386,250
23,500 Interstate Bakeries Co.............. 502,312
260,000 May Department Stores Co............ 10,205,000
*77,000 Nine West Group, Inc................ 3,426,500
101,000 Nordstrom, Inc...................... 3,743,313
145,000 Sears, Roebuck & Co................. 4,930,000
-----------
38,935,138
-----------
CONSUMER DURABLES 1.4%
58,000 Eastman Kodak Co.................... 3,632,250
121,000 General Motors Corp................. 5,293,750
160,000 Sunbeam-Oster, Inc.................. 2,400,000
-----------
11,326,000
-----------
CONSUMER NON-DURABLES 7.5%
119,000 Coca-Cola Co........................ 8,553,125
80,000 CPC International, Inc.............. 5,310,000
64,000 General Mills, Inc.................. 3,672,000
114,000 Gillette Co......................... 5,514,750
400,000 Nabisco Holdings Corp., Class A..... 10,750,000
64,000 Nike, Inc., Class B................. 3,632,000
135,000 Procter & Gamble Co................. 10,935,000
151,600 Quaker Oats Co...................... 5,173,350
151,000 Ralston Purina Group................ 8,965,625
-----------
62,505,850
-----------
CONSUMER SERVICES 4.3%
38,000 Capital Cities ABC, Inc............. 4,507,750
113,000 Disney (Walt) Co.................... 6,511,625
191,000 McDonald's Corp..................... 7,831,000
79,571 Omnicom Group, Inc.................. 5,082,598
*129,000 Viacom, Inc., Class B............... 6,450,000
267,000 Wendy's International, Inc.......... 5,306,625
-----------
35,689,598
-----------
ENERGY 9.0%
103,000 British Petroleum Co., PLC, ADR..... 9,089,750
203,000 Exxon Corp.......................... 15,504,125
108,000 Mobil Corp.......................... 10,881,000
410,000 Pacific Enterprises................. 10,147,500
126,000 Panhandle Eastern Corp.............. 3,181,500
131,000 Royal Dutch Petroleum Co., ADR...... 16,096,625
135,000 Texaco, Inc......................... 9,196,875
-----------
74,097,375
-----------
</TABLE>
13
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------
<C> <S> <C>
FINANCE 14.1%
65,000 Ahmanson (H. F.) & Co................... $ 1,625,000
79,500 American International Group, Inc....... 6,707,812
151,000 Banc One Corp........................... 5,096,250
117,000 Bank Of Boston Corp..................... 5,206,500
193,000 Bankers Trust New York Corp............. 12,303,750
60,000 BayBanks, Inc........................... 4,860,000
62,000 Beacon Property Corp.................... 1,348,500
114,000 Chemical Banking Corp................... 6,483,750
60,000 Chubb Corp.............................. 5,392,500
234,000 CoreStates Financial Corp............... 8,511,750
136,000 Debartolo Realty Corp................... 1,768,000
43,000 Duke Realty Investments, Inc............ 1,316,875
171,000 Federal National Mortgage Association... 17,933,625
48,000 Health Care Property Investors, Inc..... 1,626,000
191,000 Horace Mann Educators Corp.............. 5,085,375
143,000 Morgan (J.P.) & Co., Inc................ 11,028,875
306,000 Prudential Reinsurance Holdings......... 6,234,750
97,000 St. Paul Companies, Inc................. 4,922,750
198,000 State Street Boston Corp................ 7,697,250
11,100 Vornado Realty Trust.................... 398,212
38,000 Weingarten Realty Investors............. 1,311,000
-----------
116,858,524
-----------
HEALTH CARE 10.7%
124,000 Abbott Laboratories, Inc................ 4,929,000
99,000 American Home Products Corp............. 8,773,875
*190,000 Amgen, Inc.............................. 9,120,000
95,000 Astra, A B, Series A, ADR............... 3,491,250
138,000 Baxter International, Inc............... 5,330,250
*145,000 Charter Medical Corp.................... 2,610,000
111,000 Mallinckrodt Group, Inc................. 3,857,250
217,000 Merck & Co., Inc........................ 12,477,500
150,000 Pfizer, Inc............................. 8,606,250
186,000 Pharmacia Aktiebolag, ADR............... 6,510,000
171,000 Schering-Plough Corp.................... 9,169,875
205,000 Tenet Healthcare Corp................... 3,664,375
77,000 Teva Pharmaceutical, Ltd., ADR.......... 3,022,250
*116,000 Vencor, Inc............................. 3,219,000
64,000 Zeneca Group PLC, ADR................... 3,608,000
-----------
88,388,875
-----------
PRODUCER MANUFACTURING 5.1%
101,000 Allied-Signal, Inc...................... 4,292,500
143,000 Fluor Corp.............................. 8,079,500
109,000 General Electric Co..................... 6,894,250
203,000 Honeywell, Inc.......................... 8,526,000
109,000 Illinois Tool Works, Inc................ 6,335,625
125,000 Stewart & Stevenson Services, Inc....... 2,843,750
188,000 WMX Technologies, Inc................... 5,287,500
-----------
42,259,125
-----------
</TABLE>
14
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------------
<C> <S> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 5.5%
88,000 Air Products & Chemicals, Inc.................. $ 4,543,000
75,000 Aluminum Co. of America........................ 3,825,000
148,000 Bemis, Inc..................................... 3,848,000
98,000 Champion International Corp.................... 5,243,000
104,900 Grace (W.R.) & Co.............................. 5,848,175
120,000 James River Corp............................... 3,855,000
87,000 Monsanto Co.................................... 9,113,250
95,000 Scott Paper Co................................. 5,058,750
81,000 Sigma-Aldrich Corp............................. 3,847,500
-----------
45,181,675
-----------
TECHNOLOGY 9.2%
95,000 Adobe Systems, Inc............................. 5,415,000
105,000 Alcatel Alsthom, ADR........................... 1,771,875
100,000 Boeing Co...................................... 6,562,500
*120,000 Compaq Computer Corp........................... 6,690,000
164,000 Computer Associates International, Inc......... 9,020,000
*115,000 Digital Equipment Corp......................... 6,224,375
61,000 Hewlett-Packard Co............................. 5,650,125
33,000 International Business Machines Corp........... 3,209,250
210,000 Loral Corp..................................... 6,221,250
*57,000 Microsoft Corp................................. 5,700,000
26,000 Motorola, Inc.................................. 1,706,250
45,000 Nokia Corp., ADS............................... 2,508,750
67,000 Northrop Grumman Corp.......................... 3,835,750
*100,000 Symantec Corp.................................. 2,431,250
74,000 Xerox Corp..................................... 9,601,500
-----------
76,547,875
-----------
TRANSPORTATION 0.6%
78,000 Union Pacific Corp............................. 5,099,250
-----------
UTILITIES 9.4%
110,000 Ameritech Corp................................. 5,940,000
199,000 AT&T Corp...................................... 12,736,000
149,000 Cincinnati Bell, Inc........................... 4,376,875
200,000 Frontier Corp.................................. 5,400,000
220,000 General Public Utilities Corp.................. 6,875,000
362,000 MCI Communications Corp........................ 9,027,375
211,000 National Power, ADR............................ 2,637,500
330,000 PacifiCorp..................................... 6,228,750
248,000 Peco Energy Co................................. 7,254,000
245,000 PowerGen, PLC, ADR............................. 4,073,125
91,000 Southern New England Telecommunications Corp... 3,287,375
231,000 Telefonos de Mexico, S.A., ADR................. 6,352,500
83,000 U. S. West, Inc................................ 3,952,875
-----------
78,141,375
-----------
TOTAL COMMON STOCK (Cost $567,170,224)....... 675,030,660
-----------
</TABLE>
15
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------
<C> <S> <C>
Convertible Corporate Obligations 7.1%
CONSUMER DISTRIBUTION 0.7%
$ 4,000,000 Federated Department Stores, Inc., 5.00%, 10/01/03........... $ 3,880,000
4,500,000 Rite Aid Corp., LYON, Zero Coupon, 7/24/06................... 2,238,750
-----------
6,118,750
-----------
CONSUMER SERVICES 2.6%
22,000,000 ADT Operations, Inc., LYON, Zero Coupon, 7/06/10............. 9,900,000
12,000,000 News America Holdings, Inc., LYON, Zero Coupon, 3/11/13...... 5,340,000
2,193,250 Time Warner, Inc., 8.75%, 1/10/15............................ 2,283,722
9,000,000 Time Warner, Inc., LYON, Zero Coupon, 6/22/13................ 3,600,000
-----------
21,123,722
-----------
HEALTH CARE 2.8%
4,200,000 Ciba-Geigy Corp., 6.25%, 3/15/16............................. 4,200,000
23,000,000 Roche Holdings, Inc., LYON, 4/20/10.......................... 9,487,500
2,510,000 Sandoz, Ltd., 2.00%, 10/06/02................................ 2,202,525
6,000,000 United Technologies Corp., PEN, Zero Coupon, 9/08/97......... 7,140,000
-----------
23,030,025
-----------
UTILITIES 1.0%
115,000 Sprint Corp., DECS, 8.25%, 3/30/00........................... 4,171,745
12,500,000 U.S. Cellular Corp., LYON, Zero Coupon, 6/15/15.............. 4,250,000
-----------
8,421,745
-----------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS (Cost $53,792,467). 58,694,242
-----------
Number
of Shares Convertible Preferred Stock 4.1%
- -----------
165,000 Browning-Ferris Industries, Inc., ACES, $7.25................ 5,424,375
130,000 Corning Glassworks, MIPS, 6.00%.............................. 5,850,000
190,000 James River Corp., DECS, $1.55............................... 5,795,000
66,000 SCI Finance, LLC, NV, 6.25%.................................. 4,653,000
136,000 Time Warner, Inc., PERCS, $1.24.............................. 4,352,000
115,000 Williams Companies, Inc., $3.50.............................. 7,820,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCK (Cost $30,242,889)....... 33,894,375
-----------
</TABLE>
16
<PAGE>
Growth and Income Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
Short-Term Investments 6.5%
REPURCHASE AGREEMENT 5.3%
**$44,120,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%
due 11/01/95 (collateralized by U.S. Government
obligations in a pooled cash account)
repurchase proceeds $44,127,194.................... $ 44,120,000
------------
UNITED STATES GOVERNMENT OBLIGATIONS 1.2%
**10,000,000 United States Treasury Bills, 5.33% to 5.44%,
12/14/95 to 02/08/96............................... 9,893,739
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $54,014,989). 54,013,739
------------
TOTAL INVESTMENTS (Cost $705,220,569) 99.2%....... 821,633,016
Other assets and liabilities, net 0.8%............ 6,685,784
------------
NET ASSETS equivalent to $16.95 per share 100%.... $828,318,800
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited
shares authorized; 48,862,007 shares outstanding................ $ 488,620
Capital surplus................................................... 620,858,953
Undistributed net realized gain on securities..................... 84,630,671
Net unrealized appreciation of securities
Investments..................................................... 116,412,447
Futures contracts............................................... 444,125
Undistributed net investment income............................... 5,483,984
------------
NET ASSETS........................................................ $828,318,800
============
</TABLE>
ACES--Automatically convertible equity stock
DECS--Dividend enhanced convertible stock
LYON--Liquid yield option note, zero coupon
MIPS--Monthly income paying security
PEN--Pharmaceutical exchange note
PERCS--Preferred equity redeemable cumulative stock
*Non-income producing security.
**Securities with a market value of approximately $32.2 million were placed as
collateral for futures contracts (see Note 1B).
See Notes to Financial Statements.
17
<PAGE>
Growth and Income Fund Financial Statements
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Dividends .................................................................................. $ 18,964,829
Interest ................................................................................... 5,576,108
------------
Investment income ........................................................................ 24,540,937
------------
Expenses
Advisory fees .............................................................................. 4,937,121
Shareholder service agent's fees and expenses .............................................. 1,864,452
Accounting services ........................................................................ 123,458
Trustees' fees and expenses ................................................................ 66,447
Audit fees ................................................................................. 21,234
Custodian fees ............................................................................. 41,577
Legal fees ................................................................................. 6,008
Reports to shareholders .................................................................... 124,201
Registration and filing fees ............................................................... 58,712
Miscellaneous .............................................................................. 24,466
------------
Total expenses ........................................................................... 7,267,676
------------
Net investment income .................................................................... 17,273,261
------------
Realized and Unrealized Gain on Securities
Net realized gain on securities
Investments .............................................................................. 83,590,199
Futures contracts ........................................................................ 1,261,711
Net unrealized appreciation of securities during the period
Investments .............................................................................. 52,512,988
Futures contracts ........................................................................ 491,867
------------
Net realized and unrealized gain on securities ........................................... 137,856,765
------------
Increase in net assets resulting from operations ......................................... $155,130,026
============
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period ............................................... $712,895,284 $712,367,257
------------ ------------
Operations
Net investment income ....................................................... 17,273,261 12,993,062
Net realized gain on securities ............................................. 84,851,910 72,326,560
Net unrealized appreciation (depreciation) of securities during the period .. 53,004,855 (81,656,758)
------------ ------------
Increase (decrease) in net assets resulting from operations ............... 155,130,026 3,662,864
------------ ------------
Distributions to shareholders from
Net investment income ....................................................... (14,344,183) (12,164,102)
Net realized gain on securities ............................................. (71,729,488) (48,603,788)
------------ ------------
Total distributions ....................................................... (86,073,671) (60,767,890)
------------ ------------
Capital transactions
Proceeds from shares sold ................................................... 94,833,007 124,276,586
Proceeds from shares issued for distributions reinvested .................... 84,847,579 59,928,843
Cost of shares redeemed ..................................................... (133,313,425) (126,572,376)
------------ ------------
Increase in net assets resulting from capital transactions ................ 46,367,161 57,633,053
------------ ------------
Increase in Net Assets ........................................................ 115,423,516 528,027
------------ ------------
NET ASSETS, end of period ..................................................... $828,318,800 $712,895,284
============ ============
CAPITAL TRANSACTIONS
Shares sold ................................................................. 6,095,770 7,820,632
Shares issued for distributions reinvested .................................. 6,153,341 3,781,949
Shares redeemed ............................................................. (8,600,756) (7,984,398)
------------ ------------
Increase in shares outstanding ............................................ 3,648,355 3,618,183
============ ============
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
Government Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Government Agencies 47.6%
Federal National Mortgage Association
$ 9,808,713 7.00% Pools, 4/1/24 to 5/1/25........................................................... $ 9,725,928
9,400,488 7.50% Pools, 12/31/23 to 11/1/24........................................................ 9,497,406
28,723,524 8.00% Pools, 5/1/22 to 7/1/25........................................................... 29,423,804
Federal Home Loan Mortgage Corp.
5,738,334 6.50% 5 yr. Pools, 10/1/97 to 7/1/98.................................................... 5,768,805
655,215 7.00% 5 yr. Pools, 12/1/96 to 8/1/97.................................................... 662,999
5,004,038 7.00% 30 yr. Pools, 7/1/24 to 9/1/24.................................................... 4,964,956
24,189,221 7.50% 30 yr. Pools, 4/1/24 to 10/1/24................................................... 24,461,350
9,449,628 8.00% 30 yr. Pools, 6/1/24 to 10/1/24................................................... 9,680,010
Government National Mortgage Association
23,726,589 7.00% Pools, 3/15/22 to 5/15/24......................................................... 23,563,587
17,561,169 7.50% Pools, 3/15/22 to 10/15/24........................................................ 17,791,747
12,148,781 8.00% Pools, 6/15/16 to 7/15/24......................................................... 12,498,058
8,210,879 8.50% Pools, 12/15/05 to 6/15/23........................................................ 8,539,128
13,747 10.00% Pool, 3/15/16.................................................................... 14,993
------------
Total United States Government Agencies (Cost $150,362,195)............................. 156,592,771
------------
United States Treasury Notes 49.8%
**9,000,000 6.50%, 8/15/97.......................................................................... 9,129,420
**20,000,000 7.75%, 12/31/99......................................................................... 21,415,600
**25,000,000 7.875%, 2/15/96......................................................................... 25,152,250
**45,000,000 7.875%, 1/15/98......................................................................... 47,025,000
**10,000,000 8.00%, 5/15/01.......................................................................... 11,006,300
10,000,000 9.00%, 5/15/98.......................................................................... 10,768,800
**39,000,000 9.25%, 1/15/96.......................................................................... 39,268,320
------------
Total United States Treasury Notes (Cost $163,208,203).................................. 163,765,690
------------
Forward Purchase Commitments 17.8%
Federal National Mortgage Association
*10,000,000 7.50%, settling December '95............................................................ 10,088,400
*8,500,000 7.50%, settling January '96............................................................. 8,563,070
Government National Mortgage Association
*30,000,000 7.00%, settling November '95............................................................ 29,793,900
*10,000,000 7.50%, settling December '95............................................................ 10,116,900
------------
Total Forward Purchase Commitments (Cost $57,619,375)................................... 58,562,270
------------
</TABLE>
19
<PAGE>
Government Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Repurchase Agreement 0.9%
$ 2,840,000 SBC Capital Markets, Inc., dated 10/31/95, 5.90%, due 11/01/95
(collateralized by U.S. Government obligations in a pooled cash
account) repurchase proceeds $2,840,465 (Cost $2,840,000).................. $ 2,840,000
------------
TOTAL INVESTMENTS (Cost $374,029,773) 116.1%................................. 381,760,731
Receivable for investments sold 13.8%........................................ 45,519,531
Other assets and liabilities, net 1.5%....................................... 4,981,524
Payable for investments purchased (23.7%).................................... (77,867,031)
Payable for forward sale commitments (7.7%).................................. (25,379,800)
------------
NET ASSETS, equivalent to $10.67 per share 100%.............................. $329,014,955
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par $.01 per share; unlimited shares authorized;
30,839,945 shares outstanding............................................................ $ 308,399
Capital surplus............................................................................ 352,075,117
Accumulated net realized loss on securities................................................ (32,693,720)
Net unrealized appreciation of securities
Investments.............................................................................. 7,730,958
Forward commitments...................................................................... 459,911
Futures contracts........................................................................ 757,898
Undistributed net investment income........................................................ 376,392
------------
NET ASSETS................................................................................. $329,014,955
============
</TABLE>
* Non-income producing security.
** Securities with a market value of approximately $156.5 were placed as
collateral for futures contracts and forward commitments (see Note 1B).
See Notes to Financial Statements.
20
<PAGE>
Government Fund Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Interest....................................................................................... $ 25,311,576
------------
Expenses
Advisory fees.................................................................................. 1,979,623
Shareholder service agent's fees and expenses.................................................. 483,108
Accounting services............................................................................ 92,277
Trustees' fees and expenses.................................................................... 47,762
Audit fees..................................................................................... 13,934
Custodian fees................................................................................. 62,234
Legal fees..................................................................................... 2,335
Reports to shareholders........................................................................ 33,087
Registration and filing fees................................................................... 6,429
Miscellaneous.................................................................................. 11,113
------------
Total expenses............................................................................... 2,731,902
------------
Net investment income........................................................................ 22,579,674
------------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments.................................................................................. (2,531,140)
Forward commitments.......................................................................... 5,294,570
Futures contracts............................................................................ (2,220,552)
Net unrealized appreciation of securities during the period
Investments.................................................................................. 19,778,951
Forward commitments.......................................................................... 433,218
Futures contracts............................................................................ 761,879
------------
Net realized and unrealized gain on securities............................................... 21,516,926
------------
Increase in net assets resulting from operations............................................. $ 44,096,600
============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $334,961,646 $370,213,049
------------ ------------
Operations
Net investment income....................................................... 22,579,674 24,980,745
Net realized gain (loss) on securities...................................... 542,878 (34,030,620)
Net unrealized appreciation (depreciation) of securities during the period.. 20,974,048 (11,216,315)
------------ ------------
Increase (decrease) in net assets resulting from operations................ 44,096,600 (20,266,190)
------------ ------------
Distributions to shareholders from
Net investment income....................................................... (22,389,062) (22,822,040)
Excess of book-basis net realized gain on securities (see Note 1F).......... - (16,458,421)
------------ ------------
Total distributions........................................................ (22,389,062) (39,280,461)
------------ ------------
Capital transactions
Proceeds from shares sold................................................... 40,107,323 82,600,565
Proceeds from shares issued for distributions reinvested.................... 19,322,483 34,396,895
Cost of shares redeemed..................................................... (87,084,035) (92,702,212)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions...... (27,654,229) 24,295,248
------------ ------------
Decrease in Net Assets....................................................... (5,946,691) (35,251,403)
------------ ------------
NET ASSETS, end of period.................................................... $329,014,955 $334,961,646
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................. 3,887,096 7,689,030
Shares issued for distributions reinvested.................................. 1,865,887 3,189,561
Shares redeemed............................................................. (8,448,288) (8,707,829)
------------ ------------
Increase (decrease) in shares outstanding.................................. (2,695,305) 2,170,762
============ ============
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
Municipal Bond Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Municipal Bonds 99.0%
EDUCATION 8.1%
$ 500,000 Cook County, Illinois, Community College, District #508,
Certificates of Participation, FGIC, 8.75%, 1/1/07........................................ $ 651,360
500,000 Connecticut State Health & Educational Facilities Authority Rev. (University of Hartford)
Series S, 6.75%, 7/1/12................................................................... 497,960
500,000 District of Columbia Rev. (Howard University) Series A, MBIA, 8.00%, 10/1/17................ 532,930
500,000 Erie, Pennsylvania, Higher Education Building Authority, College Rev.
Series A, 8.50%, 6/1/15................................................................... 576,885
Frenship, Texas, Independent School District, Refunding
500,000 5.50%, 2/15/03............................................................................ 523,940
500,000 5.50%, 2/15/04............................................................................ 522,135
200,000 Huron Valley, Michigan, School District, FGIC, 7.10%, 5/1/08................................ 227,798
1,000,000 Illinois Educational Facilities Authority Rev. (Illinois State University,
Auxiliary Facilities System) MBIA, 5.75%, 4/1/14.......................................... 993,210
500,000 Merrillville, Indiana, Multi-School Building Corp., 1st Mtg. Bonds,
MBIA, 7.50%, 7/15/09...................................................................... 572,415
350,000 New York City, New York, Industrial Development Agency, Civil Facility Rev.
(Marymount Manhattan College Project) 7.00%, 7/1/23....................................... 363,898
New York State Dormitory Authority Rev.
100,000 City University System, Series A, 8.00%, 7/1/07........................................... 108,353
500,000 City University System, Series C, 6.00%, 7/1/16........................................... 492,390
750,000 State University Education Facilities, Series A, 7.70%, 5/15/12........................... 865,132
Pennsylvania State Higher Educational Facilities Authority Rev.
500,000 Hahnemann University Project, Series 1989, MBIA, 7.20%, 7/1/19............................ 547,200
150,000 Thomas Jefferson University, 8.00%, 1/1/18................................................ 164,448
250,000 Medical College of Pennsylvania, Series A, 8.375%, 3/1/11................................. 271,813
500,000 Shenandoah Valley Pennsylvania, School District, Series B, Zero Coupon, 2/1/12.............. 191,320
480,000 Volusia County, Florida, School Board Certificates Participation
(Florida Master Lease Program) FSA, 5.30%, 8/1/10......................................... 475,598
1,000,000 Wisconsin State Health & Educational Facilities Rev. (Marquette University Project)
FGIC, 6.45%, 12/1/19...................................................................... 1,050,560
-----------
9,629,345
-----------
HEALTH CARE 9.4%
660,000 Delaware County, Ohio, Health Care, FHA, 6.55%, 2/1/35...................................... 668,006
250,000 Illinois, Finance and Development Authority Rev., 8.50%, 2/1/15............................. 271,882
1,500,000 Illinois Health Facilities Authority Rev. (Cent. DuPage Health--Wyndemere)
MBIA, 5.75%, 11/1/22...................................................................... 1,469,805
1,000,000 Indiana Health Facilities Finance Authority, MBIA, 6.85%, 7/1/22............................ 1,073,230
500,000 New York State Medical Care Facilities Agency Rev. (Montefiore Medical Center) FHA,
7.25%, 2/15/24............................................................................ 539,645
1,250,000 Harris County, Texas, Health Facilities (TECO Project), Series A, AMBAC, 7.25%, 2/15/15..... 1,348,750
2,000,000 Massachusetts State Health & Educational Facilities Authority Rev.
(Cape Cod Health System), Series A, CONN, 5.625%, 11/15/23................................ 1,887,080
370,000 New Hampshire Higher Educational & Health Facilities Authority Rev., First Mtg.
(Odd Fellows Home) 9.00%, 6/1/14.......................................................... 417,874
3,675,000 South Carolina Jobs Economic Development Authority, Hospital Facilities Rev.
(Toumey Regional Medical Center) Series A, MBIA, 5.50%, 11/1/20........................... 3,539,797
-----------
11,216,069
-----------
</TABLE>
22
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOSPITALS 23.8%
$ 500,000 Ames, Iowa, Hospital Rev. (Mary Greeley Medical Center Project) AMBAC, 5.75%, 8/15/22 ................. $ 486,635
500,000 Bexar County, Texas, Health Facilities Development Rev. (St. Lukes Lutheran Hospital Project)
7.90%, 5/1/18 ....................................................................................... 600,505
500,000 Boston, Massachusetts, Rev. (Boston City Hospital) FHA, 7.625%, 2/15/21 ............................... 575,970
250,000 Delaware State, Economic Development Authority Rev. (Osteopathic Hospital Association) Series A,
6.75%, 1/1/13 ....................................................................................... 237,100
500,000 Ector County, Texas, Hospital District (Medical Center Hospital) 7.125%, 4/15/02 ...................... 536,765
250,000 Erie County, Pennsylvania, Hospital Authority Rev. (Metro Health Center) Series 1992, 7.25%, 7/1/12 ... 263,427
250,000 Harris County, Texas, Health Facilities Development Corp. (Memorial Hospital System Project)
7.125%, 6/1/15 ...................................................................................... 270,117
Illinois Health Facilities Authority Rev.
105,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03 ............................................ 108,085
40,000 Community Pooled Program, Series A, MBIA, 7.90%, 8/15/03 ............................................ 47,347
500,000 Delnor Community Hospital, 8.00%, 5/15/19 ........................................................... 568,015
500,000 Lutheran Health Systems, Series B, MBIA, 6.00%, 4/1/18 .............................................. 502,260
500,000 Masonic Medical Center, Series 1989-B, 7.70%, 10/1/19 ............................................... 568,340
250,000 Memorial Hospital, 7.25%, 5/1/24 .................................................................... 255,717
300,000 Mercy Center For Health Care Services, 6.625%, 10/1/12 .............................................. 307,275
500,000 Northwestern Memorial Hospital, 6.75%, 8/15/11 ...................................................... 532,595
500,000 Kent Hospital Finance Authority, Michigan (Butterworth Hospital) Series A, 7.25%, 1/15/12 ............. 561,630
100,000 Leesburg, Florida, Hospital Rev., 8.40%, 7/1/08 ....................................................... 103,756
3,000,000 Loma Linda, California, Hospital Rev. (Loma Linda University Medical Center) Series C, MBIA,
5.375%, 12/1/22 ..................................................................................... 2,793,780
500,000 Louisiana Public Facilities Authority, Hospital Rev. (Southern Baptist Hospital Project) FSA,
6.80%, 5/15/12 ...................................................................................... 567,710
2,250,000 Massachusetts State, Series B, 6.50%, 7/1/15 .......................................................... 2,215,417
500,000 Michigan State, Hospital Finance Authority Rev., 7.50%, 10/1/07 ....................................... 518,710
250,000 Michigan State Hospital Finance Authority Rev. (Detroit Medical Center) Series A, 8.125%, 8/15/12 ..... 278,616
Mississippi, Hospital Equipment and Facilities, Series A
500,000 Magnolia Hospital Project, 7.375%, 10/1/21 .......................................................... 515,645
250,000 Wesley Health System Inc., CONN, 6.05%, 4/1/12 ...................................................... 255,160
Missouri State Health and Educational Facilities Authority Rev.
500,000 Heartland Health Systems Project, 6.875%, 11/15/04 .................................................. 543,895
250,000 Heartland Health Systems Project, 8.125%, 10/1/10 ................................................... 284,972
500,000 Lake of the Ozarks Hospital, 8.00%, 2/15/11 ......................................................... 538,545
280,000 Montgomery County, Pennsylvania, IDR (Pennsburg Nursing & Rehabilitation Center) 7.625%, 7/1/18 ....... 269,749
520,000 New Hampshire Higher Education & Health, 7.50%, 6/1/05 ................................................ 574,189
250,000 Newton, Kansas, Hospital Rev. (Newton Healthcare Corp.) Series A, 7.375%, 11/15/14 .................... 261,918
250,000 North Carolina Medical Care Community Health Care Facility Rev. (Stanley Memorial Hospital Project)
7.80%, 10/1/19 ...................................................................................... 267,728
Northeastern Pennsylvania, Hospital Authority Rev.
