W&R FUNDS INC, N-30D, 2000-11-30

W&R FUNDS INC
N-30D, 2000-11-30

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Semiannual Report September 30, 2000 W&R Funds Asset Strategy Fund High Income Fund International Growth Fund Large Cap Growth Fund Limited-Term Bond Fund Mid Cap Growth Fund Money Market Fund Municipal Bond Fund Science and Technology Fund Small Cap Growth Fund Tax-Managed Equity Fund Total Return Fund WADDELL & REED LOGO CONTENTS 1 President's Letter 3 Asset Strategy Fund 19 High Income Fund 36 International Growth Fund 50 Large Cap Growth Fund 63 Limited-Term Bond Fund 76 Mid Cap Growth Fund 88 Money Market Fund 98 Municipal Bond Fund 113 Science & Technology Fund 127 Small Cap Growth Fund 141 Tax-Managed Equity Fund 152 Total Return Fund 166 Notes to Financial Statements 189 Independent Auditor's Report 191 Directors & Officers This report is submitted for the general information of the shareholders of W&R Funds, Inc. It is not authorized for distribution to prospective investors unless accompanied with or preceded by the current W&R Funds, Inc. prospectus and current Fund performance information. PRESIDENT'S LETTER September 30, 2000 Dear Shareholder We are delighted to share with you this report on your Fund's operations for the six months ended September 30, 2000. The last six months marked an unusual and frenetic time for the markets and the economy. Concerns during the second quarter of 2000 centered on a soaring economy, the potential for increased inflation and a drop in the valuation of technology stocks. During the third quarter, rising energy prices, a faltering euro, worries about violence in the Middle East and doubts about third quarter corporate earnings reports replaced those previous concerns. Together, these issues served to depress stock prices as we entered the fourth quarter of 2000. Additionally, a pending presidential election has made the Federal Reserve hesitant to take any action, although it appears that a soft landing has been engineered for the once-flying economy. For the last six months, the technology-heavy Nasdaq Composite Index was down 19.68 percent, while the Nasdaq Industrial Index was down 15.43 percent. The performance of the two major indices was also down over the period, as the Standard & Poor's 500 declined 3.81 percent and the Dow Jones Industrial Average was down a more modest 1.82 percent. During the third quarter of 2000, the Dow rebounded a bit, increasing 2.36 percent. By contrast, bonds have done fairly well during the last six months. It appears that a combination of decreasing concerns about inflation and the Fed being less aggressive in raising interest rates has helped bond performance during the period. Going forward, we believe it is essential for investors to maintain a long-term perspective and to stick with specific financial plans. Short- term downturns often create excellent buying opportunities, as well as opportunities to further diversify a portfolio. Overall, investors have been rewarded well in recent years. Those who continue a structured and consistent investment program remain well positioned to take advantage of opportunities, including those presented by the market's occasional downdrafts. Just as we urge you not to become unduly concerned if the market moves downward in the near term, we would urge that you not become too exuberant when it moves higher in similarly short time periods. It is impossible to predict with certainty where markets will go next, but one thing that remains certain is that a well-thought-out investment plan is important. Remember, a plan that is appropriate for you is appropriate regardless of inevitable market changes. You have a partnership with your Waddell & Reed financial advisor, and that partnership is built upon a customized program based on your specific needs. Focusing on that plan, despite market fluctuations, could be your key to a sound financial future. Thank you for your ongoing commitment and support. Respectfully, /s/ Robert L. Hechler Robert L. Hechler President SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND Asset Strategy Fund GOAL To seek high total return over the long term. Strategy Invests in stocks, bonds and short-term instruments. Within each of these classes, the Fund may invest in both domestic and foreign securities. Founded 1995 Scheduled Dividend Frequency Quarterly (March, June, September and December) Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Net Asset Value on 9-30-00 $15.24 3-31-00 15.21 ------ Change per share $ 0.03 ------ Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -5.56% 0.20% -4.87% 0.13% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)7-10-00 for Class A shares and 7-3-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 33.78% 34.98% 5-year period ended 9-30-00 11.69% -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 11.57% 13.54% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)4-20-95 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). The recent growth rate and volatility in the stock market has helped produce short-term returns that may not be typical and may not continue in the future. SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND Portfolio Highlights On September 30, 2000, Asset Strategy Fund had net assets totaling $57,393,381 invested in a diversified portfolio of: 61.13% Common Stocks 19.47% Cash and Cash Equivalents and Options 10.45% Corporate Debt Securities 6.22% United States Government Security 1.72% Bullion 1.01% Other Government Securities As a shareholder of Asset Strategy Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Common Stocks $61.13 Cash and Cash Equivalents and Options $19.47 Corporate Debt Securities $10.45 United States Government Security $ 6.22 Bullion $ 1.72 Other Government Securities $ 1.01 THE INVESTMENTS OF ASSET STRATEGY FUND Troy BULLION -- 1.72% ............................ Ounces Value Gold ........................................ 3,615 $ 989,133 (Cost: $1,048,095) COMMON STOCKS ............................... Shares Business Services -- 1.94% Catalina Marketing Corporation* ............. 9,900 372,488 CheckFree Holdings Corporation* ............. 11,500 481,922 Critical Path, Inc.* ........................ 4,300 259,478 1,113,888 Chemicals and Allied Products -- 18.13% American Home Products Corporation (A) ...... 14,700 831,469 Biogen, Inc.* ............................... 7,900 482,147 Bristol-Myers Squibb Company ................ 18,300 1,045,387 Forest Laboratories, Inc.* .................. 15,800 1,812,062 Johnson & Johnson ........................... 6,000 563,625 King Pharmaceuticals, Inc.* ................. 18,800 628,625 Merck & Co., Inc. (A) ....................... 7,600 565,725 NOVA Chemicals Corporation (B) .............. 27,200 515,302 Pfizer Inc. (A) ............................. 22,200 997,613 Pharmacia Corporation ....................... 8,300 499,556 Pharmacyclics, Inc.* ........................ 12,300 616,153 QLT Inc.* ................................... 