100,000 Nesbitt Memorial Hospital, Series A, 7.50%, 7/1/12 .................................................. 114,391
500,000 Wilkes Barre General Hospital, 8.375%, 7/1/06 ....................................................... 543,865
2,400,000 Pitt County, North Carolina, Rev. (Pitt County Memorial Hospital) 5.25%, 12/1/21 ...................... 2,260,344
250,000 Rusk County, Texas, Health Facilities Corp., Hospital Rev. (Henderson Memorial Hospital Project)
7.75%, 4/1/13 ....................................................................................... 263,455
</TABLE>
23
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOSPITALS--continued
$ 250,000 Scranton-Lackawanna, Pennsylvania, Health & Welfare Authority Rev. (Moses Taylor Hospital Project)
Series B, 8.50%, 7/1/20 ............................................................................. $ 273,590
South Dakota State Health & Educational Facility Authority Rev.
250,000 Sioux Valley Hospital, 7.625%, 11/1/13 .............................................................. 277,741
500,000 Huron Regional Medical Center, 7.25%, 4/1/20 ........................................................ 512,810
500,000 St. Joseph County, Indiana, Hospital Authority Rev. (Memorial Hospital South Bend Project) MBIA,
6.25%, 8/15/22 ...................................................................................... 510,175
500,000 St. Petersburg, Florida, Health Facilities Authority Rev., Allegany Health System (St. Mary Hospital)
Series B, 7.75%, 12/1/15 ............................................................................ 573,570
3,495,000 Tampa, Florida, Rev., Allegany Health Systems, St. Mary's, MBIA, 5.125%, 12/1/23 ...................... 3,180,800
500,000 Tarrant County, Texas, Health Facilities Development Corp., Hospital Rev., Refunding & Improvement
(Fort Worth Osteopathic Hospital) 7.00%, 5/15/28 .................................................... 522,970
500,000 Tulsa, Oklahoma, Industrial Authority, Hospital Rev. (Tulsa Regional Medical Center) 6.20%, 6/1/17 .... 540,885
500,000 Warren County, Pennsylvania, Hospital Authority Rev. (Warren General Hospital Project) Series A,
6.90%, 4/1/11 ....................................................................................... 510,380
1,000,000 Weslaco, Texas, Health Facilities Development (Knapp Medical Center Project) Series-A, Connie Lee,
5.25%, 6/1/16 ....................................................................................... 936,630
1,000,000 Wisconsin State Health & Educational Facilities Authority, Rev. (Waukesha Memorial Hospital) Series A,
AMBAC, 5.25%, 8/15/19 ............................................................................... 918,550
------------
28,351,729
------------
HOUSING 6.3%
685,000 Austin, Texas, Housing Finance Corp., Multi-Family Housing Rev., 6.50%, 10/1/10 ....................... 690,103
70,000 East Baton Rouge, Louisiana, Mtg. Finance Authority, Single Family Mtg. Rev., Series C, GNMA,
8.375%, 2/1/17 ...................................................................................... 72,888
1,000,000 Greater Cincinnati, Ohio, (FHA Cambridge Apartments), Series A, 6.60%, 8/1/25 ......................... 1,017,500
500,000 Lebanon County, Pennsylvania, Health Facilities (United Church of Christ Homes Project) Series A,
6.75%, 10/1/10 ...................................................................................... 507,840
1,000,000 Lynchburg, Virginia, Redevelopment & Housing Authority Rev. (Waldon Pond III) Series A, GNMA,
6.20%, 7/20/27 ...................................................................................... 1,000,000
250,000 Maine State Housing Authority, Mtg. Purchase Rev., Series B, FHA, 7.90%, 11/15/06 ..................... 263,125
400,000 Maricopa County, Arizona, IDR, Multi-Family Rev., Refunding (Laguna Point Apartments Project)
6.50%, 7/1/09 ....................................................................................... 415,228
250,000 Massachusetts State, Single Family, Series 31, 6.45%, 12/1/16 ......................................... 256,875
150,000 Minneapolis, Minnesota, Health Care Facility (Ebenezer Society Project) Series A, 7.00%, 7/1/12 ....... 150,000
500,000 Ridgeland, Mississippi, Urban Renewal (The Orchard, Ltd. Project) Series A, 7.75%, 12/1/15 ............ 516,850
500,000 South Carolina State Housing Finance and Development Authority, Homeownership Mtg., Series A,
7.625%, 7/1/16 ...................................................................................... 531,250
1,000,000 Tennessee Housing Development Agency, 6.80%, 7/1/17 ................................................... 1,045,100
Texas Housing Agency
485,000 Residential Development Rev., Adjustable Mtg., Series A, GNMA, 7.60%, 7/1/16 ........................ 503,774
320,000 Single Family Mtg., Refunding, Series A, 7.15%, 9/1/12 .............................................. 332,970
90,000 Utah State Housing Finance Agency, Single Family Mtg., Series G-1, FHA, 8.10%, 7/1/16 ................. 95,625
150,000 Wisconsin Housing & Economical Development Authority Rev., Series B, 8.00%, 11/1/18 ................... 154,443
------------
7,553,571
------------
</TABLE>
24
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LIFECARE 0.2%
$ 225,000 Scottsdale, Arizona, Industrial Development, Series A, 8.25%, 6/1/15 .................................. $ 244,395
------------
MISCELLANEOUS 14.3%
250,000 Berry Creek Metropolitan District, Eagle, Colorado, G.O., Refunding & Improvement, 8.25%, 12/1/11 ..... 269,845
100,000 California Special District Finance Authority, Certificates of Participation Rev., Series A,
8.50%, 7/1/18 ....................................................................................... 108,987
2,000,000 Clark County, Nevada (Nevada Power Co. Project) IDR, AMBAC, 7.20%, 10/1/22 ............................ 2,222,000
500,000 Compton, California, Certificates of Participation, Refunding, Series B, 7.50%, 8/1/15 ................ 541,035
500,000 Cook County, Illinois, MBIA, 7.00%, 11/1/10 ........................................................... 564,860
500,000 Detroit, Michigan, Tax Increment (Development Area No. 1) Series A, 7.60%, 7/1/10 ..................... 527,880
500,000 District of Columbia, Series A, AMBAC, 7.50%, 6/1/10 .................................................. 570,970
500,000 Du Page County, Illinois, Alternative Rev. (Stormwater Project) 6.55%, 1/1/21 ......................... 558,205
1,000,000 El Paso County, Texas, Parking Facilities Rev., 6.50%, 8/15/11 ........................................ 1,091,630
250,000 Emmaus, Pennsylvania, General Authority, Local Government Pool Program Rev., Series A, BIG,
8.15%, 5/15/18 ...................................................................................... 269,912
1,000,000 Hawaii State, Series -CD, 5.00%, 2/1/03 ............................................................... 1,024,970
500,000 Highlands Ranch, Colorado, Metropolitan District No. 1, Refunding & Improvement, Series A,
7.30%, 9/1/12 ....................................................................................... 588,045
1,500,000 Irving, Texas, Flood Control District, Section #3, AMBAC, Zero Coupon, 9/1/08 ......................... 755,145
1,200,000 Kansas City, Missouri, Redevelopment Authority Lease Rev., 5.90%, 12/1/18 ............................. 1,218,300
500,000 Milwaukee County, Wisconsin, Refunding, Series A, 5.25%, 9/1/00 ....................................... 519,185
1,000,000 New York, New York, G.O., Series B, 7.00%, 8/15/16 .................................................... 1,064,200
1,000,000 Orange County, California, Series A, MBIA, 6.00%, 6/1/09 .............................................. 1,044,420
50,000 Pocahontas, Iowa, IDR (International Harvester Co.) 10.25%, 10/1/00 ................................... 52,066
2,000,000 Sullivan County, Tennessee, Industrial Development Board Rev., Mtg. (Brandy Mill I) Series A, GNMA,
6.35%,7/20/27 ....................................................................................... 2,033,300
100,000 Tampa, Florida, Capital Improvement Project Rev., Series B, 8.375%, 10/1/18 ........................... 106,632
Texas General Services, Community Partner Interests (Office Building and Land Acquisition Project)
130,000 7.00%, 8/1/14 ....................................................................................... 134,081
330,000 7.00%, 8/1/24 ....................................................................................... 340,372
250,000 Utah State Building Ownership Authority Lease Rev. (Dept. of Employment Security) 7.80%, 8/15/10 ..... 273,498
1,000,000 Valdez, Alaska, Marine Term Rev., Refunding (Sohio Pipeline) 7.125%, 12/1/25 .......................... 1,112,580
------------
16,992,118
------------
MUNICIPAL UTILITY DISTRICT (MUD) 0.6%
250,000 Brazoria County, Texas, MUD No. 2, Refunding, 7.00%, 9/1/08 ........................................... 257,422
500,000 Harris County, Texas, #322, 6.25%, 5/1/17 ............................................................. 488,455
------------
745,877
------------
NURSING HOMES 0.5%
100,000 Carmel, Indiana, Retirement Rent Housing Rev., Refunding (Beverly Enterprises, Inc. Project) Series
1992, 8.75%, 12/1/08 ................................................................................ 113,000
230,000 Louisiana Public Facilities Authority, IDR, Refunding (Beverly Enterprises, Inc.) 8.25%, 9/1/08 ....... 247,781
250,000 Massachusetts, Industrial Finance Agency, IDR, Refunding (Beverly Enterprises/Gloucester and Lexington
Projects) Series 1992, 8.00%, 5/1/02 ................................................................ 266,765
------------
627,546
------------
</TABLE>
25
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
POLLUTION CONTROL REVENUE (PCR) 5.3%
$ 250,000 County of Coshocton, Ohio, Solid Waste Disposal Rev., Refunding (Stone Container Corp. Project) Series
1992, 7.875%, 8/1/13 ................................................................................ $ 262,440
1,000,000 Farmington, New Mexico, PCR, Refunding, 7.20%, 4/1/21 ................................................. 1,095,030
1,000,000 Ohio State Water Development Authority Facilities Rev., PCR (Ohio Edison Co. Project) 5.95%, 5/15/29 .. 931,670
570,000 Ohio State Air Quality Development Authority Rev., PCR (Cleveland Co. Project) FGIC, 8.00%, 12/1/13 ... 663,544
1,000,000 Petersburg, Indiana, PCR, Refunding (Indianapolis Power & Lighting) Series 1993-A, 6.10%, 1/1/16 ...... 1,008,270
1,500,000 Skowhegan, Maine, PCR, Refunding (Scott Paper Company Project) 5.90%, 11/1/13 ......................... 1,486,875
400,000 Stevens County, Washington, Public Corp., PCR (Washington Water & Power Co., Kettle Project)
6.00%, 12/1/23 ...................................................................................... 383,756
500,000 Sweetwater County, Wyoming, PCR (Idaho Power Co.) Series C, 7.625%, 12/1/13 ........................... 524,835
------------
6,356,420
------------
POOL FINANCING PROGRAM 2.7%
Arapahoe County, Colorado, Local Public Improvement
1,000,000 7.00%, 8/31/26 ...................................................................................... 1,042,060
4,500,000 Zero Coupon, 8/31/15 ................................................................................ 1,102,230
10,000,000 Zero Coupon, 8/31/26 ................................................................................ 1,057,800
------------
3,202,090
------------
RESOURCE RECOVERY REVENUE 1.6%
440,000 Broward County, Florida, (North Project) 7.95%, 12/1/08 ............................................... 496,069
1,000,000 Montgomery County, Pennsylvania, Industrial Development Authority, 7.50%, 1/1/12 ...................... 1,067,040
250,000 Regional Waste Systems, Inc., Maine, Solid Waste, 7.95%, 7/1/10 ....................................... 272,870
------------
1,835,979
------------
SALES TAX REVENUE 3.2%
500,000 Arvada, Colorado, Refunding & Improvement, FGIC, 6.25%, 12/1/12 ....................................... 525,915
250,000 Crestwood, Illinois, Tax Increment Rev., Refunding, 7.25%, 12/1/08 .................................... 251,792
400,000 Edgewater, Colorado, Redevelopment Authority Tax Increment Rev., Refunding (Edgewater Development
Project) 6.75%, 12/1/08 ............................................................................. 414,160
100,000 Jefferson County, Colorado, Southeast Jefferson County Local Improvement District, 8.20%, 12/1/13 111,481
2,000,000 Orange County, Florida, Rev., Series B, FGIC, 5.375%, 1/1/24 .......................................... 1,910,520
500,000 Rhode Island Depositors' Economic Corp., Special Obligation, Series A, FSA, 6.625%, 8/1/19 ............ 564,105
------------
3,777,973
------------
TRANSPORTATION 5.0%
500,000 Cleveland, Ohio, Parking Facilities Improvement Rev., 8.00%, 9/15/12 .................................. 530,875
500,000 Delaware Transportation Authority Rev., 5.50%, 7/1/16 ................................................. 488,495
2,000,000 Denver, Colorado, City & County Airport Rev., Series A, MBIA, 5.70%, 11/15/25 ......................... 1,957,740
1,000,000 Des Moines, Iowa, Parking Facilities Rev., FGIC, 7.25%, 7/1/15 ........................................ 1,098,550
1,000,000 New Jersey State Turnpike Authority, Series C, 6.50%, 1/1/16 .......................................... 1,097,610
Triborough Bridge & Tunnel Authority, New York, Rev.
150,000 Series A, 8.00%, 1/1/18 ............................................................................. 164,091
500,000 Series R, 7.375%, 1/1/16 ............................................................................ 563,410
------------
5,900,771
------------
</TABLE>
26
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES 18.0%
$ 500,000 Brownsville, Texas, Utility System Rev., AMBAC, 6.50%, 9/1/17 ......................................... $ 552,410
500,000 Chicago, Illinois, Metropolitan Water District, G.O., 7.00%, 1/1/11 ................................... 587,210
500,000 Chicago, Illinois, Wastewater Transmission, Rev., FGIC, 6.30%, 1/1/12 ................................ 555,650
500,000 Houston, Texas, Water System Rev., 7.25%, 12/1/07 ..................................................... 540,940
Intermountain Power Agency, Utah
500,000 1st Crossover Series, Special Obligation, 7.875%, 7/1/14 ............................................ 521,960
1,000,000 Power Supply Rev., Series B, 7.00%, 7/1/21 .......................................................... 1,056,940
250,000 Jefferson, Wisconsin, Sewer System, Waterworks, 7.40%, 7/1/16 ......................................... 285,350
1,000,000 Los Angeles, California, Dept. of Water & Power, Electric Plan Rev., 5.375%, 9/1/23 ................... 930,460
930,000 Louisia, Virginia, Industrial Development Authority Hospital Facility Rev. (Virginia Electric & Power)
AMBAC, 5.45%, 1/1/24 ................................................................................ 883,779
100,000 Massachusetts Municipal Wholesale Electric Co., Power Supply System Rev., Series A, 8.75%, 7/1/18 ..... 110,344
500,000 Massachusetts State Water Resource Authority, Series A, 7.50%, 4/1/16 ................................. 568,960
500,000 New York City Municipal Water Finance Authority, New York, Water & Sewer System Rev., Series C,
7.75%, 6/15/20 ...................................................................................... 587,370
North Carolina Eastern Municipal Power Agency, Power System Rev.
500,000 Series A, 4.50%, 1/1/24 ............................................................................. 414,170
50,000 8.00%, 1/1/21 ....................................................................................... 54,926
400,000 8.00%, 1/1/21, Pre-Refunded, 11/1/98 ................................................................ 439,408
1,000,000 North Carolina Municipal Power Agency, Catawba Electric Rev., MBIA, 5.75%, 1/1/20 ..................... 998,610
250,000 North Carolina Municipal Power Agency #1, Catawba Electric Rev., 7.875%, 1/1/19 ....................... 273,963
1,000,000 Northern Minnesota Municipal Power Agency, Series A, AMBAC, 7.25%, 1/1/16 ............................. 1,086,760
Puerto Rico, Electric Power Authority Rev., Series Z
2,650,000 5.25%, 7/1/21 ....................................................................................... 2,436,569
2,250,000 5.50%, 7/1/16 ....................................................................................... 2,161,283
775,000 Sam Rayburn, Texas, Municipal Power Agency, Refunding, Series A, 6.75%, 10/1/14 ....................... 717,418
500,000 Texas Water Resource Finance Authority Rev., AMBAC, 7.50% 8/15/13 ..................................... 532,845
Washington State Public Power Supply System Rev.
250,000 Nuclear Project #1, Series B, FGIC, 7.125%, 7/1/16 .................................................. 286,450
250,000 Nuclear Project #2, Series 1990-C, 7.625%, 7/1/10 ................................................... 289,050
1,500,000 Nuclear Project #3, MBIA, 5.60%, 7/1/17 ............................................................. 1,445,235
3,000,000 Series C, FGIC, 5.375%, 7/1/15 ...................................................................... 2,836,140
250,000 Winters, Texas, Water Works & Sewer Rev., 8.50%, 8/1/17 ............................................... 311,268
------------
21,465,468
------------
Total Municipal Bonds (Cost $112,360,413) ........................................................... 117,899,351
------------
</TABLE>
27
<PAGE>
Municipal Bond Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Municipal Variable Rate Demand Notes+ 2.6%
$1,000,000 Subseries A-4, 3.90%, 8/1/22.............................................................. $ 1,000,000
1,900,000 Subseries A-10, 4.00%, 8/1/16............................................................. 1,900,000
200,000 Series 1993-A4, 3.90%, 8/1/21............................................................. 200,000
------------
TOTAL MUNICIPAL VARIABLE RATE DEMAND NOTES (Cost $3,100,000).............................. 3,100,000
------------
TOTAL INVESTMENTS (Cost $115,460,413) 101.6%................................................ 120,999,351
Other assets and liabilities, net (1.6)%.................................................... (1,876,431)
------------
NET ASSETS, equivalent to $13.77 per share 100%............................................. $119,122,920
============
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.01 per share; unlimited shares authorized; 8,649,853
shares outstanding.................................................................................... $ 86,498
Capital surplus......................................................................................... 112,964,627
Undistributed net realized gain on securities........................................................... 374,277
Net unrealized appreciation of investments.............................................................. 5,538,937
Undistributed net investment income..................................................................... 158,581
------------
NET ASSETS.............................................................................................. $119,122,920
============
+Interest rates are as of October 31, 1995 Insurers:
FHA--Federal Housing Administration AMBAC--AMBAC Indemnity Corp.
G.O.--General obligation bond BIG--Bond Investors Guaranty Insurance Co.
Rev.--Revenue bond CONN--Connie Lee
IDR--Industrial Development Revenue Bond FGIC--Financial Guaranty Insurance Corp.
FSA--Financial Security Assurance, Inc.
MBIA--Municipal Bond Investor's Assurance Corp.
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
Municipal Bond Fund Financial Statements
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Interest.................................................................................. $ 7,405,369
------------
Expenses
Advisory fees............................................................................. 678,530
Shareholder service agent's fees and expenses............................................. 219,615
Accounting services....................................................................... 90,522
Trustees' fees and expenses............................................................... 27,472
Audit fees................................................................................ 16,933
Custodian fees............................................................................ 5,823
Legal fees................................................................................ 2,351
Reports to shareholders................................................................... 18,750
Registration and filing fees.............................................................. 26,447
Miscellaneous............................................................................. 3,931
------------
Total expenses.......................................................................... 1,090,374
------------
Net investment income................................................................... 6,314,995
------------
Realized and Unrealized Gain on Securities
Net realized gain on securities........................................................... 401,050
Net unrealized appreciation of securities during the period............................... 6,922,298
------------
Net realized and unrealized gain on securities.......................................... 7,323,348
------------
Increase in net assets resulting from operations........................................ $ 13,638,343
============
- ----------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Year Ended October 31
---------------------------
1995 1994
------------ ------------
NET ASSETS, beginning of period.............................................. $112,088,419 $ 95,903,641
------------ ------------
Operations
Net investment income....................................................... 6,314,995 5,614,009
Net realized gain on securities............................................. 401,050 14,380
Net unrealized appreciation (depreciation) of securities during the period.. 6,922,298 (9,413,118)
------------ ------------
Increase (decrease) in net assets resulting from operations................ 13,638,343 (3,784,729)
------------ ------------
Distributions to shareholders from net investment income..................... (6,187,572) (5,586,734)
------------ ------------
Net equalization credit...................................................... -- 34,076
------------ ------------
Capital transactions
Proceeds from shares sold................................................... 26,976,160 46,071,557
Proceeds from shares issued for distributions reinvested.................... 5,355,586 4,883,341
Cost of shares redeemed..................................................... (32,748,016) (25,432,733)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions...... (416,270) 25,522,165
------------ ------------
Increase in Net Assets....................................................... 7,034,501 16,184,778
------------ ------------
NET ASSETS, end of period.................................................... $119,122,920 $112,088,419
============ ============
CAPITAL TRANSACTIONS
Shares sold................................................................. 2,026,724 3,404,943
Shares issued for distributions reinvested.................................. 402,352 363,194
Shares redeemed............................................................. (2,471,996) (1,889,648)
------------ ------------
Increase (decrease) in shares outstanding.................................. (42,920) 1,878,489
============ ============
</TABLE>
See Notes to Financial Statements.
29
<PAGE>
Money Market Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements* 49.6%
$9,970,000 Lehman Government Securities, 5.90%, repurchase proceeds $9,971,634..................... $ 9,970,000
9,965,000 SBC Capital Markets, Inc, 5.90%, repurchase proceeds $9,966,633......................... 9,965,000
9,965,000 State Street Bank & Trust Co., 5.88%, repurchase proceeds $9,966,628.................... 9,965,000
-----------
Total Repurchase Agreements (Cost $29,900,000).......................................... 29,900,000
-----------
United States Agencies Obligations 32.3%
Federal Home Loan Banks
2,000,000 5.68%, 03/15/96......................................................................... 1,958,218
2,425,000 5.69%, 03/06/96......................................................................... 2,377,521
3,000,000 Federal Home Loan Mortgage Corp., 5.55%, 12/01/95....................................... 2,986,050
Federal National Mortgage Association
3,000,000 5.62%, 02/12/96......................................................................... 2,952,160
1,280,000 5.64%, 04/11/96......................................................................... 1,248,240
2,000,000 5.68%, 01/17/96......................................................................... 1,976,080
3,000,000 5.70%, 12/21/95......................................................................... 2,976,455
3,000,000 5.79%, 12/18/95......................................................................... 2,977,520
-----------
Total United States Agencies Obligations (Cost $19,452,244)............................. 19,452,244
-----------
Commercial Paper 18.4%
2,800,000 Associates Corp. of North America, 5.77%, 01/09/96...................................... 2,769,021
2,800,000 General Electric Capital Corp, 5.78%, 11/14/95.......................................... 2,793,793
2,800,000 General Electric Co., 5.67%, 12/11/95................................................... 2,782,174
2,800,000 Pitney Bowes Credit Corp., 5.78%, 11/27/95.............................................. 2,788,198
-----------
Total Commercial Paper (Cost $11,133,186)............................................... 11,133,186
-----------
TOTAL INVESTMENTS (Cost $60,485,430) 100.3%............................................. 60,485,430
Other assets and liabilities, net (0.3%)................................................ (180,531)
-----------
NET ASSETS, equivalent to $1.00 per share 100%.......................................... $60,304,899
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par value $.01 per share; unlimited shares authorized;
60,304,001 shares outstanding...................................................................... $ 603,040
Capital surplus..................................................................................... 59,700,713
Undistributed net investment income................................................................. 1,146
-----------
NET ASSETS.......................................................................................... $60,304,899
===========
</TABLE>
*dated 10/31/95, due 11/1/95, collaterallized by U.S. Government obligations in
a pool cash account.
See Notes to Financial Statements.
30
<PAGE>
Money Market Fund Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
Year Ended
October 31, 1995
----------------
<S> <C>
Investment Income
Interest............................................................................... $3,316,783
----------
Expenses
Advisory fees.......................................................................... 281,553
Shareholder service agent's fees and expenses.......................................... 520,976
Accounting services.................................................................... 57,991
Trustees' fees and expenses............................................................ 25,254
Audit fees............................................................................. 13,373
Custodian fees......................................................................... 7,283
Legal fees............................................................................. 2,565
Report to shareholders................................................................. 22,951
Registration and filing fees........................................................... 29,242
Miscellaneous.......................................................................... 2,086
Expense reimbursement.................................................................. (400,167)
----------
Total expenses..................................................................... 563,107
----------
Net investment income.............................................................. 2,753,676
----------
Increase in net assets resulting from operations................................... $2,753,676
==========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
Year Ended October 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period............................................ $ 56,401,350 $ 59,198,092
------------ ------------
Operations
Net investment income.................................................... 2,753,676 1,621,523
------------ -------------
Distributions to shareholders from net investment income................... (2,753,721) (1,621,596)
------------ ------------
Capital transactions
Proceeds from shares sold................................................ 63,147,486 59,396,624
Proceeds from shares issued for distributions reinvested................. 2,705,499 1,600,922
Cost of shares redeemed.................................................. (61,949,391) (63,794,215)
------------ ------------
Increase (decrease) in net assets resulting from capital transactions.. 3,903,594 (2,796,669)
------------ ------------
Increase (decrease) in Net Assets.......................................... 3,903,549 (2,796,742)
------------ ------------
NET ASSETS, end of period.................................................. $ 60,304,899 $ 56,401,350
============ ============
CAPITAL TRANSACTIONS
Shares sold.............................................................. 63,147,478 59,396,624
Shares issued for distributions reinvested............................... 2,705,499 1,600,922
Shares redeemed.......................................................... (61,949,391) (63,794,215)
------------ ------------
Increase (decrease) in shares outstanding.............................. 3,903,586 (2,796,669)
============ ============
</TABLE>
See Notes to Financial Statements.
31
<PAGE>
Notes to Financial Statements
Note 1--Significant Accounting Policies
Common Sense Trust (the "Trust"), is registered under the Investment Company Act
of 1940, as amended, as a diversified open-end management investment company
which offers shares in ten separate portfolios, five of which are described in
this report: Growth Fund ("Growth"), Growth and Income Fund ("Growth and
Income"), Government Fund ("Government"), Municipal Bond Fund ("Municipal Bond")
and Money Market Fund ("Money Market"). Each Fund is accounted for as a separate
entity. The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements.
A. Investment Valuations
Securities listed or traded on a national securities exchange are valued at
the last sales price. Unlisted securities and listed securities for which the
last sales price is not available are valued at the most recent bid price.
U.S. Government securities are valued at the last reported bid price.
Municipal bonds are valued at the last quoted bid prices or at bid prices
based on a matrix system (which considers such factors as security prices,
yields, maturities and ratings) furnished by dealers and an independent
pricing service. Variable rate securities are valued at par; periodic rate
changes reflect current market conditions. Securities for which market
quotations are not readily available are valued at fair value under a method
approved by the Board of Trustees.
Short-term investments with a maturity of more than 60 days when purchased
are valued based on market quotations until the remaining days to maturity
become less than 61 days. From such time, until maturity, such investments
are valued at amortized cost. For Money Market, all investments are valued at
amortized cost.
Municipal Bond investments include lower rated debt securities which may be
more susceptible to adverse economic conditions than other investment grade
holdings. These securities are often subordinated to the prior claims of
other senior lenders and uncertainties exist as to an issuer's ability to
meet principal and interest payments. At the end of the period, debt
securities rated below investment grade and comparable unrated securities
represented approximately 6% of Municipal Bond's investment portfolio.
Issuers of certain securities owned by Municipal Bond have obtained insurance
guaranteeing their timely payment of principal at maturity and interest. The
insurance reduces financial risk but not market risk of the securities.
B. Futures Contracts and Forward Commitments
General--Transactions in futures contracts and forward commitments are
utilized in strategies to manage the market risk of the Trust's Investments.
The purchase of a futures contract or forward commitment increases the impact
on net asset value of changes in the market price of investments. Forward
commitments have a risk of loss due to nonperformance of counterparties.
There is also a risk that the market movement of such instruments may not be
in the direction forecasted. Note 3--Investment Activity contains additional
information.
Futures Contracts--Upon entering into futures contracts, the Trust maintains,
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held
as collateral in an account in the name of the broker, the Trust's agent in
acquiring the futures position. During the period the futures contract is
open, changes in the value of the contract ("variation margin") are
recognized by marking the contract to market on a daily basis. As unrealized
gains or losses are incurred, variation margin payments are received from or
made to the broker. Upon the closing or cash settlement of a contract, gains
and losses are realized. The cost of securities acquired through delivery
under a contract is adjusted by the unrealized gain or loss on the contract.
Forward Commitments--The Trust trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs
at a specified future date. Forward commitments are privately negotiated
transactions between the Trust and dealers. Upon executing a forward
commitment and during the period of obligation, the Trust maintains
collateral of cash or securities in a segregated account with its custodian
in an amount sufficient to relieve the obligation. If the intent of the Trust
is to accept delivery of a security traded under a forward purchase
commitment, the commitment is recorded as a long-term purchase. For forward
purchase commitments, which security settlement is not intended by the Trust
and all forward sales commitments, changes in the value of the commitment are
recognized by marking the commitment to market on a daily basis. During the
commitment, the Trust may either resell or repurchase the forward commitment
and enter into a new forward commitment, the effect
32
<PAGE>
Notes to Financial Statements, continued
of which is to extend the settlement date. In addition, the Trust may
occasionally close such forward commitments prior to delivery. Gains and
losses are realized upon the ultimate closing or cash settlement of forward
commitments.
C. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Trust acquires
ownership of a debt security and the seller agrees to repurchase the security
at a future time and specified price. The Trust may invest independently in
repurchase agreements, or transfer uninvested cash balances into a pooled
cash account along with other investment companies advised by Van Kampen
American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Trust will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Trust.
D. Federal Income Taxes
No provision for federal income taxes is required because the Trust has
elected to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification by annually
distributing all taxable net investment income and taxable net realized
capital gains to its shareholders. It is anticipated that no distributions of
capital gains will be made until tax basis capital loss carryforwards, if
any, expire or are offset by net realized capital gains.
The net realized capital loss carryforward at October 31, 1995 for Government
was approximately $31.3 million, which will expire in 2002. Money Market had
a capital loss carryforward of approximately $4,100, which will expire in
2002 and 2003. The net realized capital loss carryforwards may be utilized to
offset future capital gains until expiration.
E. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on investments are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
F. Dividends and Distributions
The Trust, excluding Money Market, declares annual distributions from long-
term gains. Dividends from net investment income are declared daily for
Government, Municipal Bond and Money Market, quarterly for Growth and Income
and annually for Growth. Dividends and distributions to shareholders are
recorded on the record date.
The Trust distributes tax basis earnings in accordance with the minimum
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such dividends or distributions may
exceed financial statement earnings.
Municipal Bond intends to continue to invest principally in tax-exempt
obligations sufficient in amount to qualify it to pay "exempt-interest
dividends" as defined in the Internal Revenue Code. However, a portion of
such dividends may represent tax preference items subject to alternative
minimum tax.
G. Equalization
At October 31, 1994, the Municipal Bond discontinued the accounting practice
of equalization, which it had used since its inception. Equalization is a
practice whereby a portion of the proceeds from sales and the costs of
redemptions of Trust shares, equivalent on a per-share basis to the amount of
the undistributed net investment income, is charged or credited to
undistributed net investment income.
H. Debt Discount or Premium
For financial reporting purposes, debt discounts or premiums are accounted
for on the same basis as is used for federal income tax reporting.
Accordingly, original issue discounts on long-term debt securities purchased
are amortized over the life of the security. For Money Market and Municipal
Bond, all premiums are amortized. Market discounts and premiums are
recognized at the time of sale as realized gains and realized losses,
respectively, for book purposes, and ordinary income and ordinary loss,
respectively, for tax purposes.
33
<PAGE>
Notes to Financial Statements, continued
Note 2--Advisory Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Trust. Advisory fees to Adviser
are paid monthly, based on the average daily net assets of each fund at an
annual rate as indicated by the following graduated fee schedules.
<TABLE>
<CAPTION>
Growth Fund &
Growth and Income Government Municipal Bond Money Market
- --------------------------- ------------------------- -------------------------- --------------------------
Average Daily Annual Average Daily Annual Average Daily Annual Average Daily Annual
Net Assets Rate Net Assets Rate Net Assets Rate Net Assets Rate
- ---------------- ------ ---------------- ------ ---------------- ------ ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
First $1 billion .65% First $1 billion .60% First $1 billion .60% First $2 billion .50%
Next $1 billion .60% Next $1 billion .55% Next $1 billion .55% Next $2 billion .475%
Next $1 billion .55% Next $1 billion .50% Next $1 billion .50% Over $4 billion .45%
Next $1 billion .50% Next $1 billion .45% Over $3 billion .45%
Over $4 billion .45% Next $1 billion .40%
Over $5 billion .35%
</TABLE>
The Adviser has voluntarily elected to reimburse Money Market for any ordinary
business expenses in excess of 1.00% of its average daily net assets. The
Adviser may modify or terminate this election at any time without prior notice.
During the period, the Adviser reimbursed $400,167 of Money Market's expenses.
Accounting services include the salaries and overhead expenses of the Trust's
Treasurer and the personnel operating under his direction. Charges are allocated
among investment companies advised by the Adviser. These charges include the
employee costs attributable to the Trust's accounting officers. A portion of the
accounting services expense was paid to the Adviser in reimbursement of
personnel, facilities and equipment costs attributable to the provision of
accounting services. The services provided by the Adviser are at cost.
PFS Distributors, a wholly owned subsidiary of Travelers Group, Inc., serves as
Distributor of the Trust's shares. The Distributor has an exclusive selling
agreement with PFS Investments Inc. to sell shares of the Trust. During the
period, the Trust paid brokerage commissions of $406,044 to companies which are
deemed affiliates of the Distributor's parent because it owns more than 5% of
the companies' outstanding voting securities. Certain officers and trustees of
the Trust are officers and trustees of the Adviser or its affiliates.
Amounts paid by the Trust to affiliates during the period were as follows:
<TABLE>
<CAPTION>
Growth Municipal Money
Growth and Income Government Bond Market
---------- ---------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Accounting services............................. $ 38,471 $ 16,553 $ 10,679 $ 7,656 $6,854
Sales of Trust shares, Distributor commissions.. 3,711,115 929,500 378,331 118,219 --
</TABLE>
34
<PAGE>
Notes to Financial Statements, continued
At the end of the period, Growth owned approximately 51% of the Van Kampen
American Capital Small Capitalization Fund, ("Small Cap"), an investment company
managed by the Adviser. Small Cap comprised approximately 3.9% of Growth's total
net assets. Small Cap's portfolio consisted of the following securities.
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
Common Stock
Consumer Distribution
22,000 Big B, Inc............................. $ 316,250
22,000 Books-A-Million, Inc................... 280,500
11,000 Cardinal Health, Inc................... 577,500
3,000 Carson Pirie Scott & Co................ 50,625
4,000 CDW Computer Centers, Inc.............. 195,000
21,000 Circuit City Stores, Inc............... 698,250
42,000 Claire's Stores, Inc................... 834,750
12,000 CompUSA, Inc........................... 481,500
14,000 Consolidated Stores Corp............... 327,250
1,000 Dole Food, Inc......................... 38,000
9,800 Eckerd Corp............................ 390,775
52,000 Fingerhut Companies, Inc............... 695,500
46,000 General Nutrition Companies, Inc....... 1,115,500
1,000 Great Atlantic & Pacific............... 20,375
29,000 Gymboree Corp.......................... 659,750
11,000 Health Management, Inc................. 126,500
2,000 Hills Stores Co........................ 15,250
10,000 Lear Seating Corp...................... 290,000
14,000 MacFrugals Bargains Closeouts.......... 164,500
9,000 Medicine Shoppe International, Inc..... 389,250
6,000 Mens Wearhouse, Inc.................... 235,500
15,000 Micro Wharehouse, Inc.................. 678,750
38,000 OfficeMax, Inc......................... 940,500
83,900 Pier 1 Imports. Inc.................... 818,025
5,000 Proffitts, Inc......................... 118,750
6,000 Rexel, Inc............................. 69,000
3,000 Richfood Holdings, Inc................. 74,625
7,000 Ross Stores, Inc....................... 110,250
25,000 Staples, Inc........................... 668,750
42,800 Stop & Shop Companies, Inc............. 877,400
40,000 Sunglass Hut International, Inc........ 1,090,000
4,000 Tiffany & Co........................... 174,500
25,000 Viking Office Products, Inc............ 1,109,375
43,000 Waban, Inc............................. 661,125
6,000 Whole Foods Market, Inc................ 72,750
3,000 Younkers, Inc.......................... 66,375
32,000 Zale Corp.............................. 472,000
-----------
15,904,700
-----------
Consumer Durables
3,000 Borg Warner Automotive, Inc............ 86,625
50,000 Breed Technologies, Inc................ 925,000
47,000 Brunswick Corp......................... 922,375
21,000 Champion Enterprises, Inc.............. 546,000
35,000 Clayton Homes, Inc..................... 936,250
23,000 Cobra Golf, Inc........................ 621,000
4,000 Department 56, Inc..................... 182,500
24,000 Echlin, Inc............................ 864,000
5,000 Fleetwood Enterprises, Inc............. 103,125
14,000 Gencorp, Inc........................... 148,750
8,400 Harman International Industries, Inc... 389,550
46,000 Leggett & Platt, Inc................... 1,115,500
7,000 Lennar Corp............................ 161,875
14,000 Outboard Marine Corp................... 297,500
7,000 Smith (A. O.) Corp..................... 146,125
6,000 Snap-On Tools, Inc..................... 254,250
22,000 Toro Co................................ 632,500
-----------
8,332,925
-----------
Consumer Non-Durables
1,000 Alberto Culver Co., Class B............ 31,625
34,000 American Greetings Corp., Class A...... 1,079,500
29,000 Barefoot, Inc.......................... 337,125
7,000 Fieldcrest Cannon, Inc................. 134,750
9,000 Fossil, Inc............................ 96,750
2,000 Hormel (G. A.) & Co.................... 46,000
13,000 IBP, Inc............................... 781,625
41,000 Liz Claiborne, Inc..................... 1,158,250
23,000 Nautica Enterprises, Inc............... 787,750
10,000 Nu-Kote Holdings, Inc., Class A........ 198,750
11,000 Phillips-Van Heusen Corp............... 111,375
3,000 Scotts Co., Class A.................... 60,000
9,000 Smithfield Foods, Inc.................. 236,250
15,000 Springs Industries, Inc................ 643,125
8,000 St. John Knits, Inc.................... 382,000
21,000 Starbucks Corp......................... 834,750
56,000 Topps, Inc............................. 343,000
1,000 Unifi, Inc............................. 22,750
9,000 Universal Foods Corp................... 309,375
18,000 Westpoint Stevens, Inc................. 382,500
25,000 Whitman Corp........................... 534,375
18,000 Wolverine World Wide, Inc.............. 549,000
-----------
9,060,625
-----------
Consumer Services
4,000 Advo, Inc.............................. 102,500
10,000 Banta Corp............................. 427,500
12,000 Belo (A. H.) Corp...................... 414,000
14,000 Boston Chicken, Inc.................... 476,000
26,000 Bowne & Co., Inc....................... 481,000
11,000 Boyd Gaming Corp....................... 148,500
1,000 Casino America, Inc.................... 7,000
19,000 Equifax, Inc........................... 722,000
9,000 HFS, Inc............................... 559,125
30,000 Kelly Services, Inc.................... 765,000
25,000 King World Productions, Inc............ 865,625
21,000 Lone Star Steakhouse Saloon, Inc....... 813,750
9,000 Media General, Inc., Class A........... 250,875
21,000 Mirage Resorts, Inc.................... 695,625
19,000 New York Times Co., Class A............ 529,625
27,760 Ogden Corp............................. 635,010
16,000 Olsten Corp............................ 612,000
17,000 Omnicom Group.......................... 1,088,000
26,000 Outback Steakhouse, Inc................ 809,250
3,000 Papa John's International, Inc......... 116,625
13,200 PHH Corp............................... 580,800
31,500 Players International, Inc............. 342,563
1,000 Pulitzer Publishing Co................. 45,375
19,000 Regal Cinemas, Inc..................... 741,000
17,000 Reynolds & Reynolds Co................. 603,500
23,000 Rio Hotel & Casino, Inc................ 293,250
</TABLE>
35
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
28,000 Robert Half International, Inc............ $ 1,029,000
26,000 Sbarro, Inc............................... 549,250
12,500 Scientific Games Holdings Corp............ 415,625
6,000 Sonic Corp................................ 132,000
13,500 Spelling Entertainment Group, Inc......... 173,813
24,000 Wendys International, Inc................. 480,000
32,000 Westcott Communications, Inc.............. 444,000
-----------
16,349,186
-----------
Energy
17,000 BJ Services Co............................ 401,625
13,000 Brooklyn United Gas Co.................... 326,625
24,100 Eastern Enterprises....................... 716,975
38,000 El Paso Natural Gas Co.................... 1,026,000
25,000 KCS Energy, Inc........................... 246,875
12,000 K.N. Energy, Inc.......................... 307,500
25,000 Mesa, Inc................................. 106,250
91,000 Nabors Industries, Inc.................... 784,875
14,000 NACCO Industries, Inc., Class A........... 805,000
2,500 National Fuel Gas Co...................... 75,000
24,000 NICOR, Inc................................ 648,000
15,000 Nuevo Energy Co........................... 333,750
16,000 Offshore Logistics, Inc................... 198,000
14,400 ONEOK, Inc................................ 356,400
28,000 Pacific Enterprises....................... 693,000
48,000 Smith International, Inc.................. 768,000
1,000 Tidewater, Inc............................ 26,375
25,000 Union Texas Petroleum Holdings, Inc....... 459,375
12,000 United Meridian Corp...................... 202,500
24,000 Valero Energy Corp........................ 567,000
30,000 Varco International, Inc.................. 277,500
6,000 Washington Gas & Light Co................. 115,500
500 Weatherford Enterra, Inc.................. 12,250
3,000 Western Atlas, Inc........................ 133,500
12,400 WICOR, Inc................................ 370,450
188 Williams Companies........................ 7,285
-----------
9,965,610
-----------
Finance
12,000 Advanta Corp., Class A.................... 468,000
25,000 Ahmanson (H. F.) & Co..................... 634,375
15,000 AMBAC, Inc................................ 643,125
34,000 American Financial Group, Inc............. 956,250
25,000 American Re Corp.......................... 956,250
29,000 Bankers Life Holding Corp................. 525,625
33,000 Bear Stearns Companies, Inc............... 660,000
24,000 California Federal Bank................... 357,000
4,000 CCB Financial Corp........................ 196,000
26,000 Charter One Financial, Inc................ 737,750
58,000 City National Corp........................ 783,000
10,000 CMAC Investment Corp...................... 475,000
23,000 Commercial Federal Corp................... 750,375
1,500 Countrywide Credit Industries, Inc........ 33,188
23,000 Crestar Financial Corp.................... 1,319,625
41,000 Edwards (A.G.), Inc....................... 1,040,375
22,000 Finova Group, Inc......................... 1,001,000
7,000 First American Corp....................... 306,250
10,000 First Financial Corp...................... 210,000
18,000 First Tennessee National Corp............. 972,000
13,000 First USA, Inc............................ 606,125
20,300 Fremont General Corp...................... 596,313
19,000 GATX Corp................................. 909,625
49,000 Mercury Financial Co...................... 943,250
7,300 MGIC Investment Corp...................... 415,188
9,000 North American Mtg., Co................... 185,625
21,000 North Fork Bancorporation................. 459,375
22,000 Northern Trust Corp....................... 1,050,500
12,880 Norwest Corp.............................. 388,010
2,000 Ohio Casualty Corp........................ 71,500
10,000 Penncorp Financial Group, Inc............. 238,750
32,000 Peoples Heritage Financial................ 620,000
25,000 Protective Life Corp...................... 712,500
18,000 Regions Financial Corp.................... 720,000
109,000 Reliance Group Holding.................... 803,875
17,000 Reliastar Financial Corp.................. 716,125
3,000 Roosevelt Financial Group, Inc............ 48,375
38,000 Southtrust Corp........................... 959,500
5,000 Sovereign Bancorp, Inc.................... 50,000
19,300 Star Banc Corp............................ 1,061,500
16,000 TCF Financial Corp........................ 936,000
6,000 TIG Holdings, Inc......................... 151,500
6,000 Transatlantic Holdings, Inc............... 405,750
28,000 Union Planters Corp....................... 854,000
5,000 Vesta Insurance Group, Inc................ 203,125
38,000 Washington Mutual, Inc.................... 980,875
15,000 Webb Del Corp............................. 313,125
9,000 Zions Bancorporation...................... 623,250
-----------
29,048,949
-----------
Health Care
25,000 Amsco International, Inc.................. 409,375
24,000 Bausch & Lomb, Inc........................ 840,000
5,000 Bio Rad Labs, Inc., Class A.............. 190,625
19,000 CNS, Inc.................................. 199,500
11,000 Community Health Systems, Inc............. 349,250
52,000 Cor Therapeutics, Inc..................... 533,000
1,000 Cordis Corp............................... 110,625
4,000 Dentsply International, Inc............... 138,000
29,000 Foundation Health Corp.................... 1,236,125
2,000 HBO & Co.................................. 143,250
20,000 Healthcare Compare Corp................... 770,000
8,000 Healthsouth Rehabilitation................ 211,000
39,000 Horizon/CMS Healthcare.................... 784,875
37,073 ICN Pharmaceuticals, Inc.................. 759,997
24,000 Integrated Health Services, Inc........... 519,000
29,000 Lincare Holdings, Inc..................... 725,000
3,000 Manor Care, Inc........................... 98,625
1,000 Maxicare Health Plans..................... 17,625
32,000 Medisense, Inc............................ 716,000
47,500 Mylan Labs, Inc........................... 890,625
16,000 Nellcor Puritan Bennett, Inc.............. 924,000
8,000 North American Biological................. 65,000
2,000 Orthofix International, NV............... 19,500
16,000 Oxford Health Plans, Inc.................. 1,260,000
6,000 Pacific Physician Services................ 94,500
3,000 Quintiles Transnational Corp.............. 192,750
17,000 Renal Treatment Centers, Inc.............. 612,000
6,000 Rexall Sundown, Inc....................... 90,000
3,000 Target Therapeutics, Inc.................. 229,500
18,000 Thermo Cardiosystems, Inc................. 877,500
2,000 United American Healthcare Corp........... 22,250
12,000 Universal Health Services, Inc., Class B.. 448,500
20,000 Vivra, Inc................................ 660,000
25,320 Watsons Pharmaceuticals, Inc.............. 1,145,730
-----------
16,283,727
-----------
</TABLE>
36
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------
<C> <S> <C>
Producer Manufacturing
16,000 Agco Corp. $ 754,000
3,000 Alliant Techsystems, Inc. 139,500
5,000 Ametek, Inc. 88,750
14,600 Aptar Group, Inc. 501,875
7,000 Blount, Inc., Class A 305,375
21,000 Briggs & Stratton Corp. 847,875
6,000 Cognex Corp. 363,000
22,000 Cummins Engine Co., Inc. 792,000
26,000 Danaher Corp. 812,500
22,000 Detroit Diesel Corp. 396,000
11,000 Duracraft Corp. 239,250
6,000 Granite Construction, Inc. 171,750
18,500 IDEX Corp. 698,375
7,000 INDRESCO, Inc. 120,750
1,000 Johnson Controls, Inc. 58,500
20,000 Juno Lighting, Inc. 292,500
2,000 Kent Electrics Corp. 97,750
16,000 Kulicke & Sofa Industries, Inc. 560,000
24,000 Mueller Industries, Inc. 561,000
4,000 National Service Industries, Inc. 119,500
9,000 Navistar International Corp. 93,375
19,000 PACCAR, Inc. 798,000
30,000 Southdown, Inc. 495,000
90,000 Sterling Chemicals, Inc. 731,250
11,000 Teledyne, Inc. 275,000
28,300 Thermo Instrument Systems, Inc. 856,075
26,000 Timken Co. 1,036,750
8,000 United Waste Systems, Inc. 316,000
31,000 Varity Corp. 1,108,250
6,000 Watts Industries, Inc., Class A 123,750
32,000 Wellman, Inc. 752,000
9,000 Wolverine Tube, Inc. 319,500
-----------
14,825,200
-----------
Raw Materials/Processing Industries
17,000 Cleveland Cliffs, Inc. 641,750
16,000 Cyprus Amax Minerals 428,000
4,000 Cytec Industries, Inc. 218,000
6,000 First Mississippi Corp. 123,750
14,000 Geon Co. 346,500
24,000 Georgia Gulf Corp. 801,000
15,000 Goodrich (B. F.) Co. 990,000
46,000 Handy & Harman 644,000
8,000 Inland Steel Industries, Inc. 186,000
2,000 International Specialty Products, Inc. 17,500
62,000 Jefferson Smurfit Corp. 759,500
40,000 J&L Specialty Steel, Inc. 660,000
44,000 Longview Fibre Co. 643,500
15,000 Lubrizol Corp. 435,000
41,000 Lyondell Petrochemical Co. 881,500
46,000 Magma Copper Co., Class B 770,500
6,000 Medusa Corp. 149,250
3,000 NCH Corp. 163,125
14,000 Olin Corp. 904,750
51,000 Owens-Illinois, Inc. 643,875
12,000 Potlatch Corp. 505,500
3,000 Quanex Corp. 58,875
11,000 Rayonier, Inc. 418,000
69,000 Rexene Corp. 621,000
20,000 Sealed Air Corp. 522,500
5,000 Sigma-Aldrich Corp. 240,000
33,000 Sonoco Products Co. 833,250
43,000 Stone Container Corp. 736,375
46,000 Terra Industries, Inc. 580,750
1,000 Texas Industries, Inc. 52,875
23,000 USG Corp. 669,875
15,000 Vigoro Corp. 652,500
5,000 Vulcan Materals Co. 277,500
43,500 Worthington Industries, Inc. 744,938
-----------
17,321,438
-----------
Technology
6,000 Adaptec, Inc. 264,000
20,000 Alantec Corp. 710,000
4,000 Altera Corp. 244,000
15,000 America Online, Inc. 1,215,000
3,000 Analysts International Corp. 90,000
28,000 Aspect Telecommunications Corp. 973,000
19,000 Atmel Corp. 594,936
1,000 Auspex Systems, Inc. 14,812
27,000 Autodesk, Inc. 911,250
21,400 Avnet, Inc. 1,080,700
10,000 BMC Industries, Inc. 386,250
18,000 BMC Software, Inc. 641,250
56,000 Borland International, Inc. 777,000
36,000 Cadence Design Systems, Inc. 1,174,500
19,000 Cascade Communications 1,344,250
21,000 Cidco, Inc. 588,000
2,000 Computer Network Technology 13,125
60,000 Conner Peripherals, Inc. 1,095,000
22,000 Credence Systems Corp. 825,000
1,000 Dallas Semiconductor Co. 21,250
13,000 Dovatron International, Inc. 399,750
22,000 Dynatech Corp. 335,500
12,000 Electroglas, Inc. 867,000
13,000 Electronics For Imaging, Inc. 1,082,250
4,000 FTP Software, Inc. 108,188
34,000 Gateway 2000, Inc. 1,160,250
9,000 Harris Corp. 525,375
23,000 In Focus Systems, Inc. 730,250
44,000 Integrated Device Technology, Inc. 844,250
22,000 International Rectifier Corp. 1,009,250
37,000 Intervoice, Inc. 689,125
24,000 KLA Instruments Corp. 1,050,000
3,000 Komag, Inc. 172,875
13,000 Lam Research Corp. 809,250
3,000 Littelfuse, Inc. 98,625
17,000 McAfee Associates, Inc. 998,750
10,000 Microchip Technology, Inc. 397,500
26,000 Netmanage, Inc. 542,750
14,000 Network Equipment Technologies 465,500
22,000 Network General Corp. 907,500
12,500 Novellus Systems, Inc. 857,812
8,000 Peoplesoft, Inc. 688,000
4,500 Pioneer Standard Electronics, Inc. 62,438
9,000 Policy Management Systems Corp. 426,375
5,000 Quantum Corp. 86,250
23,000 Read-Rite Corp. 819,375
4,000 Recoton Corp. 89,000
38,000 S3, Inc. 650,750
14,000 Seagate Technology 638,750
30,000 Sequent Computer Systems, Inc. 525,000
25,000 Solectron Corp. 1,018,750
9,000 Sterling Software, Inc. 416,250
19,000 Symbol Technologies, Inc. 665,000
</TABLE>
37
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------
<C> <S> <C>
20,000 Teradyne, Inc............................. $ 670,000
12,000 3Com Corp................................. 582,000
11,474 U.S. Robotics Corp........................ 1,067,080
19,000 Unitrode Corp............................. 513,000
8,500 Varian Associates, Inc.................... 437,750
27,000 Vishay Intertechnology, Inc............... 972,000
19,000 Wyle Electronics, Inc..................... 814,625
21,000 Xilinx, Inc............................... 1,000,125
------------
39,157,591
------------
Transportation
49,000 Arkansas Best Corp........................ 453,250
32,000 Comair Holdings, Inc...................... 896,000
10,800 Consolidated Freightways, Inc............. 252,450
1,000 Continental Airlines, Inc., Class B....... 35,625
24,000 Fritz Companies, Inc...................... 846,000
26,000 Illinois Central Corp..................... 1,001,000
22,000 MS Carriers, Inc.......................... 341,000
12,000 Northwest Airlines, Inc., Class A......... 486,000
19,000 Pittston Company Services Group........... 520,125
6,000 Stolt Nielsen, S.A........................ 182,250
11,000 TNT Freightways Corp...................... 203,500
------------
5,217,200
------------
Utilities
29,000 AES Corp.................................. 572,750
26,000 AT&T Corp................................. 1,040,000
34,100 Boston Edison Co.......................... 937,750
4,500 C-Tec Corp................................ 94,500
12,000 California Energy, Inc.................... 216,000
27,000 Centerior Energy Corp..................... 273,375
4,300 Central Hudson Gas & Electric Corp........ 131,688
1,000 Colorado Public Service Co................ 34,000
10,000 Commnet Cellular, Inc..................... 252,500
38,000 Delmarva Power & Light Co................. 845,500
17,000 DQE, Inc.................................. 469,625
8,000 Eastern Utilities Association............. 187,000
4,251 Firstmiss Gold, Inc....................... 77,049
42,000 Frontier Corp............................. 1,139,250
36,000 Illinova Corp............................. 1,026,000
41,000 Long Island Lighting Co................... 707,250
33,000 New Mexico Public Service Co.............. 556,875
24,000 NIPSCO Industries, Inc.................... 879,000
9,500 Oklahoma Gas & Electric Co................ 380,000
3,000 Orange & Rockland Utilities............... 105,375
27,000 Pinnacle West Capital Corp................ 742,500
32,000 Portland General Corp..................... 872,000
14,200 Southern New England Telecommunications... 514,750
23,000 U.S. Cellular Corp........................ 790,625
1,000 U.S. Long Distance Corp................... 13,000
------------
12,858,362
------------
Total Common Stock...................... 194,325,513
------------
Convertible Preferred Stock
1,600 FHP International, $1.25, Series A........ 38,000
------------
Principal
Amount
(000) Repurchase Agreement
- ---------
$ 5,805 Lehman Government Securities, Inc.,
5.75%, 11/01/95 5,805,000
------------
Total Investments......................... 200,168,513
Other assets and liabilities, net......... 176,308
------------
NET ASSETS................................ $200,344,821
============
</TABLE>
Note 3--Investment Activity
During the period, the cost of purchases and proceeds from sales and maturities
of investments, excluding short-term investments, forward commitments and
variable rate demand notes were:
<TABLE>
<CAPTION>
Growth Municipal
Growth and Income Government Bond
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Purchases.................................... $5,043,956,174 $839,567,650 $711,194,232 $59,686,173
Sales........................................ 5,091,891,937 860,305,407 802,093,408 53,754,489
</TABLE>
Money Market held only short-term investments.
The following table presents the identified cost of investments at the end of
the period for federal income tax purposes with the associated net unrealized
appreciation.