7,600 538,888 Schering-Plough Corporation (A) ............. 15,700 730,050 Smith International, Inc.* .................. 7,100 579,094 10,405,696 Coal Mining -- 1.63% CONSOL Energy Inc. .......................... 58,100 933,231 Depository Institutions -- 1.92% Bank of America Corporation ................. 12,600 659,925 Chase Manhattan Corporation (The) ........... 9,500 438,781 ......................................... 1,098,706 Eating and Drinking Places -- 1.88% Papa John's International, Inc.* ............ 21,700 543,178 Wendy's International, Inc. ................. 26,800 537,675 1,080,853 Electric, Gas and Sanitary Services -- 2.06% El Paso Energy Corporation .................. 10,100 622,413 Kansas City Power & Light Company ........... 21,000 560,437 1,182,850 Electronic and Other Electric Equipment -- 0.35% Samsung Electronics (B) ..................... 1,100 199,256 Engineering and Management Services -- 0.58% Charles River Laboratories Holdings, Inc.* .. 9,800 333,200 Food and Kindred Products -- 0.50% Anheuser-Busch Companies, Inc. .............. 6,800 287,725 Food Stores -- 1.40% Kroger Co. (The)* ........................... 35,700 805,481 General Merchandise Stores -- 0.86% BJ's Wholesale Club, Inc.* .................. 14,400 491,400 Health Services -- 4.60% HCA -- The Healthcare Company ............... 21,600 801,900 Health Management Associates, Inc., Class A* 60,200 1,252,913 Tenet Healthcare Corporation* ............... 16,100 585,637 2,640,450 Holding and Other Investment Offices -- 1.08% ABB Ltd. (B) ................................ 2,900 284,154 "Shell" Transport and Trading Company, p.l.c. (The), ADR ................................ 6,800 332,775 616,929 Industrial Machinery and Equipment -- 2.38% Caterpillar Inc. ............................ 14,900 502,875 Cooper Cameron Corporation* ................. 7,600 560,025 Sun Microsystems, Inc.* ..................... 2,600 305,419 1,368,319 Instruments and Related Products -- 2.05% Beckman Coulter, Inc. ....................... 7,400 570,725 PE Corporation -- PE Biosystems Group (A) ... 5,200 605,800 1,176,525 Insurance Agents, Brokers and Service -- 1.06% Hartford Financial Services Group Inc. (The) 8,300 605,381 Insurance Carriers -- 1.98% American International Group, Inc. .......... 5,662 541,783 Lincoln National Corporation ................ 12,400 596,750 1,138,533 Metal Mining -- 2.02% Homestake Mining Company .................... 108,000 $ 560,250 Newmont Mining Corporation .................. 35,100 596,700 1,156,950 Motion Pictures -- 0.50% AT&T Corp. -- Liberty Media Group, Class A* . 16,000 288,000 Nondepository Institutions -- 2.35% Fannie Mae .................................. 9,800 700,700 Freddie Mac ................................. 12,000 648,750 1,349,450 Oil and Gas Extraction -- 4.48% Burlington Resources Incorporated ........... 11,600 427,025 Global Industries, Ltd.* .................... 41,300 514,959 Schlumberger Limited ........................ 6,000 493,875 Transocean Sedco Forex Inc. ................. 10,987 644,113 USX Corporation -- Marathon Group ........... 17,400 493,725 2,573,697 Petroleum and Coal Products -- 1.75% Exxon Mobil Corporation ..................... 5,400 481,275 Texaco Inc. ................................. 10,000 525,000 1,006,275 Stone, Clay and Glass Products -- 0.98% Cabot Microelectronics Corporation* ......... 11,700 561,234 Telephone and Radiotelephone Communication -- 2.07% BellSouth Corporation ....................... 13,600 547,400 Sprint Corporation -- PCS Group* ............ 18,300 641,644 1,189,044 Transportation Equipment -- 1.95% Boeing Company (The) ........................ 11,000 693,000 Gentex Corporation* ......................... 17,150 428,214 ......................................... 1,121,214 Wholesale Trade -- Nondurable Goods -- 0.63% Allscripts, Inc.* ........................... 25,400 359,569 TOTAL COMMON STOCKS -- 61.13% ............... $35,083,856 (Cost: $30,044,752) Principal Amount in CORPORATE DEBT SECURITIES ................... Thousands Value Depository Institutions -- 0.52% Banco Latinoamericano de Exportaciones, S.A., 6.5%, 4-2-01 (C)........................... $300 $ 298,050 Electric, Gas and Sanitary Services -- 2.10% El Paso Natural Gas Company, 7.75%, 1-15-02............................. 300 302,061 Public Service Electric and Gas Company, 7.19%, 9-6-02.............................. 300 301,875 Transportadora de Gas del Sur S.A., 10.375%, 4-15-03 (C)....................... 300 305,250 WMX Technologies, Inc., 7.7%, 10-1-02.............................. 300 297,039 1,206,225 Fabricated Metal Products -- 0.50% Crown Cork & Seal Company, Inc., 7.125%, 9-1-02............................. 300 285,261 Food and Kindred Products -- 0.51% Diageo Capital plc, 6.0%, 3-27-03.............................. 300 294,441 Food Stores -- 0.52% Safeway Inc., 7.0%, 9-15-02.............................. 300 299,397 Furniture and Home Furnishings Stores -- 0.54% Grupo Elektra, S.A. de C.V., 12.75%, 5-15-01............................ 300 310,500 General Merchandise Stores -- 0.53% Wal-Mart Stores, Inc., 6.875%, 8-1-02............................. 300 301,002 Industrial Machinery and Equipment -- 0.51% Tyco International Group S.A., 6.25%, 6-15-03............................. 300 292,230 Oil and Gas Extraction -- 0.54% Apache Corporation, 9.25%, 6-1-02.............................. 300 309,822 Paper and Allied Products -- 0.53% Federal Paper Board Company, Inc., 8.125%, 7-1-02............................. 300 303,447 Petroleum and Coal Products -- 0.53% USX Corporation, 9.8%, 7-1-01............................... $ 300 305,457 Primary Metal Industries -- 0.52% CSN Islands Corp., 9.625%, 8-2-02 (C)......................... 300 300,750 Telephone and Radiotelephone Communication -- 0.52% Dominion Resources, Inc., 7.4%, 9-16-02.............................. 300 300,012 Railroad Transportation -- 1.04% Norfolk Southern Corporation, 6.95%, 5-1-02.............................. 300 298,809 Union Pacific Corporation, 5.78%, 10-15-01............................ 300 294,969 593,778 Transportation Equipment -- 1.04% Lockheed Martin Corporation, 6.85%, 5-15-01............................. 300 299,127 TRW Inc., 6.45%, 6-15-01............................. 300 297,765 596,892 TOTAL CORPORATE DEBT SECURITIES -- 10.45% ... $ 5,997,264 (Cost: $5,991,988) OTHER GOVERNMENT SECURITIES -- 1.01% Argentina Republic of Argentina (The): 9.25%, 2-23-01............................. 300 299,550 0.0%, 10-15-01............................. 300 276,750 (Cost: $573,377) ............................ $ 576,300 UNITED STATES GOVERNMENT SECURITY -- 6.22% United States Treasury, 5.625%, 12-31-02........................... 3,600 $ 3,571,884 (Cost: $3,582,704) Principal Amount in SHORT-TERM SECURITIES ....................... Thousands Value Industrial Machinery and Equipment -- 4.86% Hewlett-Packard Company, 6.5%, 10-24-00............................. $2,800 $ 2,788,372 Instruments and Related Products -- 3.48% Snap-On Inc., 6.49%, 10-11-00............................ 2,000 1,996,394 Nondepository Institutions -- 4.30% PACCAR Financial Corp., 6.49%, Master Note......................... 2,471 2,471,000 Wholesale Trade -- Nondurable Goods -- 4.85% Unilever Capital Corporation, 6.5%, 11-3-00.............................. 2,800 2,783,317 TOTAL SHORT-TERM SECURITIES -- 17.49% ....... $10,039,083 (Cost: $10,039,083) TOTAL INVESTMENTs -- 98.02% ................. $56,257,520 (Cost: $51,279,999) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 1.98% 1,135,861 NET ASSETS -- 100.00% ....................... $57,393,381 Notes to Schedule of Investments * No income dividends were paid during the preceding 12 months. (A) As of September 30, 2000, the following written call options were outstanding (see Note 6 to financial statements): Contracts Subject Expiration Month/ Premium Market Underlying Security to Call Exercise Price Received Price American Home Products Corporation 147 October/60 $13,487 $ 17,456 Merck & Co., Inc. 76 October/75 5,548 15,200 PE Corporation - PE Biosystems Group 52 October/110 23,945 55,250 Pfizer Inc. 222 October/45 9,268 27,750 Schering-Plough Corporation 157 October/45 15,228 43,175 $67,476 $158,831 (B) Listed on an exchange outside the United States. (C) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2000, the value of these securities amounted to $904,050 or 1.58% of net assets. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES ASSET STRATEGY FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) Assets Investments -- at value (Notes 1 and 3): Bullion (cost -- $1,048)....................... $ 989 Securities (cost -- $50,232)................... 55,269 ---------- 56,258 Cash ............................................ 10 Receivables: Investment securities sold..................... 1,356 Dividends and interest......................... 206 Fund shares sold............................... 98 Prepaid insurance premium ....................... 1 Other assets .................................... 20 ---------- Total assets ................................. 57,949 ---------- Liabilities Payable for investment securities purchased ..... 300 Outstanding call options at market (Note 6) ..... 159 Payable to Fund shareholders .................... 56 Accrued service fee (Note 2) .................... 12 Accrued transfer agency and dividend disbursing (Note 2)............................ 11 Accrued management fee (Note 2) ................. 4 Accrued accounting services fee (Note 2) ........ 3 Accrued distribution fee (Note 2) ............... 2 Other .......................................... 9 ---------- Total liabilities.............................. 556 ---------- Total net assets ............................. $ 57,393 ========== Net Assets $0.01 par value capital stock Capital stock.................................. $ 38 Accumulated undistributed income (loss): Accumulated undistributed net investment income 62 Accumulated undistributed net realized gain on investments ............................... 9,849 Net unrealized appreciation of investments..... 4,977 Net unrealized depreciation in value of written call options ......................... (91) ---------- Net assets applicable to outstanding units of capital.................................. $ 57,393 ========== Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $15.25 Class B ......................................... $15.23 Class C ......................................... $15.24 Class Y ......................................... $15.35 Capital shares outstanding: Class A ......................................... 62 Class B ......................................... 39 Class C ......................................... 3,629 Class Y ......................................... 36 Capital shares authorized......................... 200,000 STATEMENT OF OPERATIONS ASSET STRATEGY FUND For the Six Months Ended September 30, 2000 (In Thousands) Investment Income Income (Note 1B): Interest and amortization...................... $ 408 Dividends (net of foreign withholding taxes of $2) 247 ---------- Total income ................................. 655 ---------- Expenses (Note 2): Distribution fee: Class A ...................................... --* Class B ...................................... 1 Class C ...................................... 204 Class Y ...................................... 1 Investment management fee...................... 194 Service fee: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 68 Transfer agency and dividend disbursing: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 61 Accounting services fee ......................... 15 Custodian fees .................................. 11 Audit fees ...................................... 8 Legal fees ...................................... 2 Shareholder servicing fee -- Class Y ............ --* Other .......................................... 27 ---------- Total.......................................... 592 ---------- Net investment income ........................ 63 ---------- Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3) Realized net gain on securities ................. 3,567 Realized net gain on call options written ....... 752 Realized net loss on put options purchased ...... (1,718) ---------- Realized net gain on investments............... 2,601 ---------- Unrealized depreciation in value of investments during the period.............................. (2,427) Unrealized depreciation in value of written call options during the period................. (91) ---------- Unrealized depreciation........................ (2,518) ---------- Net gain on investments ...................... 83 ---------- Net increase in net assets resulting from operations ........................... $ 146 ========== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS ASSET STRATEGY FUND (In Thousands) Increase in Net Assets Operations: Net investment income..................... $ 63 $ 99 Realized net gain on investments.......... 2,601 8,765 Unrealized appreciation (depreciation).... (2,518) 5,690 ----------------- Net increase in net assets resulting from operations.............. 146 14,554 ----------------- Distributions to shareholders from (Note 1E):* Net investment income: Class C ................................. -- (151) Class Y ................................. -- (4) Realized net gain on investment transactions: Class C ................................. -- (981) Class Y ................................. -- (9) ----------------- -- (1,145) ----------------- Capital share transactions (Note 5) ........ 4,531 8,527 ----------------- Total increase............................ 4,677 21,936 Net Assets Beginning of period ........................ 52,716 30,780 ----------------- End of period .............................. $57,393 $52,716 ================= Undistributed net investment income (loss) $62 $(1) ================= *See "Financial Highlights" on pages 15-18. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-10-00* to 9-30-00 Net asset value, beginning of period.............. $15.22 ------ Income from investment operations: Net investment income ........................... 0.01 Net realized and unrealized gain on investments . 0.02 ------ Total from investment operations.................. 0.03 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $15.25 ====== Total return**.................................... 0.20% Net assets, end of period (in millions)........... $1 Ratio of expenses to average net assets........... 1.43%+ Ratio of net investment income to average net assets 1.04%+ Portfolio turnover rate........................... 71.61%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $15.21 ------ Income from investment operations: Net investment income ........................... 0.00 Net realized and unrealized gain on investments . 0.02 ------ Total from investment operations.................. 0.02 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $15.23 ====== Total return...................................... 0.13% Net assets, end of period (in millions)........... $1 Ratio of expenses to average net assets........... 2.28%** Ratio of net investment income to average net assets 0.25%** Portfolio turnover rate........................... 71.61%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period: For the For the six For the fiscal period from Months year ended March 31, 4-20-95* Ended ------------------------------ to 9-30-00 2000 1999 1998 1997 3-31-96 Net asset value, beginning of period ............. $15.21 $11.20 $11.42 $ 9.73 $10.15 $10.00 ---------------------------------------------------- Income (loss) from Investment operations: Net investment income............ 0.02 0.03 0.15 0.21 0.23 0.16 Net realized and unrealized gain (loss) on investments.... 0.01 4.33 0.05 2.16 (0.30) 0.14 ---------------------------------------------------- Total from investment operations ......... 0.03 4.36 0.20 2.37 (0.07) 0.30 ---------------------------------------------------- Less distributions: From net investment income............ (0.00) (0.05) (0.16) (0.22) (0.21) (0.15) From capital gains . (0.00) (0.30) (0.26) (0.46) (0.14) (0.00) ---------------------------------------------------- Total distributions.. (0.00) (0.35) (0.42) (0.68) (0.35) (0.15) ---------------------------------------------------- Net asset value, end of period ...... $15.24 $15.21 $11.20 $11.42 $ 9.73 $10.15 =================================================== Total return......... 0.20% 39.60% 1.79% 24.94% -0.86% 3.00% Net assets, end of Period (in millions) ...... $55 $52 $30 $19 $13 $13 Ratio of expenses to average net assets . 2.16%** 2.24% 2.32% 2.44% 2.52% 2.54%** Ratio of net investment income to average net assets ......... 0.22%** 0.24% 1.38% 2.02% 2.21% 2.14%** Portfolio turnover rate ............... 71.61% 204.12% 168.17% 220.67% 109.92% 75.02% (A)See Note 5. *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the six For the fiscal period from Months year ended March 31, 12-29-95* Ended ------------------------------ to 9-30-00 2000 1999 1998 1997 3-31-96 Net asset value, beginning of period ............. $15.26 $11.21 $11.43 $ 9.73 $10.16 $10.23 Income (loss) from investment operations: Net investment income............ 0.08 0.15 0.26 0.31 0.27 0.07 Net realized and unrealized gain (loss) on investments.... 0.01 4.33 0.05 2.16 (0.26) (0.08) ---------------------------------------------------- Total from investment operations ......... 0.09 4.48 0.31 2.47 0.01 (0.01) ---------------------------------------------------- Less distributions: From net investment income............ (0.00) (0.13) (0.27) (0.31) (0.30) (0.06) From capital gains . (0.00) (0.30) (0.26) (0.46) (0.14) (0.00) ---------------------------------------------------- Total distributions.. (0.00) (0.43) (0.53) (0.77) (0.44) (0.06) ---------------------------------------------------- Net asset value, end of period ...... $15.35 $15.26 $11.21 $11.43 $ 9.73 $10.16 =================================================== Total return......... 0.59% 40.85% 2.75% 26.06% 0.05% -0.25% Net assets, end of period (000 omitted) ......$545 $508 $307 $225 $116 $1 Ratio of expenses to average net assets . 1.32%** 1.33% 1.45% 1.58% 1.61% 1.95%** Ratio of net investment income to average net assets ......... 1.06%** 1.14% 2.25% 2.90% 2.97% 2.34%** Portfolio turnover rate ............... 71.61% 204.12% 168.17% 220.67% 109.92% 75.02%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the period from April 20, 1995 to March 31, 1996. SHAREHOLDER SUMMARY OF HIGH INCOME FUND High Income Fund GOALS To seek a high level of current income as its primary goal and capital growth as a secondary goal when consistent with its primary goal. Strategy Invests primarily in high-yield, high-risk, fixed-income securities of U.S. issuers. The Fund may invest up to 20% of its total assets in common stock in order to seek capital growth. Founded 1997 Scheduled Dividend Frequency Monthly Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Dividends Paid $0.39 ------ Net Asset Value on 9-30-00 $8.71 3-31-00 9.27 ------ Change per share $(0.56) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF HIGH INCOME FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -7.26% -1.60% -6.82% -2.00% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)7-3-00 for Class A shares and 7-18-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 1.23% 1.91% 5-year period ended 9-30-00 -- -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 2.45% 1.01% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)7-31-97 for Class C shares and 12-30-98 for Class Y shares (the date on which shares were first acquired by shareholders). A substantial portion of the Fund's returns during recent periods is attributable to investments in initial public offerings. No assurance can be given that the Fund will continue to be able to invest in such offerings to the same extent as it has in the past or that future offerings in which the Fund invests will have as equally beneficial impact on performance. SHAREHOLDER SUMMARY OF HIGH INCOME FUND Portfolio Highlights On September 30, 2000, High Income Fund had net assets totaling $20,022,383 invested in a diversified portfolio of: 81.03% Corporate Debt Securities 12.46% Cash and Cash Equivalents 5.19% Common Stocks, Rights and Warrants 1.32% Other Government Security As a shareholder of High Income Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Transportation, Communication, Electric and Sanitary Services Bonds $40.71 Services Bonds $21.92 Cash and Cash Equivalents $12.46 Wholesale and Retail Trade Bonds $ 9.30 Manufacturing Bonds $ 6.27 Common Stocks, Rights and Warrants $ 5.19 Miscellaneous Bonds $ 2.83 Other Government Security $ 1.32 THE INVESTMENTS OF HIGH INCOME FUND September 30, 2000 COMMON STOCKS, RIGHTS AND WARRANTS Shares Value Business Services -- 0.01% Cybernet Internet Services International, Inc., Warrants (A)*.............................. 250 $ 1,875 Communication -- 0.39% Crown Castle International Corp.