<TABLE>
<CAPTION>
Growth Municipal
Growth and Income Government Bond
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Identified cost.................. $2,349,280,952 $705,387,413 $374,263,301 $115,460,414
============== ============ ============ ============
Gross unrealized appreciation.... $ 292,498,875 $129,326,111 $ 8,463,025 $ 5,934,935
Gross unrealized depreciation.... (30,865,282) (13,070,508) (965,595) (395,998)
-------------- ------------ ------------ ------------
Net unrealized appreciation...... $ 261,633,593 $116,255,603 $ 7,497,430 $ 5,538,937
============== ============ ============ ============
</TABLE>
38
<PAGE>
Notes to Financial Statements, continued
At the end of the period, the Trust held the following long futures contracts:
<TABLE>
<CAPTION>
Unrealized
Number of Market Appreciation
Fund Description Contracts Value (Depreciation)
----------------- ------------------------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Growth Standard & Poor's 500 Index
(expiring Dec. 95) 340 $99,254,500 $ 39,318
=========== ========
Growth and Income Standard & Poor's 500 Index
(expiring Dec. 95) 110 $32,111,750 $444,125
=========== ========
Government U.S. Treasury Bond
(expiring Dec. 95) 190 $22,241,875 $405,422
U.S. Treasury Notes, five years
(expiring Dec. 95) 80 8,666,250 136,493
U.S. Treasury Notes, ten years
(expiring Dec. 95) 80 8,922,500 201,494
U.S. Treasury Bond
(expiring Mar. 96) 90 10,504,688 4,181
U.S. Treasury Notes, ten years
(expiring Mar. 96) 50 5,578,125 10,308
----------- --------
$55,913,438 $757,898
=========== ========
</TABLE>
At the end of the period, Government held the following forward commitments for
which delivery was not intended:
<TABLE>
<CAPTION>
Unrealized
Principal Market Appreciation
Amount Security Value (Depreciation)
----------- ---------------------------------------- ------------- --------------
<S> <C> <C> <C>
Federal National Mortgage Association
$10,000,000 8.00%, settling 11/95 (sale) $(10,243,800) $ (6,300)
Government National Mortgage Association
10,000,000 7.00%, settling 11/95 (sale) (9,931,300) (50)
10,000,000 7.00%, settling 12/95 (purchase) 9,918,800 79,737
6,000,000 7.00%, settling 1/96 (purchase) 5,943,780 26,280
20,000,000 7.50%, settling 11/95 (purchase) 20,262,600 414,944
5,000,000 8.50%, settling 11/95 (sale) (5,204,700) (54,700)
------------ --------
(Net obligation $10,285,469) $ 10,745,380 $459,911
============ ========
</TABLE>
Note 4--Trustee Compensation
Trustees who are not affiliated with the Adviser are compensated by the Trust at
the annual rate of $19,240 plus a fee of $1,285 per day for the Board meetings
attended.
<TABLE>
<CAPTION>
Growth
and Municipal Money
Growth Income Government Bond Market
-------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Trustees' fees for the period............ $150,855 $60,707 $43,787 $24,604 $22,723
======== ======= ======= ======= =======
</TABLE>
39
<PAGE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ....................... $ 15.31 $ 16.26 $ 16.02 $ 15.47 $ 11.26
--------- ---------- ---------- ---------- ----------
Income from investment operations
Investment income .......................................... .32 .29 .281 .30 .36
Expenses ................................................... (.16) (.16) (.165) (.17) (.17)
--------- ---------- ---------- ---------- ----------
Net investment income ...................................... .16 .13 .116 .13 .19
Net realized and unrealized gain or losses on securities ... 3.18 .2075 2.0065 1.3925 4.2425
--------- ---------- ---------- ---------- ----------
Total from investment operations ........................... 3.34 .3375 2.1225 1.5225 4.4325
--------- ---------- ---------- ---------- ----------
Less distributions from
Net investment income ...................................... (.155) (.1125) (.115) (.17) (.2225)
Net realized gain on securities ............................ (1.035) (1.175) (1.3996) (.8025) --
Excess of book-basis net realized gain on securities ....... -- -- (.3679) -- --
--------- ---------- ---------- ---------- ----------
Total distributions ........................................ (1.19) (1.2875) (1.8825) (.9725) (.2225)
--------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 17.46 $ 15.31 $ 16.26 $ 16.02 $ 15.47
========= ========== ========== ========== ==========
TOTAL RETURN/(1)/ .......................................... 24.01% 2.04% 14.27% 9.83% 39.90%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) ....................... $2,611.5 $2,169.9 $2,065.7 $1,648.0 $1,311.5
Average net assets (millions) .............................. $2,352.1 $2,123.1 $1,894.0 $1,479.7 $1,127.8
Ratios to average net assets
Expenses ............................................... 1.00% 1.09% 1.14% 1.18% 1.26%
Net investment income .................................. 1.04% .89% .80% .91% 1.44%
Portfolio turnover rate .................................... 230% 164% 166% 134% 100%
- -----------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ....................... $ 15.77 $ 17.13 $ 15.54 $ 14.70 $ 11.49
--------- ---------- ---------- ---------- ----------
Income from investment operations
Investment income .......................................... .51 .45 .46 .435 .46
Expenses ................................................... (.15) (.16) (.17) (.16) (.155)
--------- ---------- ---------- ---------- ----------
Net investment income ...................................... .36 .29 .29 .275 .305
Net realized and unrealized gain or losses on securities ... 2.715 (.2125) 1.8775 1.2875 3.2225
--------- ---------- ---------- ---------- ----------
Total from investment operations ........................... 3.075 .0775 2.1675 1.5625 3.5275
--------- ---------- ---------- ---------- ----------
Less distributions from
Net investment income ...................................... (.30) (.275) (.2775) (.295) (.3175)
Net realized gain on securities ............................ (1.595) (1.1625) (.30) (.4275) --
--------- ---------- ---------- ---------- ----------
Total distributions ........................................ (1.895) (1.4375) (.5775) (.7225) (.3175)
--------- ---------- ---------- ---------- ----------
Net asset value, end of period ............................. $ 16.95 $ 15.77 $ 17.13 $ 15.54 $ 14.70
========= ========== ========== ========== ==========
TOTAL RETURN/(1)/ .......................................... 22.45% .51% 14.13% 10.85% 31.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) ....................... $ 828.3 $ 712.9 $ 712.4 $ 591.0 $ 499.6
Average net assets (millions) .............................. $ 759.6 $ 707.5 $ 659.5 $ 545.0 $ 449.4
Ratios to average net assets
Expenses ............................................... .96% 1.02% 1.05% 1.09% 1.14%
Net investment income .................................. 2.27% 1.84% 1.76% 1.84% 2.29%
Portfolio turnover rate .................................... 117% 88% 51% 32% 42%
</TABLE>
/(1)/Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
40
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Year Ended October 31
------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
------- ------- -------- ------- -------
Government Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 9.99 $ 11.80 $ 11.56 $ 11.47 $ 10.79
------- ------- -------- ------- -------
Income from investment operations
Investment income....................................... .79 .78 .8536 .97 1.012
Expenses................................................ (.09) (.09) (.0920) (.11) (.107)
------- ------- -------- ------- -------
Net investment income................................... .70 .69 .7616 .86 .905
Net realized and unrealized gain or loss on securities.. .6779 (1.358) .4249 .1639 .6788
------- ------- -------- ------- -------
Total from investment operations........................ 1.3779 (.668) 1.1865 1.0239 1.5838
------- ------- -------- ------- -------
Less distributions from
Net investment income................................... (.6979) (.6878) (.7615) (.8639) (.9038)
Net realized gain on securities......................... - - (.185) (.07) -
Excess of book-basis net realized gains on securities... - (.4542) - - -
Total distributions..................................... (.6979) (1.142) (.9465) (.9339) (.9038)
------- ------- -------- ------- -------
Net asset value, end of period.......................... $ 10.67 $ 9.99 $ 11.80 $ 11.56 $ 11.47
======= ======= ======== ======= =======
TOTAL RETURN(1)......................................... 14.27% (5.45%) 10.55% 9.32% 15.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $ 329.0 $ 335.0 $ 370.2 $ 282.0 $ 189.0
Average net assets (millions)........................... $ 329.9 $ 353.8 $ 330.1 $ 229.5 $ 161.2
Ratios to average net assets
Expenses............................................... .83% .89% .89% .95% .96%
Net investment income.................................. 6.84% 7.06% 7.35% 7.46% 8.15%
Portfolio turnover rate................................. 214% 256% 218% 112% 39%
</TABLE>
(1)Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
41
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Year Ended October 31
---------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
Municipal Bond Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 12.89 $ 14.07 $ 13.03 $ 12.84 $ 12.18
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .87 .84 .859 .875 .905
Expenses................................................ (.13) (.13) (.141) (.15) (.145)
Expense reimbursement(2)................................ - - .01 - -
------- ------- ------- ------- -------
Net investment income................................... .74 .71 .728 .725 .76
Net realized and unrealized gain or loss on securities.. .867 (1.182) 1.038 .2175 .648
------- ------- ------- ------- -------
Total from investment operations........................ 1.607 (.472) 1.766 .9425 1.408
------- ------- ------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME................ (.727) (.708) (.726) (.7525) (.748)
------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 13.77 $ 12.89 $ 14.07 $ 13.03 $ 12.84
======= ======= ======= ======= =======
TOTAL RETURN(1)......................................... 12.72% (3.38%) 13.84% 7.57% 11.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $ 119.1 $ 112.1 $ 95.9 $ 60.3 $ 42.5
Average net assets (millions)........................... $ 113.1 $ 106.6 $ 77.1 $ 50.0 $ 39.2
Ratios to average net assets(2)
Expenses............................................... .96% .99% .96% 1.14% 1.15%
Expenses, without expense reimbursement................ - - 1.04% - -
Net investment income.................................. 5.58% 5.27% 5.29% 5.56% 6.08%
Net investment income, without expense reimbursement... - - 5.21% - -
Portfolio turnover rate................................. 49% 4% 4% 6% 1%
Money Market Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Investment income....................................... .0593 .0388 .033 .0424 .0647
Expenses................................................ (.0172) (.0184) (.0174) (.016) (.014)
Expense reimbursement(2)................................ .0071 .0084 .0074 .006 .0041
-------- ------- ------- ------- -------
Net investment income................................... .0492 .0288 .023 .0324 .0548
-------- ------- ------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT INCOME................ (.0492) (.0288) (.023) (.0324) (.0548)
-------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
TOTAL RETURN(1)......................................... 5.01% 2.91% 2.31% 3.29% 5.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions).................... $ 60.3 $ 56.4 $ 59.2 $ 72.5 $ 84.8
Average net assets (millions)........................... $ 56.3 $ 56.6 $ 65.8 $ 77.9 $ 92.6
Ratios to average net assets(2)
Expenses............................................... 1.00% 1.00% 1.00% 1.00% 1.00%
Expenses, without expense reimbursement................ 1.71% 1.84% 1.74% 1.60% 1.41%
Net investment income.................................. 4.89% 2.87% 2.30% 3.27% 5.53%
Net investment income, without expense reimbursement... 4.18% 2.03% 1.56% 2.67% 5.12%
</TABLE>
(1)Total return does not consider the effect of sales charges.
(2)See Note 2.
See Notes to Financial Statements.
42
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trustees of Common Sense Trust
We have audited the accompanying statements of net assets of Common Sense Growth
Fund, Common Sense Growth and Income Fund, Common Sense Government Fund, Common
Sense Municipal Bond Fund, and Common Sense Money Market Fund (cumulatively the
"Funds"), five of the ten portfolios constituting the series of the Common Sense
Trust (the "Trust"), as of October 31, 1995, and for each of the Funds, the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds of the Common Sense Trust listed above at October
31, 1995, the results of their operations, the changes in their net assets and
the financial highlights for each of the periods identified above, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
December 1, 1995
43
<PAGE>
Common Sense Trust
Board of Trustees
Donald M. Carlton
A. Benton Cocanougher
Stephen R. Gross
Norman Hackerman
Robert D. H. Harvey
Jeffrey B. Lane
Alan G. Merten
Steven Muller
F. Robert Paulsen
R. Richardson Pettit
Don G. Powell
Alan B. Shepard, Jr.
Miller Upton
Benjamin N. Woodson
- -----------------------
Officers
Don G. Powell
President
Gerald Baxter
Stephen L. Boyd
James Conheady
James A. Gilligan
David C. Johnson
Gary M. Lewis
Dennis J. McDonnell
Ronald A. Nyberg
Robert C. Peck, Jr.
Greg Pitts
John R. Reynoldson
Jeffrey Russell
Alan T. Sachtleben
David R. Troth
D. Richard Williams
Paul R. Wolkenberg
Vice Presidents
Curtis W. Morell
Vice President and
Treasurer
Tanya M. Loden
Vice President and
Controller
Nori L. Gabert
Vice President and
Secretary
Huey P. Falgout, Jr.
J. David Wise
Assistant Secretary
Perry F. Farrell
M. Robert Sullivan
Assistant Treasurers
- -----------------------
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
Distributor
PFS Distributors
3100 Breckinridge Blvd., Duluth, Georgia 30199-0001
Shareholder Service Agent
PFS Shareholder Services
3100 Breckinridge Blvd., Duluth, Georgia 30199-0062
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02110
Counsel
Sullivan & Worcester
1025 Connecticut Avenue N.W., Washington, D.C. 20036
Independent Auditors
Ernst & Young LLP
1221 McKinney Street, Suite 2400, Houston, Texas 77010
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data. If used for distribution to prospective
investors after 12/31/95, this annual report must be accompanied by a Common
Sense Trust performance data update for the most recent calendar quarter.
- --------------------------------------------------------------------------------
- ---------------------------------------------------
Shareholder inquiries should be directed in
writing to the Shareholder Service Agent.
PFS Shareholder Services, 3100
Breckinridge Blvd., Duluth, Georgia 30199-0062,
or by calling (800) 544-5445.
- ---------------------------------------------------
<PAGE>
---------------
BULK RATE
U.S. POSTAGE
PAID
Permit No. 3736
Houston, TX.
---------------
[LOGO -- COMMON SENSE TRUST
FAMILY OF FUNDS]
Common Sense Shareholder Services
3120 Breckinridge Blvd.
Duluth, Georgia 30199-0001
If you have any questions, please contact
one of our Customer Service Representatives
1-800-544-5445
PRINTED MATTER
Printed in U.S.A. ###-##-####
<PAGE>
Annual
Report
- ----------------
October 31, 1995
[3 PHOTOS APPEAR HERE]
COMMON SENSE(R) II [COMMON SENSE TRUST LOGO]
<PAGE>
Shareholders' Message
November 30, 1995
Dear Shareholder,
The past twelve months have been very positive for most investors. Both the
fixed-income and equity markets have made considerable gains during the period
ended October 31, 1995.
This year serves as a reminder of just how quickly markets can move and how
difficult it can be to predict the timing of those movements. Moreover, this
year reinforces the importance of maintaining a long-term perspective and
reaffirms the principle that it is time--not timing--that leads to investment
success.
[PHOTO OF DON G. POWELL]
Don G. Powell
Economic Overview
Although the third quarter posted a stronger-than-expected gross domestic
product annual growth rate of 4.2 percent, the economy has slowed significantly
this year. This slowdown is due in large part to the Federal Reserve Board's
efforts to tighten monetary supply in 1994--a measure that proved successful, as
economic growth during the first half of 1995 was substantially lower than the
fourth quarter 1994 rate of 5.1 percent. And, while other key economic data,
including unemployment rates and housing starts have shown mixed signs during
recent months, the general economic trends for the year continue to support a
"soft landing" scenario.
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed its trend of raising interest rates and lowered short-term rates by a
quarter percent on July 6. The financial markets, perceiving that the Fed's
monetary initiatives had taken hold without driving the economy into a
recession, rallied through much of the year. With slowing growth, interest rates
declined and the value of many fixed-income investments rose (bond yields and
prices move in opposite directions). For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December 1994 to 6.33 percent at
the end of October 1995, while its price rose more than 19 percent.
In a low inflation, low interest rate environment, corporate earnings remained
quite strong during the year, helping to push stocks to new highs. The strongest
performance has been in the technology sector of the market and in stocks of
large companies. As the U.S. dollar plunged against several foreign currencies
earlier in the year, U.S. companies that had diversified globally were able to
capture additional earnings, while technology stocks benefited from the
continued booming growth in computers and telecommunications throughout the
world.
<PAGE>
Shareholders' Message continued
Economic Outlook
Before taking further monetary action, the Fed is waiting for key indicators to
show that the economy has truly settled into a slow growth pattern. We believe
they will be more likely to lower rather than increase short-term rates.
Meanwhile, as current economic data continues to send mixed signals, we
anticipate the economy will grow at an annual rate of 3 percent in the fourth
quarter and inflation will run under 3 percent.
Based upon a generally modest growth and low inflation outlook, we believe the
outlook for fixed-income markets is positive. We look for stocks to perform
well, particularly those of smaller companies, which tend to be less cyclical
than larger companies. In the near term, we believe domestic markets will
benefit from a stable U.S. dollar and increased business activity driven in part
by a number of recently announced strategic reorganizations of some of the
nation's blue chip industry leaders.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one is certain about what will finally happen. Consequently, in the
near term, there may be periodic market fluctuations as various proposals come
to the forefront, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact they may have on your investments.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.
Once again, thank you for your continued confidence in Common Sense Trust II
and for the privilege of working with you in seeking to reach your financial
goals.
Sincerely,
/s/ Don G. Powell
Don G. Powell
President
1
<PAGE>
Portfolio Perspective
- --------------------------------------------------------------------------------
The following is an interview with the portfolio management team of the Common
Sense Trust II stock funds. The team includes: Stephen L. Boyd, Common Sense
Growth Fund; James A. Gilligan, Common Sense Growth and Income Fund; Gary M.
Lewis, Common Sense Emerging Growth Fund; James B. Conheady and Jeffrey
Russell, Common Sense International Equity Fund; and Alan T. Sachtleben,
executive vice president, equity investments.
- --------------------------------------------------------------------------------
Q. What factors had the greatest impact on the performance of the stock funds
during the 12 months ended October 31, 1995?
A. The stock market as a whole benefited from continuing economic growth that
generated strong corporate profits without increased inflation. The Common
Sense Trust II stock funds, in particular, benefited from being heavily
invested in technology and finance stocks, which were two of the best
performing sectors of the market during the past year.
One of the most positive aspects of the performance of technology stocks is
that the rally has been driven by strong fundamentals--not speculation. There
is tremendous demand for real products that likely will be with us for some
time to come. It's not just Microsoft's Windows 95, which is positively
impacting a variety of industries from hardware to software to retail.
There's also the Internet, which practically no one had heard of only a year
ago but is now changing the direction of telecommunications.
[PIECHART FOR COMMON SENSE II GROWTH FUND
HOLDINGS BY SECTOR]
Percentage of Net Assets 10/31/95
Energy 7%
Producer Manufacturing 6%
Technology 17%
Consumer Non-Durables 9%
Consumer Services 4%
Finance 15%
Health Care 12%
Utilities 6%
Other 19%
Consumer Distribution 5%
During the latter part of the reporting period, the Common Sense II stock
funds shifted their emphasis within technology from hardware to software
companies, which we believe offer more growth potential.
Q. What is your outlook for technology stocks?
A. We still like technology. The sector has produced the biggest earnings gains,
product demand continues to be strong and technology stock prices are not
high compared to the underlying value of the companies. Still, while we are
very optimistic about technology stocks the Fund remains diversified in line
with our equity investment philosophy. The diversification of the Common
Sense Trust II stocks funds at the end of October is illustrated by the
charts at right.
[PIECHART FOR COMMON SENSE II GROWTH AND INCOME FUND
HOLDINGS BY SECTOR]
Percentage of Net Assets 10/31/95
Energy 9%
Raw Materials/
Processing Industries 6%
Producer Manufacturing 6%
Technology 11%
Consumer Non-Durables 8%
Consumer Services 6%
Finance 14%
Health Care 13%
Utilities 11%
Other 10%
Consumer Distribution 6%
Q. What changes did you make to the portfolios during the past year?
A. Throughout the year, both Common Sense Trust II Growth Fund and Common Sense
Trust II Growth and Income Fund gradually reduced their holdings of stocks
that are most affected by changing economic conditions, often called cyclical
stocks. As a result, we reduced the percentage of the funds' assets invested
in the stocks of raw materials and manufacturing companies.
2
<PAGE>
These funds were invested instead in a broader range of stocks, including
those of health care and retail companies. We expect the retail industry to
be one of the next sectors to benefit from continued economic growth.
The Common Sense II Emerging Growth Fund, which began on February 21, 1995,
initially invested heavily in technology stocks. While technology was the
Fund's largest sector at October 31, we gradually focused more on the stocks
of telecommunications companies that would be expected to benefit from
technology trends, such as the increasing popularity of the Internet. We also
concentrated on healthcare stocks, since that is where many of the new growth
companies can be found. The Fund's diversification at fiscal year-end is
illustrated by the chart at left.
[PIECHART FOR COMMON SENSE II EMERGING GROWTH FUND
HOLDINGS BY INDUSTRY]
Percentage of Net Assets 10/31/95
Energy 5%
Raw Materials/Processing Industries 5%
Prodcer Manufacturing 6%
Technology 28%
Consumer Non-Durables 3%
Consumer Services 9%
Finance 10%
Health Care 15%
Other 12%
Consumer Distribution 7%
Common Sense II International Equity Fund, which was invested according to
its objective beginning on March 17, 1995, remains diversified in terms of
both industries and countries. As of October 31, 1995, about 48 percent of
the Fund's assets were invested in Europe, with concentrations in Austria,
Ireland, Netherlands and Sweden. The Fund continued to be cautious in Japan,
with only 7 percent of its assets invested there. We found better values in
other Asian countries, such as Hong Kong, Singapore and Malaysia. At the end
of the reporting period, the Fund had investments in over 20 countries and we
continued to search the world for growth companies that were the most
attractive companies in their local market. The Fund's diversification on
October 31 is illustrated by the chart below.
[PIECHART FOR COMMON SENSE II INTERNATIONAL EQUITY
FUND HOLDINGS BY COUNTRY]
Percentage of Net Assets 10/31/95
Sweden 6%
Singapore 5%
Austria 6%
France 5%
Germany 4%
Hong Kong 3%
Ireland 5%
Japan 7%
Malaysia 4%
Mexico 4%
Netherlands 7%
United Kingdom 4%
Italy 6%
Other 31%
Denmark 3%
Q. How did the Funds perform during the year ended October 31, 1995?
A. Common Sense II Growth Fund Class A Shares achieved a total return at net
asset value (without a sales charge) of 22.44. Class B Shares achieved a
total return at net asset value of 21.50 percent.
Common Sense II Growth and Income Fund Class A Shares achieved a total
return at net asset value of 20.20 percent for the same period, including
reinvestment of dividends totaling $0.145 per share. Class B Shares achieved
a total return at net asset value of 19.19 percent, including reinvestment of
dividends totaling $0.064 per share.
By comparison, the Standard & Poor's 500-Stock Index, a broad-based,
unmanaged index that reflects general stock market performance, achieved a
total return of 26.36 percent for the period. The Index does not reflect any
commissions or fees that would be paid by an investor purchasing the
securities it represents.
From inception on February 21, 1995, through October 31, 1995, Common Sense
II Emerging Growth Fund Class A Shares achieved a total return at net asset
value of 28.11 percent. For the same period, Class B Shares achieved a total
return at net asset value of 27.43 percent. By comparison, the Russell 2000
Index, an unmanaged index used as a benchmark for many emerging growth funds,
achieved a total return of 16.78 for the same period. The Index does not
reflect any commissions or fees that would be paid by an investor purchasing
the securities it represents.
3
<PAGE>
Portfolio Perspective
From March 17, 1995 (the date the Fund started meeting its investment
objective), through October 31, 1995, Common Sense II International Equity
Fund Class A Shares achieved a total return at net asset value of 16.28
percent. For the same period, Class B Shares achieved a total return at net
asset value of 15.69 percent. By comparison, the Morgan Stanley Capital
International EAFE Index, an unmanaged index used as a benchmark for many
international funds, achieved a total return of 2.29 percent for the same
period. The Fund significantly outperformed the Index during the reporting
period primarily because the Fund had a much smaller percentage of its assets
invested in Japanese stocks than did the Index. Of course, the Index does not
reflect any commissions or fees that would be paid by an investor purchasing
the securities it represents.
Q. What is the outlook for stocks?
A. The outlook is excellent, which is not to say that a correction could not
occur in the near term. However, some very positive forces are present:
moderate economic growth, low inflation and acceptable levels of interest
rates. These should limit any decline to a modest one. Looking farther into
the future, these three conditions-perhaps aided by another move by the
Federal Reserve Board to lower short-term interest rates-should lead to
higher stock prices.
/s/ALAN T. SACHTLEBEN /s/STEPHEN L. BOYD /s/JAMES A. GILLIGAN
Alan T. Sachtleben Stephen L. Boyd James A. Gilligan
Executive Vice President Portfolio Manager Portfolio Manager
Equity Investments Common Sense II Growth Fund Common Sense II
Growth and Income Fund
/s/GARY M. LEWIS /s/JAMES B. CONHEADY /s/JEFFREY RUSSELL
Gary M. Lewis James B. Conheady Jeffrey Russell
Portfolio Manager Portfolio Co-Manager Portfolio Co-Manager
Common Sense II Common Sense II Common Sense II
Emerging Growth Fund International Equity Fund International Equity Fund
4
<PAGE>
The following is an interview with the portfolio management team of the Common
Sense Trust II Government Fund. The team includes John R. Reynoldson, portfolio
manager, and Robert C. Peck, Jr., executive vice president, fixed-income
investments.
Q. What factors had the greatest impact on the performance of the Common Sense
Trust II Government Fund during the year ended October 31, 1995?
A. The past year was characterized, almost entirely, by falling interest rates
and lower inflation. The period started with 10-year U.S. Treasury note
yields near 8 percent and ended with yields near 6 percent, as illustrated
by the chart at right. As a consequence, most fixed-income market indices
experienced double-digit total rates of return (the combined value of
dividends received on a fixed-income security and any increase in the value
of the security itself).
The rally occurred as it became clear that the Federal Reserve Board's
efforts to slow both economic growth and inflation rates were working. Most
measures of inflation showed an annualized rate below 3 percent.
Yields on 10-Year Treasury Notes
11/4/94 - 10/27/95
[CHART APPEARS HERE]
Month Percentage
----- ----------
11/4/94 8.02%
12/2/94 7.8
12/30/94 7.82
1/27/95 7.61
2/24/95 7.31
3/24/95 7.08
4/21/95 7
5/19/95 6.63
6/16/95 6.2
7/14/95 6.16
8/11/95 6.61
9/8/95 6.22
10/6/95 6.06
10/27/95 6.04
Source: Bloomberg
Q. What changes did you make to the portfolio in light of the slower economic
growth and inflation rates?
A. We responded early in the reporting period by increasing the Fund's
sensitivity to changes in interest rates, as it became more apparent that
the fundamentals were becoming more positive for bonds. The sensitivity,
called duration, was set so that the Fund's net asset value moved about the
same as that of a seven-year Treasury note, a level that is somewhat above
its long-term average.
In addition, we increased the Fund's holdings of federally sponsored
mortgage-backed securities during the fourth quarter of 1994 and first
quarter of 1995. We purchased 30-year securities which we believed had
minimal risk of being prepaid by homeowners as interest rates fell.
Q. How did the Fund perform during the twelve months ended October 31, 1995?
A. Common Sense II Government Fund Class A Shares achieved a total return at
net asset value of 11.20 percent, including reinvestment of dividends
totaling $0.6466 per share. Class B Shares achieved a total return at net
asset value of 10.42 percent, including reinvestment of dividends totaling
$0.5623 per share. By comparison, the Lehman Brothers General U.S.
Government Index achieved a total return of 15.40 percent. This unmanaged
index is used as a benchmark for many government funds, but it does not
reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents.
Q. What is the outlook for fixed-income securities?
A. Our outlook for the next six months is positive. Economic growth and
inflation rates are projected to remain moderate, and political leaders in
Washington appear to be serious about passing measures that should improve
the country's long-term fiscal strength. Additionally, the Fed may reduce
short-term interest rates again in the near future, providing a further
boost to the economy. The major short-term concern is that the bond market,
because of the rally it has enjoyed in recent months, is vulnerable to any
unexpected bad news.