* ........... 2,500 77,578 Electronic and Other Electric Equipment -- 0.54% Level 3 Communications, Inc.* ............... 1,000 77,156 Metricom, Inc., Warrants* ................... 250 3,750 PF.Net Communications, Warrants (A)* ........ 125 26,875 107,781 Food and Kindred Products -- 2.10% Keebler Foods Company ....................... 10,000 420,000 Industrial Machinery and Equipment -- 1.85% Baker Hughes Incorporated ................... 5,000 185,625 Cooper Cameron Corporation* ................. 2,500 184,219 369,844 Paper and Allied Products -- 0.00% SF Holdings Group, Inc., Class C (A)* ....... 50 250 Telephone and Radiotelephone Communication -- 0.30% Allegiance Telecom, Inc., Warrants (A)* ..... 250 13,750 ONO Finance Plc, Rights (A)* ................ 250 21,250 OnePoint Communications Corp., Warrants (A)* 100 8,500 Primus Telecommunications Group, Incorporated, Warrants*.................................. 300 1,650 VersaTel Telecom International N.V., Warrants (A)*.............................. 50 15,500 60,650 TOTAL COMMON STOCKS, RIGHTS AND WARRANTS -- 5.19% $1,037,978 (Cost: $934,820) Principal Amount in CORPORATE DEBT SECURITIES Thousands Value Agricultural Production -- Crops -- 0.25% Hines Horticulture, Inc., 11.75%, 10-15-05........................... $ 49 $ 49,245 Amusement and Recreation Services -- 6.94% Aztar Corporation, 8.875%, 5-15-07............................ 150 145,875 Hollywood Park, Inc., 9.25%, 2-15-07............................. 500 510,000 Mohegan Tribal Gaming Authority, 8.75%, 1-1-09.............................. 250 248,125 Premier Parks Inc., 9.75%, 6-15-07............................. 250 235,000 Station Casinos, Inc., 9.875%, 7-1-10 (A)......................... 250 250,313 1,389,313 Auto Repair, Services and Parking -- 1.36% Avis Rent A Car, Inc., 11.0%, 5-1-09.............................. 250 271,875 Business Services -- 5.03% Adams Outdoor Advertising Limited Partnership, 10.75%, 3-15-06............................ 250 259,063 Cybernet Internet Services International, Inc., 14.0%, 7-1-09.............................. 250 116,250 Lamar Advertising Company, 8.625%, 9-15-07............................ 250 245,000 National Equipment Services, Inc., 10.0%, 11-30-04............................ 200 131,000 Outdoor Systems, Inc., 8.875%, 6-15-07............................ 250 256,562 1,007,875 Communication -- 16.27% ACME Television, LLC, 10.78%, 9-30-04............................ 100 95,125 Adelphia Communications Corporation, 9.25%, 10-1-02............................. 250 248,125 Allbritton Communications Company, 9.75%, 11-30-07............................ 250 244,688 American Radio Systems Corporation, 9.0%, 2-1-06............................... 250 258,750 Crown Castle International Corp., 0.0%, 5-15-11 (B).......................... 250 161,250 EchoStar DBS Corporation, 9.375%, 2-1-09............................. 500 490,000 LIN Holdings Corp., 0.0%, 3-1-08 (B)........................... 250 180,000 MetroNet Communications Corp., 0.0%, 6-15-08 (B).......................... 500 417,430 Renaissance Media Group LLC, 0.0%, 4-15-08 (B).......................... 250 170,000 Salem Communications Corporation, 9.5%, 10-1-07.............................. 200 196,000 Spanish Broadcasting System, Inc., 9.625%, 11-1-09............................ 250 249,062 0.0%, 3-15-10 (B).......................... 250 127,500 Telewest Communications plc, 0.0%, 10-1-07 (B).......................... 260 248,300 United International Holdings, Inc., 0.0%, 2-15-08 (B).......................... 250 170,000 3,256,230 Eating and Drinking Places -- 4.51% Domino's, Inc., 10.375%, 1-15-09........................... 250 238,438 Foodmaker, Inc., 8.375%, 4-15-08............................ 500 472,500 NE Restaurant Company, Inc., 10.75%, 7-15-08............................ 250 191,250 902,188 Electronic and Other Electric Equipment -- 2.39% Elgar Holdings, Inc., 9.875%, 2-1-08............................. 250 143,750 Level 3 Communications, Inc., 11.0%, 3-15-08............................. 250 240,000 PF.Net Communications, 13.75%, 5-15-10 (A)........................ 125 95,625 479,375 Furniture and Home Furnishings Stores -- 0.54% MTS, INCORPORATED, 9.375%, 5-1-05............................. 250 107,812 Health Services -- 6.06% Abbey Healthcare Group Incorporated, 9.5%, 11-1-02.............................. 250 248,438 Columbia/HCA Healthcare Corporation, 7.0%, 7-1-07............................... 250 230,937 IASIS Healthcare Corporation, 13.0%, 10-15-09............................ 250 242,500 Tenet Healthcare Corporation: 8.0%, 1-15-05.............................. 250 246,250 8.625%, 1-15-07............................ 250 246,250 1,214,375 Holding and Other Investment Offices -- 1.23% Host Marriott, L.P., 9.25%, 10-1-07 (A)......................... 250 246,853 Hotels and Other Lodging Places -- 2.53% MGM Grand, Inc., 9.75%, 6-1-07.............................. 250 258,125 Park Place Entertainment Corporation, 8.875%, 9-15-08 (A)........................ 250 247,500 505,625 Miscellaneous Retail -- 2.60% Michaels Stores, Inc., 10.875%, 6-15-06........................... 500 520,000 Oil and Gas Extraction -- 1.35% R&B Falcon Corporation, 9.5%, 12-15-08............................. 250 270,313 Paper and Allied Products -- 1.84% Buckeye Technologies Inc., 8.0%, 10-15-10............................. 250 236,875 SF Holdings Group, Inc., 0.0%, 3-15-08 (B).......................... 250 131,250 368,125 Primary Metal Industries -- 0.72% ISG Resources, Inc., 10.0%, 4-15-08............................. 120 100,200 Wheeling-Pittsburgh Corporation, 9.25%, 11-15-07............................ 125 43,750 ......................................... 143,950 Railroad Transportation -- 2.21% Kansas City Southern Railway Company (The), 9.5%, 10-1-08 (A).......................... 250 253,125 TFM, S.A. de C.V., 0.0%, 6-15-09 (B).......................... 250 190,000 443,125 Rubber and Miscellaneous Plastics Products -- 0.76% Home Products International, Inc., 9.625%, 5-15-08............................ 250 152,500 Telephone and Radiotelephone Communication -- 19.73% Alestra, S. de R.L. de C.V., 12.625%, 5-15-09........................... 250 239,375 Concentric Network Corporation, 12.75%, 12-15-07........................... 250 251,250 Grupo Iusacell, S.A. de C.V., 14.25%, 12-1-06............................ 350 371,875 Hyperion Telecommunications, Inc.: 0.0%, 4-15-03 (B).......................... 125 101,562 12.0%, 11-1-07............................. 125 81,250 ITC /\ DeltaCom, Inc., 11.0%, 6-1-07.............................. 150 142,500 Microcell Telecommunications Inc., 0.0%, 6-1-06 (B)........................... 250 239,375 Nextel International, Inc., 12.75%, 8-1-10 (A)......................... 250 245,625 Nextel Partners, Inc., 11.0%, 3-15-10 (A)......................... 125 125,938 NEXTLINK Communications, Inc., 9.625% 10-1-07............................. 250 222,500 ONO Finance Plc, 13.0%, 5-1-09.............................. 