/s/ Robert C. Peck, Jr. /s/ John R. Reynoldson
Robert C. Peck, Jr. John R. Reynoldson
Executive Vice President Portfolio Manager
Fixed Income Securities Common Sense II Government Fund
5
<PAGE>
Growth II Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------
<C> <S> <C>
Common Stock 86.5%
CONSUMER DISTRIBUTION 5.3%
3,000 Dayton Hudson Corp........................ $ 206,250
*9,500 Eckerd Corp............................... 376,437
8,000 Gap, Inc.................................. 315,000
*3,000 Kohl's Corp............................... 136,125
*16,000 Kroger Co................................. 534,000
8,000 May Department Stores Co.................. 314,000
6,000 Nordstrom, Inc............................ 222,375
*9,500 OfficeMax, Inc............................ 235,125
15,000 Sears, Roebuck & Co....................... 510,000
----------
2,849,312
----------
CONSUMER DURABLES 1.4%
2,500 Chrysler Corp............................. 129,062
8,000 Echlin, Inc............................... 286,000
8,000 General Motors Corp....................... 350,000
----------
765,062
----------
CONSUMER NON-DURABLES 8.9%
9,500 ConAgra, Inc.............................. 366,937
4,000 CPC International, Inc.................... 265,500
9,700 Duracell International, Inc............... 508,037
6,000 General Mills, Inc........................ 344,250
6,000 Gillette Co............................... 290,250
5,500 Heinz (H. J.) Co.......................... 255,750
17,000 Nabisco Holdings Corp., Class A........... 456,875
14,000 PepsiCo, Inc.............................. 738,500
8,000 Procter & Gamble Co....................... 648,000
10,000 Ralston Purina Group...................... 593,750
13,000 Sara Lee Corp............................. 381,875
----------
4,849,724
----------
CONSUMER SERVICES 4.2%
2,400 Capital Cities ABC, Inc................... 284,700
*8,000 Cox Communications, Inc................... 150,000
4,000 Disney (Walt) Co.......................... 230,500
6,600 Marriott International, Inc............... 243,375
12,500 Service Corp. International............... 501,563
*10,000 Tele-Communications International, Class A 226,250
7,000 Time Warner, Inc.......................... 255,500
3,300 Tribune Co................................ 208,313
*4,000 Viacom, Inc., Class B..................... 200,000
----------
2,300,201
----------
</TABLE>
6
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
<C> <S> <C>
- ---------------------------------------------------------------------------------------------
ENERGY 6.5%
13,500 Coastal Corp........................................................ $ 437,062
7,500 Exxon Corp.......................................................... 572,812
5,500 Mobil Corp.......................................................... 554,125
17,500 Panhandle Eastern Corp.............................................. 441,875
6,000 Repsol SA, ADR...................................................... 177,750
4,000 Schlumberger, Ltd................................................... 249,000
7,500 Texaco, Inc......................................................... 510,938
10,500 USX-Marathon Group.................................................. 186,375
11,000 Williams Companies.................................................. 424,875
----------
3,554,812
----------
FINANCE 14.7%
10,000 Ahmanson (H.F.) & Co................................................ 250,000
6,500 American Express Co................................................. 264,062
3,500 American International Group, Inc................................... 295,312
14,300 Bank Of Boston Corp................................................. 636,350
5,700 Bank of New York, Inc............................................... 239,400
4,300 BankAmerica Corp.................................................... 247,250
8,500 Bankers Trust New York Corp......................................... 541,875
7,500 BayBanks, Inc....................................................... 607,500
3,000 Chase Manhattan Corp................................................ 171,000
3,000 Chemical Banking Corp............................................... 170,625
7,000 CoreStates Financial Corp........................................... 254,625
*900 Donaldson, Lufkin & Jenrette, Inc................................... 26,775
7,000 Federal National Mortgage Association............................... 734,125
13,000 Greenpoint Financial Corp........................................... 351,000
18,000 Green Tree Financial Corp........................................... 479,250
5,000 Merrill Lynch & Co., Inc............................................ 277,500
2,500 Morgan Stanley Group, Inc........................................... 217,500
5,700 Morgan (J.P.) & Co., Inc............................................ 439,613
147,311 Van Kampen American Capital Small Capitalization Fund (see Note 2).. 1,792,776
----------
7,996,538
----------
HEALTH CARE 11.7%
3,000 American Home Products Corp......................................... 265,875
*4,800 Amgen, Inc.......................................................... 230,400
5,500 Astra, AB, Series A, ADR............................................ 202,125
4,500 Baxter International, Inc........................................... 173,812
3,500 Becton Dickinson & Co............................................... 227,500
15,000 Caremark International, Inc......................................... 309,375
*1,500 Cordis Corp......................................................... 165,750
*10,000 Genzyme Corp........................................................ 582,500
4,300 Lilly (Eli) & Co.................................................... 415,488
5,000 Mallinckrodt Group, Inc............................................. 173,750
6,000 Medtronic, Inc...................................................... 346,500
4,600 Merck & Co., Inc.................................................... 264,500
*3,000 Nellcor Puritan Bennett, Inc........................................ 172,500
10,000 Pfizer, Inc......................................................... 573,750
</TABLE>
7
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
<C> <S> <C>
- -------------------------------------------------------------
HEALTH CARE-continued
12,000 Schering-Plough Corp..................... $ 643,500
12,500 SmithKline Beecham, ADR.................. 648,438
1,600 St. Jude Medical, Inc.................... 85,200
10,000 U. S. Healthcare, Inc.................... 385,000
5,500 Warner Lambert Co........................ 468,188
----------
6,334,151
----------
PRODUCER MANUFACTURING 6.0%
3,200 Fluor Corp............................... 180,800
5,500 General Electric Co...................... 347,875
8,000 Honeywell, Inc........................... 336,000
3,000 Illinois Tool Works, Inc................. 174,375
6,000 ITT Corp................................. 735,000
3,300 Rockwell International Corp.............. 146,850
*12,000 Thermo Fibertek, Inc..................... 189,000
2,000 TRW, Inc................................. 131,500
9,000 United Technologies Corp................. 798,750
7,000 WMX Technologies, Inc.................... 196,875
----------
3,237,025
----------
RAW MATERIALS/PROCESSING INDUSTRIES 3.1%
4,200 Champion International Corp.............. 224,700
5,800 Freeport-McMoRan, Copper Gold, Series B.. 131,950
4,200 Grace (W.R.) & Co........................ 234,150
18,000 James River Corp......................... 578,250
5,000 Monsanto Co.............................. 523,750
----------
1,692,800
----------
TECHNOLOGY 17.3%
3,000 Adobe Systems, Inc....................... 171,000
*6,000 Bay Networks, Inc........................ 397,500
5,000 Boeing Co................................ 328,125
*8,000 Cisco Systems, Inc....................... 620,000
*11,500 Compaq Computer Corp..................... 641,125
12,000 Computer Associates International, Inc... 660,000
*12,700 Dell Computer Corp....................... 592,138
*11,500 Digital Equipment Corp................... 622,437
3,200 DST Systems, Inc......................... 67,200
7,000 General Motors Corp., Class H............ 294,000
6,000 Hewlett-Packard Co....................... 555,750
10,000 Intel Corp............................... 698,750
7,000 International Business Machines Corp..... 680,750
9,000 Loral Corp............................... 266,625
*6,000 LSI Logic Corp........................... 282,750
3,500 McDonnell Douglas Corp................... 286,125
*5,000 Microsoft Corp........................... 500,000
2,500 Motorola, Inc............................ 164,063
*4,000 National Semiconductor Corp.............. 97,500
3,000 Northrop Grumman Corp.................... 171,750
</TABLE>
8
<PAGE>
Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY-continued
*3,000 Oracle System Corp.................................................................... $ 130,875
*1,200 Parametric Technology Corp............................................................ 80,400
*8,500 Symantec Corp......................................................................... 206,656
3,800 Texas Instruments, Inc................................................................ 259,350
*11,000 3Com Corp............................................................................. 517,000
2,800 Varian Associates, Inc................................................................ 143,850
-----------
9,435,719
-----------
TRANSPORTATION 1.5%
3,000 Burlington Northern Santa Fe, Inc..................................................... 251,625
8,000 Conrail, Inc.......................................................................... 550,000
-----------
801,625
-----------
UTILITIES 5.9%
3,000 Ameritech Corp........................................................................ 162,000
10,000 AT&T Corp............................................................................. 640,000
*10,000 Cellular Communications, Inc., Class A................................................ 536,250
14,000 Frontier Corp......................................................................... 378,000
26,000 MCI Communications Corp............................................................... 648,375
3,000 SBC Communications, Inc............................................................... 167,625
*21,000 WorldCom, Inc......................................................................... 685,125
-----------
3,217,375
-----------
Total Common Stock (Cost $43,295,733)............................................... 47,034,344
-----------
Principal
Amount Short-Term Investments 14.4%
- -------------
REPURCHASE AGREEMENT 11.7%
**$6,380,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due 11/01/95 (Collateralized by
U.S. Government obligations in a pooled cash account)
repurchase proceeds $6,381,040...................................................... 6,380,000
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 2.7%
**1,500,000 United States Treasury Bills, 5.46%, 2/1/96........................................... 1,479,390
-----------
Total Short-Term Investments (Cost $7,859,326)...................................... 7,859,390
-----------
TOTAL INVESTMENTS (Cost $51,155,059) 100.9%.......................................... 54,893,734
Other assets and liabilities, net (0.9)%............................................. (469,946)
-----------
NET ASSETS, equivalent to $14.57 per share for Class A
and $14.41 per share for Class B shares 100%....................................... $54,423,788
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,447,190 Class A and 2,313,448 Class B shares outstanding... $ 37,606
Capital surplus..................................................................................... 47,981,929
Undistributed net realized gain on securities....................................................... 2,593,885
Net unrealized appreciation of securities
Investments....................................................................................... 3,738,675
Futures contracts................................................................................. 71,693
-----------
NET ASSETS.......................................................................................... $54,423,788
===========
</TABLE>
* Non-income producing security
**Securities with a market value of approximately $5.9 million were placed as
collateral for futures contracts (see Note 1D)
See Notes to Financial Statements.
9
<PAGE>
Growth II Fund Financial Statements
<TABLE>
<CAPTION>
Statement of Operations Year Ended
October 31, 1995
<S> <C>
Investment Income
Dividends.................................................... $ 391,376
Interest..................................................... 206,534
----------
Investment income.......................................... 597,910
----------
Expenses
Advisory fees................................................ 189,060
Shareholder service agent's fees and expenses................ 376,333
Accounting services.......................................... 47,314
Service fees--Class A........................................ 28,641
Distribution and service fees--Class B....................... 176,297
Trustees' fees and expenses.................................. 24,084
Audit fees................................................... 11,883
Legal fees................................................... 1,364
Reports to shareholders...................................... 28,200
Registration and filing fees................................. 90,032
Miscellaneous................................................ 1,344
Expense reimbursement........................................ (42,461)
----------
Total expenses............................................. 932,091
----------
Net investment loss........................................ (334,181)
---------
Realized and Unrealized Gain on Securities
Net realized gain on securities
Investments................................................ 2,897,521
Futures contracts.......................................... 226,423
Net unrealized appreciation of securities during the period
Investments................................................ 3,467,222
Futures contracts.......................................... 55,205
----------
Net realized and unrealized gain on securities............... 6,646,371
----------
Increase in net assets resulting from operations............. $6,312,190
==========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
May 3, 1994*
Year Ended through
October 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period.............................. $10,163,636 $ 200
----------- -----------
Operations
Net investment loss........................................ (334,181) (8,840)
Net realized gain (loss) on securities..................... 3,123,944 (195,878)
Net unrealized appreciation of securities during the period 3,522,427 287,941
----------- ----------
Increase in net assets resulting from operations.......... 6,312,190 83,223
----------- ----------
Capital transactions
Proceeds from shares sold
Class A.................................................. 17,139,771 4,406,808
Class B.................................................. 25,723,932 5,848,735
----------- -----------
42,863,703 10,255,543
----------- -----------
Cost of shares redeemed
Class A.................................................. (2,973,033) (63,815)
Class B.................................................. (1,942,708) (111,515)
----------- -----------
(4,915,741) (175,330)
----------- -----------
Increase in net assets resulting from capital transactions. 37,947,962 10,080,213
----------- -----------
Increase in Net Assets....................................... 44,260,152 10,163,436
----------- -----------
NET ASSETS, end of period.................................... $54,423,788 $10,163,636
=========== ===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements.
10
<PAGE>
Growth & Income II Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------
<C> <S> <C>
Common Stock 87.3%
CONSUMER DISTRIBUTION 5.3%
*3,500 Ann Taylor Stores, Inc............ $ 38,500
2,300 Dayton Hudson Corp................ 158,125
*11,500 Federated Department Stores, Inc.. 291,812
3,900 Fleming Companies, Inc............ 88,238
3,900 Gap, Inc.......................... 153,563
900 Interstate Bakeries Co............ 19,238
11,000 May Department Stores Co.......... 431,750
*3,200 Nine West Group, Inc.............. 142,400
5,300 Nordstrom, Inc.................... 196,431
8,900 Sears, Roebuck & Co............... 302,600
----------
1,822,657
----------
CONSUMER DURABLES 1.3%
3,200 Eastman Kodak Co.................. 200,399
3,300 General Motors Corp............... 144,375
6,300 Sunbeam-Oster, Inc................ 94,500
----------
439,274
----------
CONSUMER NON-DURABLES 8.1%
4,900 Coca-Cola Co...................... 352,187
3,300 CPC International, Inc............ 219,038
2,500 General Mills, Inc................ 143,438
5,500 Gillette Co....................... 266,062
2,000 Kellogg Co........................ 144,500
16,800 Nabisco Holdings Corp., Class A... 451,500
2,200 Nike, Inc., Class B............... 124,850
5,900 Procter & Gamble Co............... 477,900
5,900 Quaker Oats Co.................... 201,337
7,500 Ralston Purina Group.............. 445,313
----------
2,826,125
----------
CONSUMER SERVICES 4.3%
2,200 Capital Cities ABC, Inc........... 260,974
4,800 Disney (Walt) Co.................. 276,600
6,700 McDonald's Corp................... 274,700
3,100 Omnicom Group, Inc................ 198,013
*5,700 Viacom, Inc., Class B............. 285,000
9,100 Wendy's International, Inc........ 180,863
----------
1,476,150
----------
</TABLE>
11
<PAGE>
Growth & Income II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------------
<C> <S> <C>
ENERGY 9.0%
3,700 British Petroleum Co., PLC, ADR.......................... $ 326,525
9,300 Exxon Corp............................................... 710,288
4,900 Mobil Corp............................................... 493,675
15,400 Pacific Enterprises...................................... 381,150
5,400 Panhandle Eastern Corp................................... 136,350
5,700 Royal Dutch Petroleum Co., ADR........................... 700,387
5,600 Texaco, Inc.............................................. 381,500
----------
3,129,875
----------
FINANCE 14.4%
2,800 Ahmanson (H.F.) & Co..................................... 70,000
3,450 American International Group, Inc........................ 291,094
6,400 Banc One Corp............................................ 216,000
4,800 Bank Of Boston Corp...................................... 213,600
8,000 Bankers Trust New York Corp.............................. 510,000
3,300 BayBanks, Inc............................................ 267,300
2,300 Beacon Properties Corp................................... 50,025
5,200 Chemical Banking Corp.................................... 295,750
3,100 Chubb Corp............................................... 278,613
6,900 CoreStates Financial Corp................................ 250,988
5,500 Debartolo Realty Corp.................................... 71,500
1,300 Duke Realty Investments, Inc............................. 39,812
7,700 Federal National Mortgage Association.................... 807,538
1,200 Health Care Property Investors, Inc...................... 40,650
8,400 Horace Mann Educators Corp............................... 223,649
6,500 Morgan (J.P.) & Co., Inc................................. 501,312
14,100 Prudential Reinsurance Holdings.......................... 287,288
3,500 St. Paul Companies, Inc.................................. 177,625
9,400 State Street Boston Corp................................. 365,425
300 Vornado Realty Trust..................................... 10,763
1,100 Weingarten Realty Investors.............................. 37,950
----------
5,006,882
----------
HEALTH CARE 11.4%
5,200 Abbott Laboratories, Inc................................. 206,700
4,300 American Home Products Corp.............................. 381,087
*7,800 Amgen, Inc............................................... 374,400
4,000 Astra, AB, Series A, ADR................................. 147,000
6,000 Baxter International, Inc................................ 231,750
*9,000 Charter Medical Corp..................................... 162,000
5,300 Mallinckrodt Group, Inc.................................. 184,175
9,900 Merck & Co., Inc......................................... 569,250
6,200 Pfizer, Inc.............................................. 355,725
7,200 Pharmacia Aktiebolag, ADR................................ 252,000
9,100 Schering-Plough Corp..................................... 487,988
9,200 Tenet Healthcare Corp.................................... 164,450
3,600 Teva Pharmaceutical, Ltd., ADR........................... 141,300
*4,600 Vencor, Inc.............................................. 127,650
3,100 Zeneca Group PLC, ADR.................................... 174,763
----------
3,960,238
----------
</TABLE>
12
<PAGE>
Growth & Income II Fund Statement of Net Assets, Continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ----------------------------------------------------------------
<C> <S> <C>
PRODUCER MANUFACTURING 6.1%
7,800 Allied-Signal, Inc....................... $ 331,500
7,100 Fluor Corp............................... 401,150
5,000 General Electric Co...................... 316,250
10,600 Honeywell, Inc........................... 445,200
4,800 Illinois Tool Works, Inc................. 279,000
4,300 Stewart & Stevenson Services, Inc........ 97,825
8,200 WMX Technologies, Inc.................... 230,625
----------
2,101,550
----------
RAW MATERIALS/PROCESSING INDUSTRIES 6.2%
3,700 Air Products & Chemicals, Inc........... 191,013
4,400 Aluminum Co. of America................. 224,400
8,100 Bemis, Inc.............................. 210,600
4,800 Champion International Corp............. 256,800
4,400 Grace (W.R.) & Co....................... 245,300
5,400 James River Corp........................ 173,475
4,400 Monsanto Co............................. 460,900
4,400 Scott Paper Co.......................... 234,300
3,100 Sigma-Aldrich Corp...................... 147,250
----------
2,144,038
----------
TECHNOLOGY 10.5%
3,600 Adobe Systems, Inc....................... 205,200
4,800 Alcatel Alsthom, ADR..................... 81,000
4,600 Boeing Co................................ 301,875
*5,400 Compaq Computer Corp..................... 301,050
8,000 Computer Associates International, Inc... 440,000
*5,000 Digital Equipment Corp................... 270,625
3,000 Hewlett-Packard Co....................... 277,874
1,300 International Business Machines Corp..... 126,425
9,700 Loral Corp............................... 287,362
3,100 McDonnell Douglas Corp................... 253,425
*2,200 Microsoft Corp........................... 220,000
1,100 Motorola, Inc............................ 72,187
1,700 Nokia Corp., ADS......................... 94,775
3,200 Northrop Grumman Corp.................... 183,200
*4,300 Symantec Corp............................ 104,544
3,300 Xerox Corp............................... 428,175
----------
3,647,717
----------
TRANSPORTATION 0.9%
4,800 Union Pacific Corp...................... 313,800
----------
UTILITIES 9.8%
4,300 Ameritech Corp.......................... 232,200
8,000 AT&T Corp............................... 512,000
6,900 Cincinnati Bell, Inc.................... 202,688
6,400 Duke Power Co........................... 286,400
</TABLE>
13
<PAGE>
Growth & Income II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES--continued
14,100 Frontier Corp................................... $ 380,700
18,000 MCI Communications Corp......................... 448,875
7,100 National Power, PLC, ADR........................ 88,750
19,000 Pacificorp...................................... 358,624
4,400 Peco Energy Co.................................. 128,700
6,500 PowerGen, PLC, ADR.............................. 108,062
5,100 Southern New England Telecommunications Corp.... 184,238
11,500 Telefonos de Mexico, S.A., ADR.................. 316,250
2,800 U. S. West, Inc................................. 133,350
----------
3,380,837
----------
Total Common Stock (Cost $28,102,546)......... 30,249,143
----------
Convertible Preferred Stock 2.9%
5,000 Browning-Ferris, ACES, $7.25.................... 164,375
3,000 Corning Glassworks, MIPS, 6%.................... 135,000
5,800 James River Corp., DECS, $1.55.................. 176,900
2,000 SCI Finance, NV, LLC, 6.25%..................... 141,000
4,500 Time Warner, Inc., $1.24, PERCS................. 144,000
3,700 Williams Companies, Inc. $3.50.................. 251,600
----------
Total Convertible Preferred Stock
(Cost $950,093)............................. 1,012,875
----------
Principal
Amount
- --------- Convertible Corporate Obligations 4.8%
CONSUMER DISTRIBUTION 0.6%
$145,000 Federated Department Stores, Inc., 5.00%,
10/01/03...................................... 140,650
160,000 Rite Aid Corp., LYON, Zero Coupon, 7/24/06...... 79,600
----------
220,250
----------
CONSUMER SERVICES 1.7%
600,000 ADT Operations, Inc., LYON, Zero Coupon,
7/06/10........................................ 270,000
300,000 News America Holdings, Inc., LYON, Zero Coupon,
3/11/13........................................ 133,500
Time Warner, Inc.
54,850 8.75%, 1/10/15................................. 57,113
300,000 LYON, Zero Coupon, 6/22/13..................... 120,000
----------
580,613
----------
HEALTH CARE 1.6%
100,000 Ciba-Geigy, 6.25%, 3/15/16....................... 100,000
500,000 Roche Holdings, Inc., LYON, Zero Coupon, 4/20/10. 206,250
90,000 Sandoz, Ltd. 2.00%, 10/06/02..................... 78,975
150,000 United Technologies Corp., PEN, Zero Coupon,
9/08/97........................................ 178,500
----------
563,725
----------
UTILITIES 0.9%
4,000 Sprint Corp., DECS, 8.25%, 3/30/00............... 145,104
500,000 U. S. Cellular Corp., LYON, Zero Coupon, 6/15/15. 170,000
----------
315,104
----------
Total Convertible Corporate Obligations
(Cost $1,551,702).............................. 1,679,692
----------
</TABLE>
14
<PAGE>
Growth & Income II Fund Statement of Net
Assets, continued
<TABLE>
<CAPTION>
Principal Market
Amount Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Investments 9.3%
REPURCHASE AGREEMENT 9.0%
**$ 3,125,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due
11/1/95 (Collateralized by U.S. Government obligations
in a pooled cash account) repurchase proceeds $3,125,510. $ 3,125,000
-----------
UNITED STATES GOVERNMENT OBLIGATIONS 0.3%
**100,000 United States Treasury Bills, 5.33%, 2/8/96................ 98,525
-----------
Total Short-Term Investments (Cost $3,223,550)............. 3,223,525
-----------
TOTAL INVESTMENTS (Cost $33,827,891) 104.3%................ 36,165,235
Other assets and liabilities, net (4.3%)................... (1,498,311)
-----------
NET ASSETS, equivalent to $13.92 per share for
Class A and $13.88 per share for Class B shares 100%...... $34,666,924
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 970,197 Class A and 1,525,260 Class B
shares outstanding................................................................... $ 24,955
Capital surplus....................................................................... 31,524,800
Undistributed net realized gain on securities......................................... 784,850
Net unrealized appreciation (depreciation) of securities
Investments......................................................................... 2,337,344
Futures contracts................................................................... (5,025)
----------
NET ASSETS............................................................................ $34,666,924
===========
</TABLE>
*Non-income producing security.
**Securities with a market value of approximately $600,000 were placed as
collateral for futures contracts (see Note 1D)
ACES--Automatically convertible equity stock
DECS--Dividend enhanced convertible stock
LYON--Liquid yield option note, zero coupon
MIPS--Monthly income paying security
PEN--Pharmaceutical exchange note
PERCS--Preferred equity redeemable cumulative stock
See Notes to Financial Statements.
15
<PAGE>
Growth and Income II Fund Statement of Operations
Year Ended October 31, 1995
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividends........................................................................................................... $ 390,874
Interest............................................................................................................ 179,223
----------
Investment income................................................................................................. 570,097
----------
EXPENSES
Advisory fees...................................................................................................... 115,168
Shareholder service agent's fees and expenses...................................................................... 111,024
Accounting services................................................................................................ 46,448
Service fees--Class A.............................................................................................. 18,742
Distribution and service fees--Class B............................................................................. 102,215
Trustees' fees and expenses........................................................................................ 23,354
Audit fees......................................................................................................... 12,633
Legal fees......................................................................................................... 1,119
Reports to shareholders............................................................................................ 12,870
Registration and filing fees....................................................................................... 86,375
Miscellaneous...................................................................................................... 873
Expense reimbursement.............................................................................................. (26,000)
----------
Total expenses................................................................................................... 504,821
----------
Net investment income............................................................................................ 65,276
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain on securities
Investments..................................................................................................... 794,752
Futures contracts............................................................................................... 127,864
Net unrealized appreciation (depreciation) of securities during the period
Investments..................................................................................................... 2,256,207
Futures contracts............................................................................................... (900)
----------
Net realized and unrealized gain on securities.................................................................... 3,177,923
----------
Increase in net assets resulting from operations.................................................................. $3,243,199
==========
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Growth and Income II Fund Statement of Changes in Net Assets
<TABLE>
<CAPTION>
May 3, 1994*
Year Ended through
October 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
NET ASSETS, beginning of period................................... $ 7,111,500 $ 200
----------- ----------
Operations
Net investment income........................................... 65,276 54,709
Net realized gain (loss) on securities.......................... 922,616 (121,393)
Net unrealized appreciation of securities during the period..... 2,255,307 77,012
----------- ----------
Increase in net assets resulting from operations.............. 3,243,199 10,328
----------- ----------
Distributions to shareholders from (see Note 1H)
Net investment income
Class A....................................................... (60,588) (11,970)
Class B....................................................... (4,688) (6,840)
----------- ----------
(65,276) (18,810)
----------- ----------
Excess of book-basis net investment income
Class A....................................................... (19,387) -
Class B....................................................... (32,885) -
----------- ----------
(52,272) -
----------- ----------
Total distributions........................................... (117,548) (18,810)
----------- ----------
Capital transactions
Proceeds from shares sold
Class A....................................................... 11,271,055 3,526,516
Class B....................................................... 17,102,298 3,654,518
----------- ----------
28,373,353 7,181,034
----------- ----------
Proceeds from shares issued for distributions reinvested
Class A....................................................... 78,007 11,544
Class B....................................................... 37,331 6,749
----------- ----------
115,338 18,293
----------- ----------
Cost of shares redeemed
Class A....................................................... (2,680,200) (56,689)
Class B....................................................... (1,378,718) (22,856)
----------- ----------
(4,058,918) (79,545)
----------- ----------
Increase in net assets resulting from capital transactions.... 24,429,773 7,119,782
----------- ----------
Increase in Net Assets............................................ 27,555,424 7,111,300
----------- ----------
NET ASSETS, end of period......................................... $34,666,924 $7,111,500
=========== ==========
</TABLE>
*Commencement of operations.
See Notes to Financial Statements.
17
<PAGE>
Government II Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
-------------------------------------------------------------------------------------------------------
United States Treasury Notes 54.2%
<S> <C> <C>
$ 800,000 6.50%, 8/15/97............................................................ $ 811,504
**400,000 7.25%, 11/15/96........................................................... 406,376
400,000 7.50%, 12/31/96........................................................... 408,312
600,000 7.75%, 12/31/99........................................................... 642,468
800,000 7.875%, 7/31/96........................................................... 812,752
**1,200,000 7.875%, 1/15/98........................................................... 1,254,000
**1,900,000 8.50%, 11/15/95........................................................... 1,901,482
**3,280,000 8.875%, 2/15/96........................................................... 3,308,700
400,000 9.00%, 5/15/98............................................................ 430,752
**500,000 9.25%, 1/15/96............................................................ 503,440
-----------
Total United States Treasury Notes (Cost $10,514,718)................... 10,479,786
-----------
United States Government Agencies 39.7%
Federal Home Loan Mortgage Corp.
184,606 7.00%, pool, 10/01/24..................................................... 183,164
737,647 7.50%, pools, 7/01/24 to 6/01/25.......................................... 745,946
957,996 8.00%, pools, 4/01/23 to 10/01/25......................................... 981,352
Federal National Mortgage Association
385,582 7.00%, pool, 5/01/24...................................................... 382,328
712,679 7.50%, pools, 8/01/24 to 11/01/24......................................... 720,027
793,750 8.00%, pools, 8/01/24 to 8/01/25.......................................... 813,102
Government National Mortgage Association
170,969 7.00%, pool, 6/15/22...................................................... 169,795
2,144,680 7.50%, pools, 10/15/22 to 6/15/24......................................... 2,172,839
1,453,332 8.00%, pools, 2/15/23 to 6/15/25.......................................... 1,495,115
-----------
Total United States Government Agencies (Cost $7,275,810)............... 7,663,668
-----------
Forward Purchase Commitments 19.6%
*100,000 Federal Home Loan Mortgage Corp., 7.50%, settling 1/96...................... 100,838
Federal National Mortgage Association
*600,000 7.50%, settling 12/95..................................................... 605,304
*200,000 7.50%, settling 1/96...................................................... 201,484
Government National Mortgage Association
*2,500,000 7.00%, settling 1/96...................................................... 2,476,575
*400,000 7.50%, settling 12/95..................................................... 404,676
-----------
Total Forward Purchase Commitments (Cost $3,770,500).................... 3,788,877
-----------
Repurchase Agreement 1.7%
330,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due 11/1/95
(collateralized by U.S. Government obligations in a pooled cash account)
repurchase proceeds $330,054 (Cost $330,000)............................. 330,000
-----------
TOTAL INVESTMENTS (Cost $21,891,028) 115.2%............................... 22,262,331
Other assets and liabilities, net 4.7%.................................... 913,372
Receivable for investments sold 2.6%...................................... 496,563
Payable for investments purchased (22.5%)................................. (4,353,063)
-----------
NET ASSETS, equivalent to $12.14 per share for Class A
and $12.14 per share for Class B shares 100%............................ $19,319,203
===========
</TABLE>
18
<PAGE>
Government II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
NET ASSETS WERE COMPRISED OF:
<S> <C>
Shares of beneficial interest, at par; 809,931 Class A and 780,836 Class B shares outstanding...... $ 15,908
Capital surplus.................................................................................... 18,879,404
Accumulated net realized loss on securities........................................................ (22,577)
Net unrealized appreciation of securities:
Investments...................................................................................... 371,303
Forward commitments.............................................................................. 13,313
Futures contracts................................................................................ 61,852
-----------
NET ASSETS......................................................................................... $19,319,203
===========
</TABLE>
*Non-income producing security
**Securities with a market value of approximately $7.6 million were placed as
collateral for forwards commitments and futures contracts (see Note 1D)
See Notes to Financial Statements.
19
<PAGE>
Government II Fund Statement of Operations
Year Ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Investment Income
Interest...................................................... $ 933,882
----------
Expenses
Advisory fees................................................. 71,599
Shareholder service agent's fees and expenses................. 39,267
Accounting services........................................... 50,709
Service fees--Class A......................................... 16,075
Distribution and service fees--Class B........................ 55,032
Trustees' fees and expenses................................... 23,241
Audit fees.................................................... 14,883
Legal fees.................................................... 1,165
Reports to shareholders....................................... 7,212
Registration and filing fees.................................. 87,812
Miscellaneous................................................. 683
----------
Total expenses.............................................. 367,678
----------
Net investment income....................................... 566,204
----------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments................................................. 42,159
Forward commitments......................................... 17,172
Futures contracts........................................... (33,004)
Net unrealized appreciation of securities during the period
Investments................................................. 518,081
Forward commitments......................................... 13,313
Futures contracts........................................... 61,852
----------
Net realized and unrealized gain on securities................ 619,573
----------
Increase in net assets resulting from operations.............. $1,185,777
==========
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
Government II Fund Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended May 3, 1994*
October 31, through October 31,
1995 1994
------------- -------------------
<S> <C> <C>
NET ASSETS, beginning of period.............................................. $ 7,342,156 $ 200
----------- -----------
Operations
Net investment income....................................................... 566,204 89,214
Net realized gain (loss) on securities...................................... 26,327 (35,179)
Net unrealized appreciation (depreciation) of securities during the period.. 593,246 (146,778)
----------- -----------
Increase (decrease) in net assets resulting from operations............... 1,185,777 (92,743)
----------- -----------
Distributions to shareholders from (see Note 1H)
Net investment income
Class A.................................................................... (328,298) (66,280)
Class B.................................................................... (237,906) (17,949)
----------- -----------
(566,204) (84,229)
----------- -----------
Excess of book-basis net investment income
Class A.................................................................... (10,291) --
Class B.................................................................... (8,419) --
----------- -----------
(18,710) --
----------- -----------
Total distributions...................................................... (584,914) (84,229)
----------- -----------
Capital transactions
Proceeds from shares sold
Class A.................................................................... 6,491,908 5,138,916
Class B.................................................................... 7,373,364 2,976,454
----------- -----------
13,865,272 8,115,370
----------- -----------
Proceeds from shares issued for distributions reinvested
Class A.................................................................... 331,815 60,050
Class B.................................................................... 237,404 17,072
----------- -----------
569,219 77,122
----------- -----------
Cost of shares redeemed
Class A.................................................................... (1,866,580) (516,794)
Class B.................................................................... (1,191,727) (156,770)
----------- -----------
(3,058,307) (673,564)
----------- -----------
Increase in net assets resulting from capital transactions................. 11,376,184 7,518,928
----------- -----------
Increase in Net Assets....................................................... 11,977,047 7,341,956
----------- -----------
NET ASSETS, end of period.................................................... $19,319,203 $ 7,342,156
=========== ===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements
21
<PAGE>
Emerging Growth II Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------------
<C> <S> <C>
Common Stock 94.9%
CONSUMER DISTRIBUTION 7.4%
2,500 Alco Standard Corp...................................... $ 221,250
*1,000 Baby Superstore, Inc.................................... 47,250
*1,000 Boise Cascade Office Products Corp...................... 36,125
3,500 Casey's General Stores, Inc............................. 80,500
*1,500 CDW Computer Centers, Inc............................... 72,750
*5,000 CompUSA, Inc............................................ 191,250
*4,000 Consolidated Stores Corp................................ 92,500
*4,000 Corporate Express, Inc.................................. 104,500
*1,000 Creative Computer, Inc.................................. 29,000
3,000 Fastenal Co............................................. 104,437
*2,000 Garden Ridge Corp....................................... 71,500
*6,000 General Nutrition Companies, Inc........................ 149,250
2,500 Just For Feet, Inc...................................... 59,062
*4,000 Kroger Co............................................... 133,500
*2,000 Micro Warehouse, Inc.................................... 89,000
*1,000 Petco Animal Supplies................................... 28,000
2,500 Richfood Holdings, Inc.................................. 62,500
*2,500 Safeway, Inc............................................ 118,125
*3,500 Staples Inc............................................. 93,188
*7,500 Sunglass Hut International, Inc......................... 204,375
----------
1,988,062
----------
CONSUMER DURABLES 1.3%
2,000 Black & Decker Corp..................................... 67,750
2,500 Clayton Homes, Inc...................................... 65,625
2,000 Harman International Industries, Inc.................... 92,250
*4,000 Toll Brothers, Inc...................................... 71,500
*500 TransPro, Inc........................................... 5,500
*2,000 Ultralife Batteries, Inc................................ 40,500
----------
343,125
----------
CONSUMER NON-DURABLES 3.3%
2,000 Coca-Cola Enterprises, Inc.............................. 53,250
2,000 Fila Holdings, ADR...................................... 86,250
2,500 First Brands Corp....................................... 114,375
*3,000 Nu-Kote Holding, Inc., Class A.......................... 62,250
*2,500 Quiksilver, Inc......................................... 77,500
2,000 St. John Knits, Inc..................................... 95,750
2,000 Starbucks Corp.......................................... 78,500
*5,500 Tommy Hilfiger Corp..................................... 209,688
*500 USA Detergents, Inc..................................... 12,750
3,500 Wolverine World Wide, Inc............................... 105,000
----------
895,313
----------
CONSUMER SERVICES 8.8%
*2,000 Alternative Resources Corp.............................. 62,000
2,000 American Radio Systems Corp............................. 45,000
3,500 Applebees International, Inc............................ 98,437
*4,000 Boston Chicken, Inc..................................... 135,250
</TABLE>
22
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES--continued
*2,000 Clear Channel Communications, Inc......................... $ 164,000
*3,500 Corrections Corp. of America.............................. 190,750
3,500 Equifax, Inc.............................................. 136,500
*2,500 Evergreen Media Corp., Class A............................ 68,125
*2,500 Gartner Group, Inc........................................ 109,062
2,000 Hospitality Franchise System, Inc......................... 122,500
*4,000 Infinity Broadcasting Corp................................ 130,000
2,000 Interpublic Group Companies, Inc.......................... 77,500
4,000 La Quinta Inns, Inc....................................... 103,000
*3,500 Lone Star Steakhouse & Saloon, Inc........................ 135,187
3,000 Meredith Corp............................................. 107,250
*5,000 Mirage Resorts, Inc....................................... 163,750
3,000 National Data Corp........................................ 79,500
*700 Outback Steakhouse, Inc................................... 21,963
*2,000 Regal Cinemas, Inc........................................ 78,500
3,000 Reynolds & Reynolds Co.................................... 106,875
*2,000 Scientific Games Holdings Corp............................ 65,500
*1,500 Sinclair Broadcast Group, Class A......................... 31,125
3,000 V-Tel Corp................................................ 54,000
1,000 Wallace Computer Services, Inc............................ 56,375
500 Wendy's International, Inc................................ 9,938
----------
2,352,087
----------
ENERGY 4.5%
2,000 Apache Corp............................................... 51,000
*3,448 BJ Services Co. (includes 60 warrants, expiring 4/13/00).. 79,888
*1,500 Cairn Energy USA, Inc..................................... 18,000
2,000 Camco International, Inc.................................. 45,750
*3,000 Chesapeake Energy Corp.................................... 87,750
*2,000 Diamond Offshore Drilling................................. 49,750
500 Enron Oil & Gas Co........................................ 10,000
*7,500 Global Marine, Inc........................................ 48,750
*4,000 Input/Output, Inc......................................... 149,500
2,500 Kerr McGee Corp........................................... 137,813
*2,500 Newfield Exploration Co................................... 73,750
1,000 Phoenix Resource Co....................................... 17,750
4,500 Pogo Producing Co......................................... 90,563
*6,500 Pride Petroleum Services, Inc............................. 56,875
*4,500 Smith International, Inc.................................. 72,000
4,500 Sonat Offshore Drilling, Inc.............................. 142,875
2,500 Tidewater, Inc............................................ 65,938
1,000 Varco International, Inc.................................. 9,125
----------
1,207,077
----------
FINANCE 10.3%
2,000 AAMES Financial Corp...................................... 50,000
4,000 Bank of New York, Inc..................................... 168,000
6,500 Bank of Boston Corp....................................... 289,250
2,500 BayBanks, Inc............................................. 202,500
3,000 City National Corp........................................ 39,750
1,200 CMAC Investment Corp...................................... 57,000
</TABLE>
23
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------------------------
<C> <S> <C>
FINANCE--continued
*2,500 Credit Acceptance Corp............................... $ 58,750
2,500 Cullen Frost Bankers, Inc............................ 127,500
2,500 EXEL Limited......................................... 133,750
3,000 FINOVA Group, Inc.................................... 135,750
2,500 First American Corp.................................. 109,687
2,000 First Bank System, Inc............................... 99,500
7,000 Green Tree Financial Corp............................ 186,375
1,000 Household International, Inc......................... 56,250
2,000 MBNA Corp............................................ 73,750
2,500 Mercantile Bancorporation, Inc....................... 110,000
3,500 Mercury Financial Co................................. 67,375
2,500 Mercury General Corp................................. 105,000
1,500 Meridian Bancorp, Inc................................ 64,125
2,000 Money Store, Inc..................................... 80,000
*3,500 Oxford Resources Corp., Class A...................... 91,875
2,000 Peoples Heritage Financial Group, Inc................ 38,000
1,500 Star Banc Corp....................................... 83,063
3,000 TCF Financial Corp................................... 176,250
3,500 United Companies Financial Corp...................... 98,875
1,500 Vesta Insurance Group, Inc........................... 60,563
----------
2,762,938
----------
HEALTH CARE 15.2%
*500 American Oncology Resources.......................... 17,500
*3,500 AMSCO International, Inc............................. 56,000
*5,000 Boston Scientific Corp............................... 210,625
*1,000 Coherent, Inc........................................ 28,250
*1,200 Community Health Systems, Inc........................ 38,100
*2,000 CompDent, Corp....................................... 62,250
*2,500 Cycare System, Inc................................... 77,500
*4,000 Dura Pharmaceuticals, Inc............................ 117,000
*1,500 Genzyme Corp......................................... 87,375
5,000 Guidant Corp......................................... 160,000
*2,500 Gulf South Medical Supply, Inc....................... 51,875
6,000 HBO & Co............................................. 424,500
*8,000 Health Management Associates, Inc., Class A.......... 172,000
*1,500 Health Management Systems, Inc....................... 48,000
*3,500 Healthsouth Rehabilitation........................... 91,438
*1,000 HPR, Inc............................................. 26,000
4,000 Invacare Corp........................................ 101,000
*1,500 Medaphis Corp........................................ 47,625
*2,000 Medpartners, Inc..................................... 56,000
7,000 Medtronic, Inc....................................... 404,250
4,000 Mentor Corp.......................................... 88,000
*2,000 Nellcor Puritan Bennett, Inc......................... 115,000
*3,000 OccuSystems, Inc..................................... 62,062
5,000 OmniCare, Inc........................................ 181,250
*1,500 Oxford Health Plans, Inc............................. 117,375
*7,000 Phycor, Inc.......................................... 257,250
*1,500 Physician Reliance Network........................... 49,875
</TABLE>
24
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------------
<C> <S> <C>
HEALTH CARE--continued
*4,500 Physician Sales & Service, Inc.................. $ 73,125
*1,000 Quintiles Transnational Corp.................... 64,250
*2,000 Renal Treatment Centers, Inc.................... 72,000
*2,500 Research Industries Corp........................ 68,750
1,500 Respironics, Inc................................ 32,712
2,000 St. Jude Medical, Inc........................... 106,500
*3,000 Steris Corp..................................... 101,250
*1,500 Sybron Corp..................................... 63,750
*1,000 Target Therapeutics, Inc........................ 77,500
*2,000 Thermedics, Inc................................. 36,750
*1,500 United Dental Care, Inc......................... 45,750
*467 Vencor, Inc..................................... 12,959
*3,500 Watsons Pharmaceuticals, Inc.................... 156,625
----------
4,060,021
----------
PRODUCER MANUFACTURING 6.2%
2,500 BMC Industries, Inc............................. 96,563
2,500 Case Corp....................................... 95,312
*1,500 Cognex Corp..................................... 89,625
4,500 Danaher Corp.................................... 139,500
2,500 Dover Corp...................................... 98,750
2,500 Duriron, Inc.................................... 66,875
*1,000 FMC Corp........................................ 71,625
*4,500 Glenayre Technologies........................... 289,125
2,000 Greenfield Industries, Inc...................... 60,000
1,000 Helix Technology Corp........................... 37,500
*1,500 Kent Electronics Corp........................... 73,125
3,000 Measurex Corp................................... 92,250
*2,500 Mueller Industries, Inc......................... 58,750
1,500 Precision Castparts Co.......................... 53,625
*3,000 Robotic Vision Systems, Inc..................... 68,625
*3,500 Sanifill, Inc................................... 110,250
*3,000 United Waste Systems, Inc....................... 118,500
*2,000 USA Waste Services, Inc......................... 42,000
----------
1,662,000
----------
RAW MATERIALS/PROCESSING INDUSTRIES 4.5%
5,000 Albemarle Corp.................................. 93,125
1,150 Eastman Chemical Co............................. 68,425
1,500 Goodrich B. F. Co............................... 98,813
1,500 Hercules, Inc................................... 80,062
3,500 IMC Global, Inc................................. 245,000
2,500 Millipore Corp.................................. 88,437
3,000 Mineral Technologies, Inc....................... 119,625
3,000 Potash Corp. Sask, Inc.......................... 208,875
1,500 Rayonier, Inc................................... 56,250
*2,000 Sealed Air Corp................................. 52,750
2,000 Sonoco Products Co.............................. 49,500
*1,500 UCAR International, Inc......................... 42,750
----------
1,203,612
----------
</TABLE>
25
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ----------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY 28.4%
2,000 Allen Group, Inc................................ $ 49,000
*5,500 Altera Corp..................................... 332,750
1,500 America Online, Inc............................. 120,000
*5,000 Analog Devices, Inc............................. 180,625
*3,000 Applied Materials, Inc.......................... 150,375
*7,000 Ascend Communications, Inc...................... 455,000
*1,500 Aspect Telecommunications Corp.................. 51,562
*1,500 Aspen Technology, Inc........................... 41,250
*9,000 Atmel Corp...................................... 281,250
*3,000 Bay Networks, Inc............................... 198,750
*500 C P Clare Corp.................................. 12,938
*2,500 Cabletron Systems, Inc.......................... 196,562
*7,250 Cadence Design Systems, Inc..................... 233,812
*1,500 Cambridge Technology Partners, Inc.............. 85,125
*2,000 C-Cube Microsystems, Inc........................ 138,250
3,000 Ceridian Corp................................... 130,500
*2,000 Credence Systems Corp........................... 74,750
*2,000 Cyberoptics Corp................................ 66,000
*5,500 Dell Computer Corp.............................. 256,438
*6,000 Informix Corp................................... 174,750
*3,000 International Rectifier Corp.................... 135,375
*4,000 Kemet Corp...................................... 138,000
*3,500 KLA Instruments Corp............................ 149,625
*2,000 Komag, Inc...................................... 114,000
*1,500 Kronos, Inc..................................... 69,000
7,000 Linear Technology Corp.......................... 306,250
*5,500 LSI Logic Corp.................................. 259,187
*2,500 Macromedia, Inc................................. 92,500
*2,500 McAfee Associations, Inc........................ 145,625
*4,000 Medic Computer Systems, Inc..................... 213,000
2,000 Micron Technology, Inc.......................... 141,250
*2,500 Mylex Corp...................................... 46,563
*3,000 National Semiconductor Corp..................... 73,125
*2,500 Network General Corp............................ 103,750
*2,000 Parametric Technology Corp...................... 134,000
*1,500 Peoplesoft, Inc................................. 129,000
*2,000 PRI Automation.................................. 74,000
1,500 Project Software & Development, Inc............. 39,750
*5,000 SCI Systems, Inc................................ 175,625
*2,000 Sierra On-Line, Inc............................. 74,500
*4,000 Sierra Semiconductor Corp....................... 71,500
2,000 Sundstrand Corp................................. 122,500
*3,000 Sunguard Data Systems, Inc...................... 82,500
1,500 Tektronix, Inc.................................. 88,875
*2,000 Tencor Instruments.............................. 85,250
*1,000 Teradyne, Inc................................... 33,375
*500 Thermolase Corp................................. 10,188
*500 Thermospectra Corp.............................. 8,125
*7,000 3Com Corp....................................... 329,000
*4,500 U.S. Robotics Corp.............................. 416,250
*5,000 Ultratech Stepper, Inc.......................... 200,000
*4,500 Vicor Corp...................................... 91,969
</TABLE>
26
<PAGE>
Emerging Growth II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY--continued
*3,000 Vishay Intertechnology, Inc........................................................... $ 105,750
2,000 Watkins Johnson Co.................................................................... 96,250
-----------
7,585,344
-----------
TRANSPORTATION 3.0%
2,500 Airborne Freight Corp................................................................. 65,625
4,000 Comair Holdings, Inc.................................................................. 112,250
2,000 Conrail, Inc.......................................................................... 137,500
*2,500 Continental Airlines, Inc., Class B................................................... 89,062
*2,000 Fritz Companies, Inc.................................................................. 70,000
*3,500 Northwest Airlines, Inc., Class A..................................................... 140,437
*1,000 UAL Corp.............................................................................. 175,875
-----------
790,749
-----------
UTILITIES 2.0%
2,500 AT&T Capital Corp..................................................................... 100,000
*1,000 Cellular Communications Inc., Class A................................................. 53,625
4,000 Cincinnati Bell, Inc.................................................................. 117,500
4,500 Frontier Corp......................................................................... 121,500
*6,000 LCI International, Inc................................................................ 108,000
*1,000 Midcom Communications, Inc............................................................ 15,000
*1,000 Palmer Wireless, Inc.................................................................. 22,750
-----------
538,375
-----------
Total Common Stock (Cost $23,221,938)............................................... 25,388,703
-----------
Principal
Amount Repurchase Agreement 9.7%
- ----------
$2,585,000 SBC Capital Markets, Inc., dated 10/31/95, 5.87%, due 11/1/95
(collateralized by U.S. Government obligations in a pooled
cash account) repurchase proceeds $2,585,421 (Cost $2,585,000)....................... 2,585,000
-----------
TOTAL INVESTMENTS (Cost $25,806,938) 104.6%.......................................... 27,973,703
Other assets and liabilities, net (4.6%) (1,230,130)
-----------
NET ASSETS, equivalent to $15.12 per share for Class A and
$15.04 per share for Class B shares 100%............................................ $26,743,573
===========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 1,054,794 Class A and 717,720 Class B shares outstanding.. $ 17,725
Capital surplus.................................................................................. 24,589,075
Accumulated net realized loss on securities...................................................... (29,992)
Net unrealized appreciation of securities........................................................ 2,166,765
-----------
NET ASSETS $26,743,573
===========
</TABLE>
*Non-income producing security.
See Notes to Financial Statements.
27
<PAGE>
Emerging Growth II Fund Financial Statements
<TABLE>
<CAPTION>
Statement of Operations February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
Investment Income
Dividends...................................................... $ 35,352
Interest....................................................... 44,084
----------
Investment income............................................ 79,436
----------
Expenses
Advisory fees.................................................. 47,662
Shareholder service agent's fees and expenses.................. 104,742
Accounting services............................................ 6,365
Service fees--Class A.......................................... 11,480
Distribution and service fees--Class B......................... 27,405
Trustees' fees and expenses.................................... 7,196
Audit fees..................................................... 10,300
Legal fees..................................................... 1,336
Reports to shareholders........................................ 4,434
Registration and filing fees................................... 43,600
Organization................................................... 2,805
Miscellaneous.................................................. 369
Expense reimbursement.......................................... (45,493)
----------
Total expenses............................................... 222,201
----------
Net investment loss.......................................... (142,765)
----------
Realized and Unrealized Gain (Loss) on Securities
Net realized loss on securities................................ (29,992)
Net unrealized appreciation of securities during the period.... 2,166,765
----------
Net realized and unrealized gain on securities............... 2,136,773
----------
Increase in net assets resulting from operations............. $1,994,008
==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
NET ASSETS, beginning of period................................ $ 200
-----------
Operations
Net investment loss.......................................... (142,765)
Net realized loss on securities.............................. (29,992)
Net unrealized appreciation of securities during the period.. 2,166,765
-----------
Increase in net assets resulting from operations........... 1,994,008
-----------
Capital transactions
Proceeds from shares sold
Class A.................................................... 15,664,882
Class B.................................................... 10,338,125
-----------
26,003,007
-----------
Cost of shares redeemed
Class A.................................................... (1,038,319)
Class B.................................................... (215,323)
-----------
(1,253,642)
-----------
Increase in net assets resulting from capital transactions... 24,749,365
-----------
Increase in Net Assets......................................... 26,743,373
-----------
NET ASSETS, end of period...................................... $26,743,573
===========
</TABLE>
*Commencement of operations
See Notes to Financial Statements.
28
<PAGE>
International Equity II Fund Statement of Net Assets
October 31, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------
<S> <C> <C>
Common Stock 85.7%
AUSTRALIA 2.3%
10,000 Burns Philp & Co.......... $ 22,395
25,000 Coca-Cola Amatil.......... 193,480
--------
215,875
--------
AUSTRIA 6.0%
1,500 Austria Micro System...... 277,988
1,200 Baumax, AG................ 48,841
1,500 Burgenland Holding........ 60,900
*1,000 Va Stahl, AG.............. 30,601
1,200 Va Technologie, AG........ 139,130
--------
557,460
--------
CANADA 2.1%
2,500 Loewen Group, Inc......... 100,295
*18,000 Wescam, Inc............... 92,364
--------
192,659
--------
CHILE 1.7%
2,500 Embotelladora Andina, ADR. 83,125
3,000 Madeco, SA, ADR........... 74,625
--------
157,750
--------
DENMARK 3.4%
2,000 Kobenhavn Lufthave........ 150,073
*7,000 Scandinav Mobility........ 166,545
--------
316,618
--------
FINLAND 1.2%
1,600 Nokia (AB) OY, Series A... 91,534
400 Nokia (AB) OY, Series K... 23,354
--------
114,888
--------
FRANCE 4.5%
1,214 Castorama Dubois.......... 108,321
1,000 Ecco, SA.................. 155,007
440 Sidel, SA................. 152,782
--------
416,110
--------
GERMANY 4.1%
200 Bayer Motoren Werk........ 107,275
2,000 Fielmann, AG.............. 110,117
2,500 SGL Carbon................ 163,931
--------
381,323
--------
</TABLE>
29
<PAGE>
International Equity II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------
<S> <C> <C>
HONG KONG 3.4%
40,000 Hong Kong Electric................ $136,063
20,000 Hutchison Whampoa................. 110,196
10,000 Swire Pacific..................... 75,016
--------
321,275
--------
IRELAND 4.9%
30,248 Bank of Ireland................... 201,751
12,000 CRH............................... 79,262
30,000 Independent News.................. 179,699
--------
460,712
--------
ISRAEL 0.7%
*3,000 Gilat Satellite Networks, Ltd..... 66,750
--------
ITALY 6.3%
5,000 Alleanza Assicuraz................ 34,661
*10,000 De Rigo, ADS...................... 206,250
*5,000 Gucci Group, NV................... 150,000
50,000 Telecom Italia.................... 75,910
70,000 Telecom Italia, Mobile............ 117,472
--------
584,293
--------
JAPAN 7.3%
3,000 Bunkyodo Co....................... 67,745
10,000 Hitachi........................... 102,644
1,000 Kyocera Corp...................... 81,920
2,000 Mabuchi Motor Co.................. 121,023
4,000 Ohmoto Gumi Co.................... 89,936
5,000 Sato Corp......................... 102,645
2,000 Trans Cosmos, Inc................. 111,051
--------
676,964
--------
MALAYSIA 3.6%
20,000 Gamuda Berhad..................... 83,432
20,000 Leader Univ Holdings.............. 53,916
20,000 Sungei Way Holdings............... 67,295
25,000 Sunway Building Tech.............. 66,903
25,000 UMW Holding Berhad................ 59,524
--------
331,070
--------
MEXICO 4.2%
60,000 Cifra SA, DE CV................... 61,137
30,400 Gruma............................. 89,600
*15,000 Grupo Carso....................... 78,526
7,000 Kimberly Clark, Mexico............ 91,369
2,500 Telefonos de Mexico, SA, ADR...... 68,750
--------
389,382
--------
</TABLE>
30
<PAGE>
International Equity II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ------------------------------------------------------
<S> <C> <C>
NETHERLANDS 6.7%
3,500 Getronics, NV.................... $167,036
500 Heineken, NV..................... 88,731
4,000 IHC Caland, NV................... 113,829
2,000 Philips Electronics, NV.......... 77,250
4,000 Randstad Holdings................ 180,505
--------
627,351
--------
NEW ZEALAND 0.7%
1,000 Telecom Corp of New Zealand, ADR. 66,375
--------
NORWAY 2.6%
3,000 Petroleum Geo Service............ 56,849
30,000 Tomra Systems, AS................ 189,337
--------
246,186
--------
PHILIPPINES 1.3%
*300,000 Bankard, Inc..................... 123,991
--------
SINGAPORE 4.8%
10,000 Cerebos Pacific.................. 62,279
6,000 Fraser & Neave................... 70,913
75,000 QAF.............................. 90,764
15,000 Sembawang Maritime............... 50,743
100,000 Steamers Maritime................ 74,310
20,000 Van Der Horst.................... 102,619
--------
451,628
--------
SWEDEN 5.7%
2,500 Astra, AB, Series A.............. 91,859
1,500 Autoliv, AB...................... 86,061
400 Ericsson (LM) Telephone.......... 8,493
4,000 Ericsson (LM) Telephone, Series B 84,932
1,000 Hennes & Mauritz................. 65,356
5,000 Hoganas, AG...................... 134,777
2,000 Kinnerik Investment, Series B.... 55,417
--------
526,895
--------
SWITZERLAND 2.3%
20 Roche Holdings, AG............... 145,336
1,000 Roche Holdings, Ltd, ADR......... 71,875
--------
217,211
--------
THAILAND 1.5%
20,000 Quality Houses Co................ 88,218
4,000 UTD Communications Industries.... 50,546
--------
138,764
--------
</TABLE>
31
<PAGE>
International Equity II Fund Statement of Net Assets, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -------------------------------------------------------------------------------------------------------------
<S> <C>
UNITED KINGDOM4.4%
15,000 British Biotech.................................................................... $ 211,541
5,000 Carlton Communications............................................................. 76,166
25,000 Rentokil Group..................................................................... 124,506
----------
412,213
----------
Total Common Stocks (Cost $7,387,128)............................................ 7,993,743
----------
Principal
Amount
- -----------
Repurchase Agreement 14.0%
$1,303,000 State Street Bank & Trust Co., dated 10/31/95, 4.50%, due 11/01/95
(collateralized by U.S. Government Bond, 8.75%, 5/15/17)
repurchase proceeds $1,303,163 (Cost $1,303,000).................................. 1,303,000
----------
TOTAL INVESTMENTS (Cost $8,690,128) 99.7%......................................... 9,296,743
Foreign currency (Cost $364,109) 3.9%............................................. 363,565
Other assets and liabilities, net (3.6%).......................................... (338,579)
----------
NET ASSETS, equivalent to $13.86 per share for Class A and $13.79
per share for Class B shares 100%................................................ $9,321,729
==========
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 474,025 Class A, 199,498 Class B shares outstanding...... $ 6,735
Capital surplus................................................................................. 8,709,504
Net unrealized appreciation (depreciation) of securities
Investments................................................................................... 606,615
Foreign currency.............................................................................. (544)
Other foreign denominated assets and liabilities.............................................. (581)
----------
NET ASSETS...................................................................................... $9,321,729
==========
</TABLE>
*Non-income producing security
See Notes to Financial Statements.