250 222,500 OnePoint Communications Corp., 14.5%, 6-1-08.............................. 100 100,500 Primus Telecommunications Group, Incorporated: 11.75%, 8-1-04............................. 300 169,500 12.75%, 10-15-09........................... 175 98,000 Qwest Communications International Inc., 0.0%, 10-15-07 (B)......................... 250 221,130 Sprint Spectrum L.P., 0.0%, 8-15-06 (B).......................... 600 590,496 Time Warner Telecom LLC and Time Warner Telecom Inc., 9.75%, 7-15-08............................. 250 231,875 VoiceStream Wireless Corporation, 10.375%, 11-15-09.......................... 275 295,625 3,950,876 Textile Mill Products -- 0.56% Anvil Knitwear, Inc., 10.875%, 3-15-07........................... 125 112,187 Transportation by Air -- 1.29% Atlas Air, Inc., 10.75%, 8-1-05............................. 250 259,062 Pierce Leahy Corp., 9.125%, 7-15-07............................ 250 243,125 Wholesale Trade -- Durable Goods -- 0.47% Heafner (J.H.) Company, Inc. (The), 10.0%, 5-15-08............................. 250 93,750 Wholesale Trade -- Nondurable Goods -- 1.18% Core-Mark International, Inc., 11.375%, 9-15-03........................... 250 236,250 TOTAL CORPORATE DEBT SECURITIES -- 81.03% ... $16,224,029 (Cost: $17,338,916) OTHER GOVERNMENT SECURITY -- 1.32% Mexico United Mexican States, 9.75%, 4-6-05.............................. 250 265,000 (Cost: $249,920) SHORT-TERM SECURITIES Amusement and Recreation Services -- 2.98% Harrah's Entertainment, Inc., 7.02, 11-1-00.............................. 600 596,373 Electric, Gas and Sanitary Services -- 1.76% Detroit Edison Co., 6.85%, 10-3-00............................. 352 351,866 Fabricated Metal Products -- 0.18% Danaher Corporation, 6.62%, Master Note......................... 35 35,000 Food and Kindred Products -- 1.05% General Mills, Inc., 6.67%, Master Note......................... 211 211,000 Food Stores -- 4.99% Kroger Co. (The), 7.05%, 10-2-00............................. 1,000 999,804 Nondepository Institutions -- 0.72% PACCAR Financial Corp., 6.49%, Master Note......................... 145 145,000 TOTAL SHORT-TERM SECURITIES -- 11.68% ....... $ 2,339,043 (Cost: $2,339,043) TOTAL INVESTMENT SECURITIES -- 99.22% ....... $19,866,050 (Cost: $20,862,699) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 0.78% 156,333 NET ASSETS -- 100.00% ....................... $20,022,383 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2000, the value of these securities amounted to $1,552,979 or 7.76% of net assets. (B) The security does not bear interest for an initial period of time and subsequently becomes interest bearing. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES HIGH INCOME FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) Assets Investment securities -- at value (Notes 1 and 3) $19,866 Cash .......................................... 1 Receivables: Investment securities sold..................... 1,307 Dividends and interest......................... 433 Fund shares sold............................... 9 Prepaid insurance premium ....................... 1 Other assets .................................... 20 Total assets ................................. 21,637 Liabilities Payable for investment securities purchased ..... 1,517 Payable to Fund shareholders .................... 42 Accrued transfer agency and dividend disbursing (Note 2)....................................... 7 Dividends payable ............................... 7 Accrued service fee (Note 2) .................... 4 Accrued accounting services fee (Note 2) ........ 1 Accrued distribution fee (Note 2) ............... 1 Other .......................................... 36 Total liabilities ............................ 1,615 Total net assets............................ $20,022 Net Assets $0.01 par value capital stock Capital stock.................................. $ 23 Additional paid-in capital..................... 23,835 Accumulated undistributed loss: Accumulated undistributed net realized loss on investments................................. (2,839) Net unrealized depreciation of investments..... (997) Net assets applicable to outstanding units of capital.................................. $20,022 Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $8.71 Class B ......................................... $8.71 Class C ......................................... $8.71 Class Y ......................................... $8.71 Capital shares outstanding: Class B ......................................... 37 Class C ......................................... 2,234 Class Y ......................................... 1 Capital shares authorized......................... 200,000 STATEMENT OF OPERATIONS HIGH INCOME FUND For the Six Months Ended September 30, 2000 (In Thousands) Investment Income Income (Note 1B): Interest and amortization...................... $1,091 Dividends...................................... 3 Total income ................................. 1,094 Expenses (Note 2): Distribution fee: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 80 Class Y ...................................... --* Investment management fee...................... 67 Transfer agency and dividend disbursing: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 36 Service fee: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 27 Registration fees.............................. 18 Audit fees..................................... 7 Accounting services fee........................ 5 Custodian fees................................. 4 Legal fees..................................... 1 Shareholder servicing fee -- Class Y........... --* Other.......................................... 5 Total .......................................... 250 Less expenses in excess of voluntary waiver of management fee (Note 2) ................... (67) Total expenses ............................... 183 Net investment income....................... 911 Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3) Realized net loss on investments ................ (1,625) Unrealized appreciation in value of investments during the period.............................. 300 Net loss on investments........................ (1,325) Net decrease in net assets resulting from operations $(414) *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS HIGH INCOME FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 Decrease in Net Assets Operations: Net investment income..................... $ 911 $ 1,833 Realized net loss on investments.......... (1,625) (453) Unrealized appreciation (depreciation).... 300 (1,279) Net increase (decrease) in net assets resulting from operations.............. (414) 101 Distributions to shareholders from net investment income (Note 1E):* Class A ................................. (2) -- Class B ................................. (3) -- Class C ................................. (906) (1,832) Class Y ................................. --** (1) (911) (1,833) Capital share transactions (Note 5) ........ (1,536) (818) Total decrease............................ (2,861) (2,550) Net Assets Beginning of period ........................ 22,883 25,433 End of period .............................. $20,022 $22,883 Undistributed net investment income ........ $ -- $ -- *See "Financial Highlights" on pages 32-35. **Not shown due to rounding. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $9.04 Income (loss) from investment operations: Net investment income ........................... 0.19 Net realized and unrealized loss on investments . (0.33) Total from investment operations.................. (0.14) Less distributions: Declared from net investment income ............. (0.19) From capital gains .............................. (0.00) Total distributions............................... (0.19) Net asset value, end of period.................... $8.71 Total return**.................................... -1.60% Net assets, end of period (000 omitted)........... $234 Ratio of expenses to average net assets........... 1.56%+ Ratio of net investment income to average net assets 8.52%+ Portfolio turnover rate........................... 51.87%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-18-00* to 9-30-00 Net asset value, beginning of period.............. $9.03 Income (loss) from investment operations: Net investment income ........................... 0.13 Net realized and unrealized loss on investments . (0.32) Total from investment operations.................. (0.19) Less distributions: Declared from net investment income ............. (0.13) From capital gains .............................. (0.00) Total distributions............................... (0.13) Net asset value, end of period.................... $8.71 Total return...................................... -2.00% Net assets, end of period (000 omitted)........... $319 Ratio of expenses to average net assets........... 2.37%** Ratio of net investment income to average net assets .............................. 7.71%** Portfolio turnover rate........................... 51.87%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal For the For the six year ended period from months March 31, 7-31-97* ended -------------------- to 9-30-00 2000 1999 3-31-98 Net asset value, beginning of period ................ $9.27 $9.94 $10.79 $10.00 Income (loss) from investment operations: Net investment income............... 0.38 0.69 0.63 0.37 Net realized and unrealized gain (loss) on investments....... (0.56) (0.67) (0.82) 0.79 Total from Investment operations ............ (0.18) 0.02 (0.19) 1.16 Less distributions: Declared from net investment income............... (0.38) (0.69) (0.63) (0.37) From capital gains .... (0.00) (0.00) (0.03) (0.00) Total distributions..... (0.38) (0.69) (0.66) (0.37) Net asset value, end of period ......... $8.71 $9.27 $ 9.94 $10.79 Total return............ -1.88% 0.17% -1.72% 11.77% Net assets, end of period (000 omitted) ......... $19,461 $22,877 $25,427 $11,812 Ratio of expenses to average net assets .... 1.71%** 2.17% 2.20% 2.52%** Ratio of net investment income to average net assets ................ 8.51%** 7.16% 6.29% 5.98%** Portfolio turnover rate .................. 51.87% 71.31% 50.98% 67.82% (A)See Note 5. *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the For the six fiscal period from months year 12-30-98* ended ended to 9-30-00 3-31-00 3-31-99 Net asset value, beginning of period ......... $9.27 $9.94 $9.97 Income (loss) from investment operations: Net investment income ....... 0.41 0.77 0.20 Net realized and unrealized gain (loss) on investments............. (0.56) (0.67) 0.00 Total from investment operations .................. (0.15) 0.10 0.20 Less distributions: Declared from net investment income.......... (0.41) (0.77) (0.20) From capital gains .......... (0.00) (0.00) (0.03) Total distributions........... (0.41) (0.77) (0.23) Net asset value, end of period ............... $8.71 $9.27 $9.94 Total return.................. -1.59% 0.94% 2.45% Net assets, end of period (000 omitted) ............... $8 $6 $6 Ratio of expenses to average net assets .................. 1.15%** 1.40% 0.26%** Ratio of net investment income to average net assets ....... 9.06%** 7.85% 8.55%** Portfolio turnover rate....... 51.87% 71.31% 50.98%** *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND International Growth Fund GOALS To seek long-term appreciation of capital as its primary goal and current income as its secondary goal. Strategy Invests primarily in common stocks of foreign companies that have the potential to provide long-term growth. The Fund emphasizes growth stocks which are securities of companies whose earnings are likely to grow faster than the economy. Founded 1992 Scheduled Dividend Frequency Annually (December) Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Net Asset Value on 9-30-00 $22.42 3-31-00 28.58 ------ Change per share $(6.16) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -13.03% -7.73% -13.42% -8.87% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)7-3-00 for Class A shares and 7-10-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 42.69% 43.97% 5-year period ended 9-30-00 22.99% -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 15.60% 26.72% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)9-21-92 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). The recent growth rate and volatility in the stock market has helped produce short-term returns that may not be typical and may not continue in the future. SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND Portfolio Highlights On September 30, 2000, International Growth Fund had net assets totaling $186,075,832 invested in a diversified portfolio of: 88.80% Common Stocks 5.97% Cash and Cash Equivalents 5.23% Preferred Stocks As a shareholder of International Growth Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Common Stocks $88.80 Cash and Cash Equivalents $ 5.97 Preferred Stocks $ 5.23 THE INVESTMENTS OF INTERNATIONAL GROWTH FUND COMMON STOCKS Shares Value Australia -- 0.40% Novogen LTD (A)* ............................. 377,999 $ 736,463 Canada -- 7.68% AT&T Canada Inc.* ............................ 86,800 2,644,687 Nortel Networks Corporation .................. 68,000 4,050,250 QLT Inc.* .................................... 45,000 3,190,781 Research in Motion Limited* .................. 20,000 1,971,875 Rogers Communications Inc., Class B (A) ...... 48,500 1,147,329 724 Solutions Inc.* .......................... 27,300 1,296,750 14,301,672 China -- 0.97% China Unicom Limited (A)* .................... 804,000 1,799,500 Finland -- 2.50% Nokia Oyj (A) ................................ 55,000 2,231,620 Perlos Oy (A) ................................ 56,750 1,499,315 Tecnomen Oyj (A)* ............................ 120,000 927,780 4,658,715 France -- 10.91% Alcatel Alsthom CGE, SA, ADR ................. 34,000 2,137,750 ALTEN (A)* ................................... 13,800 1,707,115 ASSURANCES GENERALES DE FRANCE (A) ........... 