32
<PAGE>
International Equity II Fund Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
February 21, 1995*
through
October 31, 1995
------------------
<S> <C>
Investment Income
Dividends (net of $7,178 of foreign taxes withheld at source)......................... $ 51,723
Interest.............................................................................. 21,913
----------
Investment Income.................................................................. 73,636
----------
Expenses
Advisory fees......................................................................... 35,227
Shareholder service agent's fees and expenses......................................... 28,604
Accounting services................................................................... 4,807
Service fees--Class A................................................................. 6,920
Distribution and service fees--Class B................................................ 7,546
Trustees' fees and expenses........................................................... 6,987
Audit fees............................................................................ 17,300
Custodian fees........................................................................ 66,374
Legal fees............................................................................ 1,260
Reports to shareholders............................................................... 2,932
Registration and filing fees.......................................................... 34,696
Organization.......................................................................... 2,805
Miscellaneous......................................................................... 226
Expense reimbursement................................................................. (82,201)
----------
Total expenses..................................................................... 133,483
----------
Net investment loss................................................................ (59,847)
----------
Realized and Unrealized Gain (Loss) on Securities
Net realized gain (loss) on securities
Investments........................................................................ 13,300
Foreign currency................................................................... (75)
Net unrealized appreciation (depreciation) of securities during the period
Investments........................................................................ 606,615
Foreign currency................................................................... (544)
Other foreign denominated assets and liabilities................................... (581)
----------
Net realized and unrealized gain on securities........................................ 618,715
----------
Increase in net assets resulting from operations...................................... $ 558,868
==========
- ---------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
February 21, 1995*
through
October 31, 1995
------------------
NET ASSETS, beginning of period....................................................... $ 200
----------
Operations
Net investment loss.................................................................. (59,847)
Net realized gain on securities...................................................... 13,225
Net unrealized appreciation of securities during the period.......................... 605,490
----------
Increase in net assets resulting from operations.................................... 558,868
----------
Capital transactions
Proceeds from shares sold
Class A.............................................................................. 6,176,592
Class B.............................................................................. 2,722,626
----------
8,899,218
----------
Cost of shares redeemed
Class A.............................................................................. (94,421)
Class B.............................................................................. (42,136)
----------
(136,557)
----------
Increase in net assets resulting from capital transactions........................... 8,762,661
----------
Increase in Net Assets................................................................ 9,321,529
----------
NET ASSETS, end of period............................................................. $9,321,729
==========
</TABLE>
*Commencement of operations
See Notes to Financial Statements
33
<PAGE>
Notes to Financial Statements
Note 1--Significant Accounting Policies
Common Sense Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as a diversified open-end management investment company
which offers shares in ten separate portfolios, five of which are described in
this report: Common Sense II Growth Fund ("Growth II"), Common Sense II Growth
and Income Fund ("Growth and Income II"), Common Sense II Government Fund
("Government II"), Common Sense II Emerging Growth Fund ("Emerging Growth II")
and Common Sense II International Equity Fund ("International Equity II"). Each
Fund is accounted for as a separate entity. Investments in foreign securities
involve certain risks not ordinarily associated with investments in securities
of domestic issuers, including fluctuations in foreign exchange rates, future
political and economical developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. The following is a
summary of significant accounting policies consistently followed by the Trust in
the preparation of its financial statements.
A. Investment Valuations
Securities listed or traded on a national securities exchange are valued at
the last sale price. Unlisted securities and listed securities for which the
last sale price is not available are valued at the most recent bid price.
U.S. Government securities are valued at the last reported bid price.
Securities for which market quotations are not readily available are valued
at fair value under a method approved by the Board of Trustees.
Short-term investments with a maturity of more than 60 days when purchased
are valued based on market quotations until the remaining days to maturity
become less than 61 days. From such time, until maturity, the investments are
valued at amortized cost.
B. Foreign Currency Translation
The market values of foreign securities, forward currency exchange contracts
and other assets and liabilities stated in foreign currency are translated
into U.S. dollars based on quoted exchange rates as of Noon Eastern Time. The
cost of securities is determined using historical exchange rates. Income and
expenses are translated at prevailing exchange rates when accrued or
incurred. Gains and losses on the sale of securities are not segregated for
financial reporting purposes between amounts arising from changes in exchange
rates and amounts arising from changes in the market prices of securities.
Realized gain and loss on foreign currency includes the net realized amount
from the sale of currency and the amount realized between trade date and
settlement date on security transactions.
C. Forward Currency Exchange Contracts
International Equity II enters into forward currency exchange contracts in
order to hedge its exposure to changes in foreign currency exchange rates on
its foreign portfolio holdings or settle transactions. A forward currency
exchange contract is a commitment to buy or sell a foreign security at a set
price on a future date. Changes in the value of the contract are recognized
by marking the contract to market on a daily basis to reflect current
currency translation rates. The Fund realizes gains or losses at the time the
forward currency exchange contract is closed. Risks may arise as a result of
the potential inability of the counterparties to meet the terms of their
contracts, and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
D. Futures Contracts and Forward Commitments
General--Transactions in futures contracts and forward commitments are
utilized in strategies to manage the market risk of the Trust's investments.
The purchase of a futures contract or forward commitments increases the
impact on net asset value of changes in the market price of investments.
Forward commitments have a risk of loss due to non performance of
counterparties. There is also a risk that the market movement of such
instruments may not be in the direction forecasted. Note 3--Investment
Activity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Trust maintains
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held
as collateral in an account in the name of the broker, the Trust's agent in
acquiring the futures position. During the period the futures contract is
open, changes in the value of the contract ("variation margin") are
recognized by marking the contract to market on a daily basis. As unrealized
gains or losses are incurred, variation margin payments are received from or
made to the broker. Upon the closing or cash settlement of a contract, gains
and losses are realized. The cost of securities acquired through delivery
under a contract is adjusted by the unrealized gain or loss on the contract.
34
<PAGE>
Notes to Financial Statements, continued
Forward Commitments--The Trust trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs
at a specified future date. Forward commitments are privately negotiated
transactions between the Trust and dealers. Upon executing a forward
commitment and during the period of obligation, the Trust maintains
collateral of cash or securities in a segregated account with its custodian
in an amount sufficient to relieve the obligation. If the intent of the Trust
is to accept delivery of a security traded under a forward purchase
commitment, the commitment is recorded as a long-term purchase. For forward
purchase commitments which security settlement is not intended by the Trust
and all forward sales commitments, changes in the value of the commitment are
recognized by marking the commitment to market on a daily basis. During the
commitment, the Trust may either resell or repurchase the forward commitment
and enter into a new forward commitment, the effect of which is to extend the
settlement date. In addition, the Trust may occasionally close such forward
commitments prior to delivery. Gains and losses are realized upon the
ultimate closing or cash settlement of forward commitments.
E. Repurchase Agreements
A repurchase agreement is a short-term investment in which the Trust acquires
ownership of a debt security and the seller agrees to repurchase the security
at a future time and specified price. The Trust may invest independently in
repurchase agreements, or transfer uninvested cash balances into a pooled
cash account along with other investment companies advised by Van Kampen
American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are
collateralized by the underlying debt security. The Trust will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Trust.
F. Federal Income Taxes
No provision for federal income taxes is required because each Fund intends
to elect to be taxed as a "regulated investment company" under the Internal
Revenue Code and intends to maintain this qualification by annually
distributing all taxable net investment income and taxable net realized
capital gains to shareholders. It is anticipated that no distributions of
capital gains will be made until tax basis capital loss carryovers, if any,
expire or are offset by net realized capital gains.
At the end of the period, Emerging Growth II had a net realized capital loss
carryforward of approximately $20,000 for federal income tax purposes and may
be utilized to offset future capital gains until expiration in 2003.
G. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gains
and losses on investments are determined on the basis of identified cost.
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
Under the applicable foreign tax laws, a tax may be imposed on interest,
dividends, and realized gains generated from foreign investments. Such taxes
are generally reflected on the Statement of Operations as a reduction of the
related income or gains.
H. Dividends and Distributions
The Trust declares annual distributions from net capital gains. Dividends
from net investment income are declared daily for Government II, quarterly
for Growth and Income II and annually for Growth II, Emerging Growth II, and
International Equity II. Dividends and distributions to shareholders are
recorded on the record date.
The Trust distributes tax basis earnings in accordance with the minimum
distribution requirements of the Internal Revenue Code, which may differ from
generally accepted accounting principles. Such dividends or distributions may
exceed financial statement earnings.
I. Debt Discount or Premium
The Trust accounts for debt discounts and premiums on the same basis as is
used for federal income tax reporting. Accordingly, original issue discounts
on debt securities purchased are amortized over the life of the security.
Premiums on debt securities are not amortized. Market discounts are
recognized at the time of sale as realized gains for book purposes, and
ordinary income for tax purposes.
35
<PAGE>
Notes to Financial Statements, continued
Note 2--Advisory Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Trust. Advisory fees to Adviser
are paid monthly, based on the average daily net assets of each Fund at an
annual rate as indicated by the following graduated fee schedules:
<TABLE>
<CAPTION>
Emerging Growth II, Growth II
& Growth and Income II Government II
----------------------------- --------------------------
Average Daily Annual Average Daily Annual
Net Assets Rate Net Assets Rate
---------------- ------ ---------------- ------
<S> <C> <C> <C>
First $1 billion .65% First $1 billion .60%
Next $1 billion .60% Next $1 billion .55%
Next $1 billion .55% Next $1 billion .50%
Next $1 billion .50% Next $1 billion .45%
Over $4 billion .45% Next $1 billion .40%
Over $5 billion .35%
</TABLE>
The Adviser has entered into a subadvisory agreement with Smith Barney Mutual
Funds Management, Inc. (the "Subadviser"), who provides advisory services to the
International Equity II Fund and the Adviser with respect to its investments in
foreign securities. Advisory fees for the International Equity II Fund are
calculated monthly, based on the average daily net assets of the Fund at the
annual rate of 1.00%. The Adviser pays 50% of its advisory fee to the
Subadviser.
The Adviser has agreed that it will reimburse the Trust for any expenses
(including the advisory fee, but excluding interest, brokerage commissions,
distribution and service fees, and other extraordinary expenses) in excess of
the most restrictive limitation imposed by state securities commissions. The
most restrictive expense limitation is presently believed to be 2.5% of the
Fund's average daily net assets up to $30 million, 2.0% of the next $70 million
of such net assets and 1.5% of the Fund's net assets in excess of $100 million.
The Trust received from California a waiver which allows each Fund to exclude
shareholder service costs from the calculation of the expense limitation. The
Adviser and, in the case of the International Equity II Fund, the Subadviser
may, from time to time, agree to waive their respective investment advisory fees
or any portion thereof or elect to reimburse a Fund for ordinary business
expenses in excess of an agreed upon amount. For the period, the entire expense
reduction amount for Growth II, Growth & Income II, and Emerging Growth II was
voluntary. For International Equity II, $26,302 of the expense reduction was
voluntary and $55,899 was reimbursed due to the contractual expense limitation.
The Adviser prepaid the Trust's initial registration and filing expenses. The
Trust amortized such expenses over a ten month period ended April 1995 for
Growth II, Growth and Income II, and Government II and ending in December 1995
for Emerging Growth II and International Equity II, respectively.
At the end of the period, the Adviser owned approximately 17.9% of International
Equity II's Class A outstanding shares.
Accounting services include the salaries and overhead expenses of the Trust's
Treasurer and the personnel operating under his direction. Charges are allocated
among investment companies advised by the Adviser. These charges include the
employee costs attributable to the Trust's accounting officers. A portion of the
accounting services expense was paid to the Adviser in reimbursement of
personnel, facilities and equipment costs attributable to the provision of
accounting services. The services provided by the Adviser are at cost.
PFS Distributors (the "Distributor"), a wholly owned subsidiary of Travelers
Group, Inc., serves as Distributor of the Trust's shares. The Distributor has an
exclusive selling agreement with PFS Investments, Inc. to sell shares of the
Trust. During the period, the Trust paid brokerage commissions of $406,044 to
companies which are deemed affiliates of the Distributor's parent because it
owns more than 5% of the companies' outstanding voting securities. Certain
officers and trustees of the Trust are officers and trustees of the Adviser or
its affiliates.
Under the Distribution Plans, each class of shares pays .25% per annum of its
average daily net assets to the Distributor as a service fee. The service fee is
intended to cover personal services provided to the shareholders by
representatives of PFS Investments, Inc. Class B shares pay an additional fee of
.75% per annum of their average daily net assets to reimburse the Distributor
for its distribution costs. Actual distribution expenses incurred by the
Distributor for Class B shares may exceed the amounts reimbursed to the
Distributor by the Fund. At the end of the period, the unreimbursed expenses
incurred by the Distributor under the Class B plan are as shown in the following
table and may be carried forward and reimbursed through either the collection of
the contingent deferred sales charges from share redemptions or, subject to the
annual renewal of the plans, future Trust reimbursements of distribution fees.
36
<PAGE>
Notes to Financial Statements, continued
Amounts paid by the affiliates during the period were as follows:
<TABLE>
<CAPTION>
Growth & Emerging International
Growth II Income II Government II Growth II Equity II
---------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Accounting services............................ $ 5,674 $ 5,525 $ 5,450 $ 687 $ --
Sales of Fund shares, Distributor commissions.. 115,963 67,581 37,676 47,949 11,149
Class B unreimbursed expenses (approximately).. 1,100,000 720,000 360,000 320,000 90,000
</TABLE>
At the end of the period, Growth II owned approximately .89% of the Van Kampen
American Capital Small Capitalization Fund ("Small Cap"), an investment company
managed by the Adviser. Small Cap comprised approximately 3% of Growth II's
total net assets. Small Cap's portfolio consisted of the following securities:
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------
Common Stock
Consumer Distribution
<C> <S> <C>
22,000 Big B, Inc. $ 316,250
22,000 Books-A-Million, Inc. 280,500
11,000 Cardinal Health, Inc. 577,500
3,000 Carson Pirie Scott & Co. 50,625
4,000 CDW Computer Centers, Inc. 195,000
21,000 Circuit City Stores, Inc. 698,250
42,000 Claire's Stores, Inc. 834,750
12,000 CompUSA, Inc. 481,500
14,000 Consolidated Stores Corp. 327,250
1,000 Dole Food, Inc. 38,000
9,800 Eckerd Corp. 390,775
52,000 Fingerhut Companies, Inc. 695,500
46,000 General Nutrition Companies, Inc. 1,115,500
1,000 Great Atlantic & Pacific 20,375
29,000 Gymboree Corp. 659,750
11,000 Health Management, Inc. 126,500
2,000 Hills Stores Co. 15,250
10,000 Lear Seating Corp. 290,000
14,000 MacFrugals Bargains Closeouts 164,500
9,000 Medicine Shoppe International, Inc. 389,250
6,000 Mens Wearhouse, Inc. 235,500
15,000 Micro Wharehouse, Inc. 678,750
38,000 OfficeMax, Inc. 940,500
83,900 Pier 1 Imports, Inc. 818,025
5,000 Proffitts, Inc. 118,750
6,000 Rexel, Inc. 69,000
3,000 Richfood Holdings, Inc. 74,625
7,000 Ross Stores, Inc. 110,250
25,000 Staples, Inc. 668,750
42,800 Stop & Shop Companies, Inc. 877,400
40,000 Sunglass Hut International, Inc. 1,090,000
4,000 Tiffany & Co. 174,500
25,000 Viking Office Products, Inc. 1,109,375
43,000 Waban, Inc. 661,125
6,000 Whole Foods Market, Inc. 72,750
3,000 Younkers, Inc. 66,375
32,000 Zale Corp. 472,000
-----------
15,904,700
-----------
Consumer Durables
3,000 Borg Warner Automotive, Inc. 86,625
50,000 Breed Technologies, Inc. 925,000
47,000 Brunswick Corp. 922,375
21,000 Champion Enterprises, Inc. 546,000
35,000 Clayton Homes, Inc. 936,250
23,000 Cobra Golf, Inc. 621,000
4,000 Department 56, Inc. 182,500
24,000 Echlin, Inc. 864,000
5,000 Fleetwood Enterprises, Inc. 103,125
14,000 Gencorp, Inc. 148,750
8,400 Harman International Industries, Inc. 389,550
46,000 Leggett & Platt, Inc. 1,115,500
7,000 Lennar Corp. 161,875
14,000 Outboard Marine Corp. 297,500
7,000 Smith (A. O.) Corp. 146,125
6,000 Snap-On Tools, Inc. 254,250
22,000 Toro Co. 632,500
-----------
8,332,925
-----------
Consumer Non-Durables
1,000 Alberto Culver Co., Class B 31,625
34,000 American Greetings Corp., Class A 1,079,500
29,000 Barefoot, Inc. 337,125
7,000 Fieldcrest Cannon, Inc. 134,750
9,000 Fossil, Inc. 96,750
2,000 Hormel (G. A.) & Co. 46,000
13,000 IBP, Inc. 781,625
41,000 Liz Claiborne, Inc. 1,158,250
23,000 Nautica Enterprises, Inc. 787,750
10,000 Nu-Kote Holdings, Inc., Class A 198,750
11,000 Phillips-Van Heusen Corp. 111,375
3,000 Scotts Co., Class A 60,000
9,000 Smithfield Foods, Inc. 236,250
15,000 Springs Industries, Inc. 643,125
8,000 St. John Knits, Inc. 382,000
21,000 Starbucks Corp. 834,750
56,000 Topps, Inc. 343,000
1,000 Unifi, Inc. 22,750
9,000 Universal Foods Corp. 309,375
18,000 Westpoint Stevens, Inc. 382,500
25,000 Whitman Corp. 534,375
18,000 Wolverine World Wide, Inc. 549,000
-----------
9,060,625
-----------
</TABLE>
37
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- -----------------------------------------------------------------
Consumer Services
<C> <S> <C>
4,000 Advo, Inc. $ 102,500
10,000 Banta Corp. 427,500
12,000 Belo (A. H.) Corp. 414,000
14,000 Boston Chicken, Inc. 476,000
26,000 Bowne & Co., Inc. 481,000
11,000 Boyd Gaming Corp. 148,500
1,000 Casino America, Inc. 7,000
19,000 Equifax, Inc. 722,000
9,000 HFS, Inc. 559,125
30,000 Kelly Services, Inc. 765,000
25,000 King World Productions, Inc. 865,625
21,000 Lone Star Steakhouse Saloon, Inc. 813,750
9,000 Media General, Inc., Class A 250,875
21,000 Mirage Resorts, Inc. 695,625
19,000 New York Times Co., Class A 529,625
27,760 Ogden Corp. 635,010
16,000 Olsten Corp. 612,000
17,000 Omnicom Group 1,088,000
26,000 Outback Steakhouse, Inc. 809,250
3,000 Papa John's International, Inc. 116,625
13,200 PHH Corp. 580,800
31,500 Players International, Inc. 342,563
1,000 Pulitzer Publishing Co. 45,375
19,000 Regal Cinemas, Inc. 741,000
17,000 Reynolds & Reynolds Co. 603,500
23,000 Rio Hotel & Casino, Inc. 293,250
28,000 Robert Half International, Inc. 1,029,000
26,000 Sbarro, Inc. 549,250
12,500 Scientific Games Holdings Corp. 415,625
6,000 Sonic Corp. 132,000
13,500 Spelling Entertainment Group, Inc. 173,813
24,000 Wendys International, Inc. 480,000
32,000 Westcott Communications, Inc. 444,000
-----------
16,349,186
-----------
Energy
17,000 BJ Services Co. 401,625
13,000 Brooklyn United Gas Co. 326,625
24,100 Eastern Enterprises 716,975
38,000 El Paso Natural Gas Co. 1,026,000
25,000 KCS Energy, Inc. 246,875
12,000 K.N. Energy, Inc. 307,500
25,000 Mesa, Inc. 106,250
91,000 Nabors Industries, Inc. 784,875
14,000 NACCO Industries, Inc., Class A 805,000
2,500 National Fuel Gas Co. 75,000
24,000 NICOR, Inc. 648,000
15,000 Nuevo Energy Co. 333,750
16,000 Offshore Logistics, Inc. 198,000
14,400 ONEOK, Inc. 356,400
28,000 Pacific Enterprises 693,000
48,000 Smith International, Inc. 768,000
1,000 Tidewater, Inc. 26,375
25,000 Union Texas Petroleum Holdings, Inc. 459,375
12,000 United Meridian Corp. 202,500
24,000 Valero Energy Corp. 567,000
30,000 Varco International, Inc. 277,500
6,000 Washington Gas & Light Co. 115,500
500 Weatherford Enterra, Inc. 12,250
3,000 Western Atlas, Inc. 133,500
12,400 WICOR, Inc. 370,450
188 Williams Companies 7,285
-----------
9,965,610
-----------
Finance
12,000 Advanta Corp., Class A $ 468,000
25,000 Ahmanson (H. F.) & Co. 634,375
15,000 AMBAC, Inc. 643,125
34,000 American Financial Group, Inc. 956,250
25,000 American Re Corp. 956,250
29,000 Bankers Life Holding Corp. 525,625
33,000 Bear Stearns Companies, Inc. 660,000
24,000 California Federal Bank 357,000
4,000 CCB Financial Corp. 196,000
26,000 Charter One Financial, Inc. 737,750
58,000 City National Corp. 783,000
10,000 CMAC Investment Corp. 475,000
23,000 Commercial Federal Corp. 750,375
1,500 Countrywide Credit Industries, Inc. 33,188
23,000 Crestar Financial Corp. 1,319,625
41,000 Edwards (A.G.), Inc. 1,040,375
22,000 Finova Group, Inc. 1,001,000
7,000 First American Corp. 306,250
10,000 First Financial Corp. 210,000
18,000 First Tennessee National Corp. 972,000
13,000 First USA, Inc. 606,125
20,300 Fremont General Corp. 596,313
19,000 GATX Corp. 909,625
49,000 Mercury Financial Co. 943,250
7,300 MGIC Investment Corp. 415,188
9,000 North American Mtg., Co. 185,625
21,000 North Fork Bancorporation 459,375
22,000 Northern Trust Corp. 1,050,500
12,880 Norwest Corp. 388,010
2,000 Ohio Casualty Corp. 71,500
10,000 Penncorp Financial Group, Inc. 238,750
32,000 Peoples Heritage Financial 620,000
25,000 Protective Life Corp. 712,500
18,000 Regions Financial Corp. 720,000
109,000 Reliance Group Holding 803,875
17,000 Reliastar Financial Corp. 716,125
3,000 Roosevelt Financial Group, Inc. 48,375
38,000 Southtrust Corp. 959,500
5,000 Sovereign Bancorp, Inc. 50,000
19,300 Star Banc Corp. 1,061,500
16,000 TCF Financial Corp. 936,000
6,000 TIG Holdings, Inc. 151,500
6,000 Transatlantic Holdings, Inc. 405,750
28,000 Union Planters Corp. 854,000
5,000 Vesta Insurance Group, Inc. 203,125
38,000 Washington Mutual, Inc. 980,875
15,000 Webb Del Corp. 313,125
9,000 Zions Bancorporation 623,250
-----------
29,048,949
-----------
Health Care
25,000 Amsco International, Inc. 409,375
24,000 Bausch & Lomb, Inc. 840,000
5,000 Bio Rad Labs, Inc., Class A 190,625
19,000 CNS, Inc. 199,500
11,000 Community Health Systems, Inc. 349,250
52,000 Cor Therapeutics, Inc. 533,000
1,000 Cordis Corp. 110,625
4,000 Dentsply International, Inc. 138,000
29,000 Foundation Health Corp. 1,236,125
2,000 HBO & Co. 143,250
20,000 Healthcare Compare Corp. 770,000
8,000 Healthsouth Rehabilitation 211,000
</TABLE>
38
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- --------------------------------------------------------------------
<C> <S> <C>
39,000 Horizon/CMS Healthcare $ 784,875
37,073 ICN Pharmaceuticals, Inc. 759,997
24,000 Integrated Health Services, Inc. 519,000
29,000 Lincare Holdings, Inc. 725,000
3,000 Manor Care, Inc. 98,625
1,000 Maxicare Health Plans 17,625
32,000 Medisense, Inc. 716,000
47,500 Mylan Labs, Inc. 890,625
16,000 Nellcor Puritan Bennett, Inc. 924,000
8,000 North American Biological 65,000
2,000 Orthofix International, NV 19,500
16,000 Oxford Health Plans, Inc. 1,260,000
6,000 Pacific Physician Services 94,500
3,000 Quintiles Transnational Corp. 192,750
17,000 Renal Treatment Centers, Inc. 612,000
6,000 Rexall Sundown, Inc. 90,000
3,000 Target Therapeutics, Inc. 229,500
18,000 Thermo Cardiosystems, Inc. 877,500
2,000 United American Healthcare Corp. 22,250
12,000 Universal Health Services, Inc., Class B 448,500
20,000 Vivra, Inc. 660,000
25,320 Watsons Pharmaceuticals, Inc. 1,145,730
-----------
16,283,727
-----------
Producer Manufacturing
16,000 Agco Corp. 754,000
3,000 Alliant Techsystems, Inc. 139,500
5,000 Ametek, Inc. 88,750
14,600 Aptar Group, Inc. 501,875
7,000 Blount, Inc., Class A 305,375
21,000 Briggs & Stratton Corp. 847,875
6,000 Cognex Corp. 363,000
22,000 Cummins Engine Co., Inc. 792,000
26,000 Danaher Corp. 812,500
22,000 Detroit Diesel Corp. 396,000
11,000 Duracraft Corp. 239,250
6,000 Granite Construction, Inc. 171,750
18,500 IDEX Corp. 698,375
7,000 INDRESCO, Inc. 120,750
1,000 Johnson Controls, Inc. 58,500
20,000 Juno Lighting, Inc. 292,500
2,000 Kent Electrics Corp. 97,750
16,000 Kulicke & Sofa Industries, Inc. 560,000
24,000 Mueller Industries, Inc. 561,000
4,000 National Service Industries, Inc. 119,500
9,000 Navistar International Corp. 93,375
19,000 PACCAR, Inc. 798,000
30,000 Southdown, Inc. 495,000
90,000 Sterling Chemicals, Inc. 731,250
11,000 Teledyne, Inc. 275,000
28,300 Thermo Instrument Systems, Inc. 856,075
26,000 Timken Co. 1,036,750
8,000 United Waste Systems, Inc. 316,000
31,000 Varity Corp. 1,108,250
6,000 Watts Industries, Inc., Class A 123,750
32,000 Wellman, Inc. 752,000
9,000 Wolverine Tube, Inc. 319,500
-----------
14,825,200
-----------
Raw Materials/Processing Industries
17,000 Cleveland Cliffs, Inc. 641,750
16,000 Cyprus Amax Minerals 428,000
4,000 Cytec Industries, Inc. 218,000
6,000 First Mississippi Corp. 123,750
14,000 Geon Co. 346,500
24,000 Georgia Gulf Corp. 801,000
15,000 Goodrich (B. F.) Co. 990,000
46,000 Handy & Harman 644,000
8,000 Inland Steel Industries, Inc. 186,000
2,000 International Specialty Products, Inc. 17,500
62,000 Jefferson Smurfit Corp. 759,500
40,000 J&L Specialty Steel, Inc. 660,000
44,000 Longview Fibre Co. 643,500
15,000 Lubrizol Corp. 435,000
41,000 Lyondell Petrochemical Co. 881,500
46,000 Magma Copper Co., Class B 770,500
6,000 Medusa Corp. 149,250
3,000 NCH Corp. 163,125
14,000 Olin Corp. 904,750
51,000 Owens-Illinois, Inc. 643,875
12,000 Potlatch Corp. 505,500
3,000 Quanex Corp. 58,875
11,000 Rayonier, Inc. 418,000
69,000 Rexene Corp. 621,000
20,000 Sealed Air Corp. 522,500
5,000 Sigma-Aldrich Corp. 240,000
33,000 Sonoco Products Co. 833,250
43,000 Stone Container Corp. 736,375
46,000 Terra Industries, Inc. 580,750
1,000 Texas Industries, Inc. 52,875
23,000 USG Corp. 669,875
15,000 Vigoro Corp. 652,500
5,000 Vulcan Materials Co. 277,500
43,500 Worthington Industries, Inc. 744,938
-----------
17,321,438
-----------
Technology
6,000 Adaptec, Inc. 264,000
20,000 Alantec Corp. 710,000
4,000 Altera Corp. 244,000
15,000 America Online, Inc. 1,215,000
3,000 Analysts International Corp. 90,000
28,000 Aspect Telecommunications Corp. 973,000
19,000 Atmel Corp. 594,936
1,000 Auspex Systems, Inc. 14,812
27,000 Autodesk, Inc. 911,250
21,400 Avnet, Inc. 1,080,700
10,000 BMC Industries, Inc. 386,250
18,000 BMC Software, Inc. 641,250
56,000 Borland International, Inc. 777,000
36,000 Cadence Design Systems, Inc. 1,174,500
19,000 Cascade Communications 1,344,250
21,000 Cidco, Inc. 588,000
2,000 Computer Network Technology 13,125
60,000 Conner Peripherals, Inc. 1,095,000
22,000 Credence Systems Corp. 825,000
1,000 Dallas Semiconductor Co. 21,250
13,000 Dovatron International, Inc. 399,750
22,000 Dynatech Corp. 335,500
12,000 Electroglas, Inc. 867,000
13,000 Electronics For Imaging, Inc. 1,082,250
4,000 FTP Software, Inc. 108,188
34,000 Gateway 2000, Inc. 1,160,250
9,000 Harris Corp. 525,375
23,000 In Focus Systems, Inc. 730,250
44,000 Integrated Device Technology, Inc. 844,250
22,000 International Rectifier Corp. 1,009,250
37,000 Intervoice, Inc. 689,125
24,000 KLA Instruments Corp. 1,050,000
</TABLE>
39
<PAGE>
Notes to Financial Statements, continued
<TABLE>
<CAPTION>
Number Market
of Shares Value
- ---------------------------------------------------------------------
<C> <S> <C>
3,000 Komag, Inc.................................. $ 172,875
13,000 Lam Research Corp........................... 809,250
3,000 Littelfuse, Inc............................. 98,625
17,000 McAfee Associates, Inc...................... 998,750
10,000 Microchip Technology, Inc................... 397,500
26,000 Netmanage, Inc.............................. 542,750
14,000 Network Equipment Technologies.............. 465,500
22,000 Network General Corp........................ 907,500
12,500 Novellus Systems, Inc....................... 857,812
8,000 Peoplesoft, Inc............................. 688,000
4,500 Pioneer Standard Electronics, Inc........... 62,438
9,000 Policy Management Systems Corp.............. 426,375
5,000 Quantum Corp................................ 86,250
23,000 Read-Rite Corp.............................. 819,375
4,000 Recoton Corp................................ 89,000
38,000 S3, Inc..................................... 650,750
14,000 Seagate Technology.......................... 638,750
30,000 Sequent Computer Systems, Inc............... 525,000
25,000 Solectron Corp.............................. 1,018,750
9,000 Sterling Software, Inc...................... 416,250
19,000 Symbol Technologies, Inc.................... 665,000
20,000 Teradyne, Inc............................... 670,000
12,000 3Com Corp................................... 582,000
11,474 U.S. Robotics Corp.......................... 1,067,080
19,000 Unitrode Corp............................... 513,000
8,500 Varian Associates, Inc...................... 437,750
27,000 Vishay Intertechnology, Inc................. 972,000
19,000 Wyle Electronics, Inc....................... 814,625
21,000 Xilinx, Inc................................. 1,000,125
------------
39,157,591
------------
Transportation
49,000 Arkansas Best Corp.......................... 453,250
32,000 Comair Holdings, Inc........................ 896,000
10,800 Consolidated Freightways, Inc............... 252,450
1,000 Continental Airlines, Inc., Class B......... 35,625
24,000 Fritz Companies, Inc........................ 846,000
26,000 Illinois Central Corp....................... 1,001,000
22,000 MS Carriers, Inc............................ 341,000
12,000 Northwest Airlines, Inc., Class A........... 486,000
19,000 Pittston Company Services Group............. 520,125
6,000 Stolt Nielsen, S.A.......................... 182,250
11,000 TNT Freightways Corp........................ 203,500
------------
5,217,200
------------
Utilities
29,000 AES Corp.................................... 572,750
26,000 AT&T Corp................................... 1,040,000
34,100 Boston Edison Co............................ 937,750
4,500 C-Tec Corp.................................. 94,500
12,000 California Energy, Inc...................... 216,000
27,000 Centerior Energy Corp....................... 273,375
4,300 Central Hudson Gas & Electric Corp.......... 131,688
1,000 Colorado Public Service Co.................. 34,000
10,000 Commnet Cellular, Inc....................... 252,500
38,000 Delmarva Power & Light Co................... 845,500
17,000 DQE, Inc.................................... 469,625
8,000 Eastern Utilities Association............... 187,000
4,251 Firstmiss Gold, Inc......................... 77,049
42,000 Frontier Corp............................... 1,139,250
36,000 Illinova Corp............................... 1,026,000
41,000 Long Island Lighting Co..................... 707,250
33,000 New Mexico Public Service Co................ 556,875
24,000 NIPSCO Industries, Inc...................... 879,000
9,500 Oklahoma Gas & Electric Co.................. 380,000
3,000 Orange & Rockland Utilities................. 105,375
27,000 Pinnacle West Capital Corp.................. 742,500
32,000 Portland General Corp....................... 872,000
14,200 Southern New England Telecommunications..... 514,750
23,000 U.S. Cellular Corp.......................... 790,625
1,000 U.S. Long Distance Corp..................... 13,000
------------
12,858,362
------------
Total Common Stock........................ 194,325,513
------------
Convertible Preferred Stock
1,600 FHP International, $1.25, Series A.......... 38,000
------------
Principal
Amount
(000)
---------
Repurchase Agreement
$ 5,805 Lehman Government Securities, Inc.,
5.75%, 11/01/95........................... 5,805,000
------------
Total Investments........................... 200,168,513
Other assets and liabilities, net........... 176,308
------------
NET ASSETS.................................. $200,344,821
============
</TABLE>
40
<PAGE>
Notes to Financial Statements, continued
Note 3--Investment Activity
During the period, the cost of purchases and proceeds from sales and maturities
of investments, excluding short-term investments and forward commitments were:
<TABLE>
<CAPTION>
Growth & Emerging International
Growth II Income II Government II Growth II Equity II
------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Purchases.............................................. $83,144,346 $41,958,082 $23,733,799 $29,403,570 $8,126,934
Sales.................................................. $50,888,482 $17,696,039 $13,098,839 $ 6,151,590 $ 753,105
</TABLE>
At the end of the period, the Trust held the following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Number of Market Appreciation
Fund Description Contracts Value (Depreciation)
----------------------------- --------------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Growth II Standard & Poor's 500 Index
expiring 12/95 (long) 16 $4,670,800 $ 76,343
expiring 3/96 (long) 4 1,177,400 (4,650)
---------- ----------
$5,848,200 $ 71,693
========== ==========
Growth & Income II Standard & Poor's 500 Index
expiring 3/96 (long) 2 $ 588,700 $ (5,025)
========== ==========
Government II U.S. Treasury Bond,
expiring 12/95 (short) 6 $ (702,375) $ (1,388)
U.S. Treasury Bond,
expiring 12/95 (long) 23 2,692,438 42,836
U.S. Treasury Note, five years
expiring 12/95 (short) 5 (541,641) (1,970)
U.S. Treasury Note, five years
expiring 12/95 (long) 8 866,625 8,024
U.S. Treasury Note, ten years
expiring 12/95 (long) 10 1,115,313 14,562
U.S. Treasury Bond,
expiring 3/96 (long) 2 233,438 (212)
---------- ----------
$3,663,798 $ 61,852
========== ==========
</TABLE>
At the end of the period, Government II held the following forward commitments
for which delivery is not intended:
<TABLE>
<CAPTION>
Unrealized
Principal Market Appreciation
Amount Security Value (Depreciation)
- --------- ---------------------------------------- -------- --------------
<S> <C> <C> <C>
Government National Mortgage Association
$500,000 7.00%, settling 11/95 (sale)............ $(496,565) $ (2)
600,000 7.00%, settling 11/95 (purchase)........ 595,878 13,315
--------- -------
(Net obligation $86,000).............. $ 99,313 $13,313
========= =======
</TABLE>
41
<PAGE>
Notes to Financial Statements, continued
The following table presents the identified cost of investments (and foreign
currency for International Equity II) at the end of the period for federal
income tax purposes and the associated net unrealized appreciation.
<TABLE>
<CAPTION>
Growth Emerging International
Growth II & Income II Government II Growth II Equity II
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Identified cost................ $51,263,560 $33,845,311 $21,895,632 $25,817,140 $9,054,237
=========== =========== =========== =========== ==========
Gross unrealized appreciation.. $ 4,388,657 $ 2,927,593 $ 418,009 $ 2,782,612 $ 923,978
Gross unrealized depreciation.. (758,483) (607,669) (51,310) (626,049) (317,907)
----------- ----------- ----------- ----------- ----------
Net unrealized appreciation.... $ 3,630,174 $ 2,319,924 $ 366,699 $ 2,156,563 $ 606,071
=========== =========== =========== =========== ==========
</TABLE>
Note 4--Capital
Each Fund offers two classes of shares at their respective net asset values per
share, plus a sales charge which is imposed either at the time of purchase (the
Class A shares) or at the time of redemption on a contingent deferred basis (the
Class B shares). All classes of shares have the same rights, except that Class B
shares bear the cost of distribution fees and certain other class specific
expenses. Class B shares automatically convert to Class A shares six years after
purchase, subject to certain conditions. Realized and unrealized gains or
losses, investment income and expenses (other than class specific expenses) are
allocated daily to each class of shares based upon the relative proportion of
net assets of each class.
The Trust has an unlimited number of each class of shares of $.01 par value
beneficial interest authorized. Transactions in shares of beneficial interest
for the period were as follows:
<TABLE>
<CAPTION>
Growth II Growth & Income II Government II Emerging International
------------------------ ------------------------ ------------------------ Growth II Equity II
Year Ended Period Ended Year Ended Period Ended Year Ended Period Ended --------- -------------
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Feb. 21 1995
1995 1994 1995 1994 1995 1994 through Oct. 31, 1995
---------- ------------ ---------- ------------ ---------- ------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold
Class A............ 1,296,305 373,998 870,371 300,262 545,888 433,958 1,125,630 480,871
Class B............ 1,972,519 497,430 1,317,260 312,434 618,905 253,982 732,333 202,578
--------- ------- --------- --------- --------- --------- --------- -------
3,268,824 871,428 2,187,631 612,696 1,164,793 687,940 1,857,963 683,449
--------- ------- --------- --------- --------- --------- --------- -------
Shares reinvested
Class A............ -- -- 6,227 999 27,873 5,134 -- --
Class B............ -- -- 3,076 584 19,868 1,471 -- --
--------- ------- --------- --------- --------- --------- --------- -------
-- -- 9,303 1,583 47,741 6,605 -- --
--------- ------- --------- --------- --------- --------- --------- -------
Shares redeemed
Class A............ (217,699) (5,414) (202,866) (4,796) (158,374) (44,548) (70,836) (6,846)
Class B............ (146,988) (9,513) (106,128) (1,966) (99,822) (13,568) (14,613) (3,080)
--------- ------- --------- --------- --------- --------- --------- -------
(364,687) (14,927) (308,994) (6,762) (258,196) (58,116) (85,449) (9,926)
--------- ------- --------- --------- --------- --------- --------- -------
Increase in shares
outstanding........ 2,904,137 856,501 1,887,940 607,517 954,338 636,429 1,772,514 673,523
========= ======= ========= ========= ========= ========= ========= =======
</TABLE>
Note 5--Trustee Compensation
Trustees who are not affiliated with the Adviser are compensated by the Trust at
the annual rate of $5,320 plus a fee of $360 per day for the Board meeting
attended.
<TABLE>
<CAPTION>
Growth Emerging International
Growth II & Income II Government II Growth II Equity II
--------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Trustees' fees for the period.. $22,505 $21,775 $21,662 $6,800 $6,460
======= ======= ======= ====== ======
</TABLE>
42
<PAGE>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
periods indicated.
<TABLE>
<CAPTION>
Class A(2) Class B(2)
------------------------------------ ------------------------------------
Year May 3, 1994(1) Year May 3, 1994(1)
Ended through Ended through
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Growth II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $11.89 $11.81 $11.85 $11.81
------ ------ ------ ------
Income from investment operations
Investment income.............................. .28 .29 .27 .28
Expenses(4).................................... (.37) (.29) (.46) (.32)
------ ------ ------ ------
Net investment income (loss).................... (.09) .00 (.19) (.04)
Net realized and unrealized gain on securities.. 2.77 .08 2.75 .08
------ ------ ------ ------
Total from investment operations................ 2.68 .08 2.56 .04
------ ------ ------ ------
Net asset value, end of period.................. $14.57 $11.89 $14.41 $11.85
====== ====== ====== ======
TOTAL RETURN(3)................................. 22.44% .76% 21.50% .42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............ $ 21.1 $ 4.4 $ 33.3 $ 5.8
Average net assets (millions)................... $ 11.5 $ 2.1 $ 17.6 $ 2.1
Ratios to average net assets (annualized)(4)
Expenses....................................... 2.75% 4.89% 3.50% 5.79%
Expenses, without expense reimbursement........ 2.90% -- 3.65% --
Net investment loss............................ (.68%) (.05%) (1.45%) (.78%)
Net investment loss, without expense
reimbursement................................. (.83%) -- (1.60%) --
Portfolio turnover rate......................... 193% 151% 193% 151%
- -------------------------------------------------------------------------------------------------------------------------------
Growth & Income II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $11.71 $11.81 $11.70 $11.81
------ ------ ------ ------
Income from investment operations
Investment income.............................. .41 .42 .42 .42
Expenses(4).................................... (.31) (.21) (.41) (.25)
------ ------ ------ ------
Net investment income........................... .10 .21 .01 .17
Net realized and unrealized gains or losses on
securities..................................... 2.255 (.26) 2.234 (.251)
------ ------ ------ ------
Total from investment operations................ 2.355 (.05) 2.244 (.081)
------ ------ ------ ------
Less distributions from
Net investment income.......................... (.10) (.05) (.01) (.029)
Excess of book-basis net investment income..... (.045) -- (.054) --
------ ------ ------ ------
Total distributions............................. (.145) (.05) (.064) (.029)
------ ------ ------ ------
Net asset value, end of period.................. $13.92 $11.71 $13.88 $11.70
====== ====== ====== ======
TOTAL RETURN(3)................................. 20.20% (.42%) 19.19% (.68%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............ $ 13.5 $ 3.5 $ 21.2 $ 3.6
Average net assets (millions)................... $ 7.5 $ 1.9 $ 10.2 $ 1.5
Ratios to average net assets (annualized)(4)
Expenses....................................... 2.44% 3.37% 3.15% 4.42%
Expenses, without expense reimbursement........ 2.59% 3.40% 3.30% 4.45%
Net investment income.......................... .81% 3.38% .05% 3.00%
Net investment income (loss), without expense
reimbursement................................. .66% 3.35% (.10%) 2.97%
Portfolio turnover rate......................... 108% 215% 108% 215%
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges.
(4) See Note 2
See Notes to Financial Statements.
43
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated.
<TABLE>
<CAPTION>
Class A(2) Class B(2)
---------------------------------- ----------------------------------
Year May 3, 1994(1) Year May 3, 1994(1)
Ended through Ended through
October 31, 1995 October 31, 1994 October 31, 1995 October 31, 1994
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Government II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............. $ 11.54 $11.91 $ 11.54 $11.91
------- ------ ------- ------
Income from investment operations
Investment income................................ .93 .38 .93 .38
Expenses......................................... (.32) (.15) (.42) (.18)
------- ------ ------- ------
Net investment income............................ .61 .23 .51 .20
Net realized and unrealized gains or losses on
securities...................................... .6366 (.40) .6523 (.41)
------- ------ ------- ------
Total from investment operations................. 1.2466 (.17) 1.1623 (.21)
Less distributions from
Net investment income............................ (.61) (.20) (.51) (.16)
Excess of book-basis net investment income....... (.0366) - (.0523) -
------- ------ ------- ------
Total distributions.............................. (.6466) (.20) (.5623) (.16)
------- ------ ------- ------
Net asset value, end of period................... $ 12.14 $11.54 $ 12.14 $11.54
======= ====== ======= ======
TOTAL RETURN(3).................................. 11.20% (1.53%) 10.42% (1.83%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............. $ 9.8 $ 4.6 $ 9.5 $ 2.8
Average net assets (millions).................... $ 6.4 $ 3.9 $ 5.5 $ 1.1
Ratios to average net assets (annualized)
Expenses........................................ 2.74% 2.32% 3.48% 3.25%
Net investment income........................... 5.11% 3.54% 4.32% 3.49%
Portfolio turnover rate.......................... 113% 155% 113% 155%
</TABLE>
(1) Commencement of operations
(2) Based on average shares outstanding
(3) Total return does not consider the effect of sales charges.
See Notes to Financial Statements.
44
<PAGE>
Financial Highlights, continued
Selected data for a share of beneficial interest outstanding throughout the
periods indicated.
<TABLE>
<CAPTION>
Class A(2) Class B(2)
-------------------- --------------------
February 21, 1995(1) February 21, 1995(1)
through through
October 31, 1995 October 31, 1995
-------------------- --------------------
<S> <C> <C>
Emerging Growth II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $11.81 $11.81
------ ------
Income from investment operations
Investment income........................................................ .15 .15
Expenses(4).............................................................. (.39) (.50)
------ ------
Net investment loss........................................................ (.24) (.35)
Net realized and unrealized gain on securities............................. 3.55 3.58
------ ------
Total from investment operations........................................... 3.31 3.23
------ ------
Net asset value, end of period............................................. $15.12 $15.04
====== ======
TOTAL RETURN(3)............................................................ 28.11% 27.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)....................................... $ 15.9 $ 10.8
Average net assets (millions).............................................. $ 6.1 $ 3.7
Ratios to average net assets (annualized)(4)
Expenses.................................................................. 2.75% 3.49%
Expenses, without expense reimbursement................................... 3.37% 4.11%
Net investment loss....................................................... (1.65%) (2.45%)
Net investment loss, without expense reimbursement........................ (2.27%) (3.07%)
Portfolio turnover rate.................................................... 83% 83%
- ----------------------------------------------------------------------------------------------------------------------------
International Equity II Fund
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....................................... $11.81 $11.81
------ ------
Income from investment operations
Investment income........................................................ .19 .19
Expenses(4).............................................................. (.33) (.40)
------ ------
Net investment loss........................................................ (.14) (.21)
Net realized and unrealized gain on securities............................. 2.19 2.19
------ ------
Total from investment operations........................................... 2.05 1.98
------ ------
Net asset value, end of period............................................. $13.86 $13.79
====== ======
TOTAL RETURN(3)............................................................ 16.28%/(5)/ 15.69%/(5)/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)....................................... $ 6.6 $ 2.7
Average net assets (millions).............................................. $ 3.7 $ 1.0
Ratios to average net assets (annualized)(4)
Expenses.................................................................. 3.64% 4.33%
Expenses, without expense reimbursement................................... 5.97% 6.67%
Net investment loss....................................................... (1.40%) (2.80%)
Net investment loss, without expense reimbursement........................ (3.73%) (5.13%)
Portfolio turnover rate................................................... 17% 17%
/(1)/ Commencement of operations
/(2)/ Based on average shares outstanding
/(3)/ Total return has not been annualized and does not consider the effect of sales charges.
/(4)/ See Note 2
/(5)/ Total return from March 17, 1995 (date the Fund's investment strategy was implemented) through October 31, 1995.
</TABLE>
See Notes to Financial Statements.
45
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trustees of Common Sense Trust
We have audited the accompanying statements of net assets of Common Sense II
Growth Fund, Common Sense II Growth and Income Fund, Common Sense II Government
Fund, Common Sense II Emerging Growth Fund, and Common Sense II International
Equity Fund, (cumulatively the "Funds"), five of ten portfolios constituting the
series of the Common Sense Trust (the "Trust"), as of October 31, 1995. For
Common Sense II Emerging Growth Fund and Common Sense II International Equity
Fund we have audited the related statements of operations, the statements of
changes in net assets and the financial highlights for the period from inception
(February 21, 1995) through October 31, 1995. For Common Sense II Growth Fund,
Common Sense II Growth and Income Fund and Common Sense II Government Fund we
have audited the related statements of operations, the statements of changes in
net assets and the financial highlights for the period from inception (May 3,
1994) through October 31, 1994 and for the year ended October 31, 1995. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds of the Common Sense Trust listed above at October 31,
1995, the results of their operations, the changes in their net assets, and the
financial highlights for the periods identified above, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
December 1, 1995
46
<PAGE>
Fund Performance Data
Management Discussion
Each of the graphs below shows the total return performance of a different
Common Sense II 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 A shares of each Common Sense IIfund 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 charts below reflect the performances of Class A
shares of each Fund. The performance of Class A shares will differ from that of
Class B shares of the Fund because of the difference in sales charges and/or
expenses paid by shareholders investing in Class B shares of the Fund.
For details on market conditions and each Fund's performance during the
reporting period, see pages 2-5 of this report.
Comparison of $10,000 Investment in
Common Sense Trust II Growth Fund vs. S&P 500
<TABLE>
<CAPTION>
Common Sense Trust II Common Sense Trust II
Standard & Poor's Growth & Income Fund (Class A) Growth & Income Fund (Class A)
Year 500-Stock Index* at Maximum Offering Price at Net Asset Value
<S> <C> <C> <C>
5/3/94 10000 9448 10000
6/94 9928 9304 9848
7/94 10241 9432 9983
8/94 10626 9584 10144
9/94 10414 9344 9890
10/94 10631 9520 10076
11/94 10211 9152 9687
12/94 10412 9248 9788
1/95 10664 9304 9848
2/95 11049 9704 10271
3/95 11422 9904 10483
4/95 11742 10152 10745
5/95 12168 10552 11169
6/95 12509 10904 11541
7/95 12907 11472 12142
8/95 12902 11520 12193
9/95 13500 11856 12549
10/95 13433 11656 12337
</TABLE>
<TABLE>
<CAPTION>
Average Annual Inception
Total Return-Class A 1 Year (5/3/94)
- ----------------------------------------------------------
<S> <C> <C>
At Net Asset Value 22.44% 15.03%
- ----------------------------------------------------------
With Maximum 5.50% Sales Charge 15.73% 10.76%
- ----------------------------------------------------------
</TABLE>
Comparison of $10,000 Investment in
Common Sense Trust II Growth & Income Fund vs. S&P 500
<TABLE>
<CAPTION>
Common Sense Trust II Common Sense Trust II
Standard & Poor's Growth & Income Fund (Class A) Growth & Income Fund (Class A)
Year 500-Stock Index* at Maximum Offering Price at Net Asset Value
<S> <C> <C> <C>
5/3/94 10000 9488 10000
6/94 9928 9208 9746
7/94 10241 9344 9890
8/94 10626 9584 10144
9/94 10414 9280 9822
10/94 10631 9409 9958
11/94 10211 9031 9559
12/94 10412 9079 9610
1/95 10664 9346 9892
2/95 11049 9653 10217
3/95 11422 9891 10469
4/95 11742 10150 10743
5/95 12168 10466 11078
6/95 12509 10754 11382
7/95 12907 11184 11837
8/95 12902 11184 11837
9/95 13500 11496 12168
10/95 13433 11309 11970
</TABLE>
<TABLE>
<CAPTION>
Average Annual Inception
Total Return-Class A 1 Year (5/3/94)
- ----------------------------------------------------------
<S> <C> <C>
At Net Asset Value 20.20% 12.74%
- ----------------------------------------------------------
With Maximum 5.50% Sales Charge 13.60% 8.55%
- ----------------------------------------------------------
</TABLE>
Comparison of $10,000 Investment in
Common Sense Trust II International Equity Fund
vs. Europe-Australia-Far East Index + DV
<TABLE>
<CAPTION>
Common Sense Trust II Common Sense Trust II
Europe-Australia- International Equity Fund (Class A) International Equity Fund (Class A)
Year Far East Index + DV* at Maximum Offering Price at Net Asset Value
<S> <C> <C> <C>
3/17/95 10000 9528 10000
4/30/95 10379 10128 10629
5/31/95 10258 10448 10965
6/30/95 10081 10799 11334
7/31/95 10711 11351 11913
8/31/95 10305 11031 11577
9/30/95 10509 11271 11829
10/31/95 10229 11079 11628
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Returns-Class A Inception
(as of 10/31/95) (3/17/95)
- ----------------------------------------------------------
<S> <C>
At Net Asset Value 16.28%
- ----------------------------------------------------------
With Maximum 5.50% Sales Charge 10.79%
- ----------------------------------------------------------
</TABLE>
Comparison of $10,000 Investment in
Common Sense Trust II Emerging Growth Fund
vs. Russell 2000 Stock Index
<TABLE>
<CAPTION>
Common Sense Trust II Common Sense Trust II
Russell 2000 Emerging Growth Fund (Class A) Emerging Growth Fund (Class A)
Year Stock Index* at Maximum Offering Price at Net Asset Value
<S> <C> <C> <C>
2/21/95 10000 9524 10000
3/31/95 10172 9798 10288
4/30/95 10398 9992 10491
5/31/95 10577 10153 10660
6/30/95 11126 10927 11473
7/31/95 11767 11944 12540
8/31/95 12010 12121 12727
9/30/95 12225 12500 13124
10/31/95 11678 12202 12811
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Returns-Class A Since
(as of 10/31/95) (2/21/95)
- ----------------------------------------------------------
<S> <C>
At Net Asset Value 28.11%
- ----------------------------------------------------------
With Maximum 5.50% Sales Charge 22.02%
- ----------------------------------------------------------
</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.
47
<PAGE>
Fund Performance Data
Comparison of $10,000 Investment in
Common Sense Trust II Government Fund vs.
Lehman Brothers Mutual Fund General U.S. Government Index
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Common Sense Trust II Common Sense Trust II
Government Fund Lehman Brothers Government Fund
(Class A) Mutual Fund (Class A)
at Maximum General U.S. at Net
Offering Price Government Index* Asset Value
<S> <C> <C> <C>
5/3/94 9528 10000 10000
6/30/94 9475 9944 9977
7/31/94 9598 10073 10160
8/31/94 9559 10032 10162
9/30/94 9419 9886 10019
10/31/94 9383 9847 10012
11/31/94 9359 9822 9994
12/31/94 9429 9896 10055
1/31/95 9606 10082 10242
2/28/95 9819 10305 10462
3/31/95 9832 10319 10528
4/30/95 9942 10434 10666
5/31/95 10197 10702 11096
6/30/95 10214 10720 11181
7/31/95 10177 10681 11140
8/31/95 10268 10777 11270
9/30/95 10326 10838 11378
10/31/95 10434 10951 11552
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Average Annual Inception
Total Return-Class A 1 Year (5/3/94)
- --------------------------------------------------------------
<S> <C> <C>
At Net Asset Value 11.20% 6.24%
- --------------------------------------------------------------
With Maximum 4.75% Sales Charge 5.97% 2.87%
- --------------------------------------------------------------
</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.
48
<PAGE>
Common Sense Trust II
Board of Trustees
Donald M. Carlton
A. Benton Cocanougher
Stephen R. Gross
Norman Hackerman
Robert D. H. Harvey
Jeffrey B. Lane
Alan G. Merten
Steven Muller
F. Robert Paulsen
R. Richardson Pettit
Don G. Powell
Alan B. Shepard, Jr.
Miller Upton
Benjamin N. Woodson
- -----------------------------
Officers
Don G. Powell
President
Gerald Baxter
Stephen L. Boyd
James Conheady
James A. Gilligan
David C. Johnson
Gary M. Lewis
Dennis J. McDonnell
Ronald A. Nyberg
Robert C. Peck, Jr.
Greg Pitts
John R. Reynoldson
Jeffrey Russell
Alan T. Sachtleben
David R. Troth
D. Richard Williams
Paul R. Wolkenberg
Vice Presidents
Curtis W. Morell
Vice President and
Treasurer
Tanya M. Loden
Vice President and
Controller
Nori L. Gabert
Vice President and
Secretary
Huey P. Falgout, Jr.
J. David Wise
Assistant Secretaries
Perry F. Farrell
M. Robert Sullivan
Assistant Treasurers
- ----------------------------------------------------
Investment Adviser
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
- ----------------------------------------------------
Investment Subadviser
Smith Barney Mutual Funds Management, Inc.
388 Greenwich Street, New York, New York 10013
- ----------------------------------------------------
Distributor
PFS Distributors
3100 Breckinridge Blvd., Duluth, Georgia 30199-0001
- ----------------------------------------------------
Shareholder Service Agent
PFS Shareholder Services
3100 Breckinridge Blvd., Duluth, Georgia 30199-0062
- ----------------------------------------------------
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02110
- ----------------------------------------------------
Counsel
Sullivan & Worcester
1025 Connecticut Avenue N.W., Washington, D.C. 20036
- ----------------------------------------------------
Independent Auditors
Ernst & Young LLP
1221 McKinney Street, Suite 2400, Houston, Texas 77010
- -------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data. If used for distribution to prospective
investors after 12/31/95, this annual report must be accompanied by a Common
Sense Trust performance data update for the most recent calendar quarter.
- -------------------------------------------------------------------------------
Shareholder inquiries should be directed in writing to the Shareholder Service
Agent. PFS Shareholder Services, 3120 Breckinridge Blvd., Duluth, Georgia 30199-
0001, or by calling (800) 544-5445.
- -------------------------------------------------------------------------------
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
Permit No. 3736
Houston, TX.
[COMMON SENSE SHAREHOLDER SERVICES LOGO]
Common Sense Shareholder Services
3120 Breckinridge Blvd.
Duluth, Georgia 30199-0001
If you have any questions, please contact
one of our Customer Service Representatives
1-800-544-5445
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