34,900 1,881,096 Bouygues SA (A) .............................. 34,500 1,740,648 Cross Systems (A)* ........................... 35,000 1,049,938 Essilor International SA (A) ................. 8,290 2,043,687 Fi System (A)* ............................... 40,000 1,079,759 Intercall (A)* ............................... 26,750 767,943 Suez Lyonnaise des Eaux (A) .................. 21,613 3,355,386 TOTAL FINA ELF, S.A. (A) ..................... 17,000 2,490,515 Unilog SA (A) ................................ 11,554 1,286,348 Virbac S.A. (A) .............................. 10,000 759,896 20,300,081 Germany -- 13.30% ARTICON Information Systems Aktiengesellschaft (A) (B)*................. 25,000 1,579,435 Bayerische Hypo- und Vereinsbank Aktiengesellschaft (A)...................... 16,150 884,749 Deutsche Telekom AG (A) ...................... 23,500 807,743 EM.TV & Merchandising AG (A) ................. 25,000 1,309,937 Heyde AG (A)* ................................ 205,000 5,905,099 Intershop Communications GmbH (A)* ........... 25,000 1,630,242 JENOPTIK AG (A) .............................. 77,000 2,544,591 Munchener Ruckversicherungs -- Gesellschaft Aktiengesellschaft (A)...................... 10,800 3,211,179 Rhoen-Klinikum AG (A) ........................ 32,319 1,504,958 Singulus Technologies AG (A)* ................ 68,800 3,240,197 Utimaco Safeware AG (A)* ..................... 40,000 742,224 VIVA Media AG (A) (B)* ....................... 85,000 1,381,950 24,742,304 Hong Kong -- 1.43% China Mobile (Hong Kong) Limited (A)* ........ 400,000 2,667,864 Ireland -- 0.25% Partner Communications, ADR* ................. 60,000 463,125 Italy -- 8.00% Arnoldo Mondadori Editore S.p.A. (A) ......... 200,000 2,382,186 Assicurazioni Gernerali S.p.A. (A) ........... 85,225 2,744,860 AutosTrade S.p.A. (A) ........................ 243,000 1,610,361 Banca Popolare di Verona- Banco S. Geminiano e S. Prospero S.c.c a r.l. (A)............................ 175,000 2,064,310 Saipem S.p.A. (A) ............................ 515,700 2,870,737 UniCredito Italiano SpA (A) .................. 614,000 3,206,355 14,878,809 Korea -- 0.90% Samsung Electronics (A) ...................... 9,300 1,684,616 Japan -- 8.53% Keyence Corporation (A) ...................... 3,200 1,109,432 Kyocera Corporation (A) ...................... 14,000 2,141,367 Matsushita Communication Industrial Co., Ltd. (A).................................... 9,000 1,218,911 Matsushita Electric Industrial Co., Ltd. (A) . 73,000 1,915,087 NTT DoCoMo, Inc. (A) ......................... 40 1,149,479 Nippon Telegraph and Telephone Corporation (A)............................. 160 1,572,190 SOFTBANK CORP. (A) ........................... 6,000 561,761 Sony Corporation (A) ......................... 20,000 2,031,981 Uni-Charm Corporation (A) .................... 50,000 2,674,392 15,868,320 Luxembourg -- 1.27% Thiel Logistik AG (A) (B)* ................... 16,000 2,360,979 Netherlands -- 7.59% Fortis NV (A) ................................ 67,000 2,054,282 Koninklijke KPN N.V. (A) ..................... 19,636 428,207 Koninklijke Philips Electronics N.V., Ordinary Shares (A)......................... 60,000 2,585,590 Ordina N.V. (A)* ............................. 58,406 1,692,727 QIAGEN N.V. (A)* ............................. 80,000 3,817,152 Royal Dutch Petroleum Company, NY Shares ..... 30,500 1,828,094 United Pan-Europe Communications N.V. (A)* ... 87,975 1,724,156 14,130,208 Spain -- 2.78% BANCO SANTANDER CENTRAL HISPANO S.A. (A) ..... 208,200 2,288,531 Red Electrica de Espana (A) .................. 80,750 763,452 Repsol-YPF, S.A. (A) ......................... 115,000 2,118,652 5,170,635 Sweden -- 0.40% Telefonaktiebolaget LM Ericsson, ADR, Class B 50,000 739,063 Switzerland -- 5.77% Charles Vogele Holding AG (A) ................ 10,000 1,912,489 Phoenix Mecano AG (A) ........................ 5,095 3,395,682 UBS AG, REGISTERED SHARES (A) ................ 22,000 2,932,483 Zurich Allied AG (A) ......................... 5,400 2,500,493 10,741,147 United Kingdom -- 13.53% Baltimore Technologies plc (A) ............... 165,000 1,683,500 Barclays PLC (A) ............................. 115,000 3,183,345 CMG plc (A) .................................. 140,000 2,709,866 Capita Group plc (The) (A) ................... 198,000 1,756,695 Diageo plc (A) ............................... 307,000 2,744,194 Energis plc (A)* ............................. 162,625 1,149,464 Energis (A) (B)* ............................. 44,750 316,301 Lloyds TSB Group plc (A) ..................... 250,000 2,332,649 Misys plc (A) ................................ 157,507 1,478,951 Reckitt Benckiser plc (A) .................... 136,690 1,670,551 Reed International P.L.C. (A) ................ 263,000 2,088,383 Sage Group plc (The) (A) ..................... 200,000 1,490,530 United News & Media plc (A) .................. 81,400 878,071 Vodafone AirTouch Plc (A) .................... 454,500 1,696,975 25,179,475 United States -- 2.59% Pharmacia Corporation ........................ 39,600 2,383,425 Schlumberger Limited ......................... 14,200 1,168,838 Transocean Sedco Forex Inc. .................. 21,500 1,260,438 4,812,701 TOTAL COMMON STOCKS -- 88.80% ................ $165,235,677 (Cost: $150,331,962) PREFERRED STOCKS ............................. Brazil -- 0.72% Petroleo Brasileiro S.A. -- Petrobras (A) .... 47,200 1,349,303 Germany -- 4.51% MLP AG (A) ................................... 56,000 8,387,131 TOTAL PREFERRED STOCKS -- 5.23% .............. $ 9,736,434 (Cost: $3,089,489) TOTAL SHORT-TERM SECURITIES -- 7.18% ......... $ 13,361,743 (Cost: $13,361,743) TOTAL INVESTMENT SECURITIES -- 101.21% ....... $188,333,854 (Cost: $166,783,194) LIABILITIES, NET OF CASH AND OTHER ASSETS -- (1.21%) (2,258,022) NET ASSETS -- 100.00% ........................ $186,075,832 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A) Listed on an exchange outside the United States. (B) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2000, the value of these securities amounted to $5,638,665 or 3.03% of net assets. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES INTERNATIONAL GROWTH FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) Assets Investment securities -- at value (Notes 1 and 3) $188,334 Cash .......................................... 3 Receivables: Investment securities sold..................... 750 Dividends and interest......................... 296 Fund shares sold............................... 183 Prepaid insurance premium ....................... 2 Other assets .................................... 20 -------- Total assets ................................. 189,588 -------- Liabilities Payable to Fund shareholders .................... 317 Accrued transfer agency and dividend disbursing (Note 2)....................................... 46 Accrued service fee (Note 2) .................... 38 Accrued management fee (Note 2) ................. 9 Accrued distribution fee (Note 2) ............... 8 Accrued accounting services fee (Note 2) ........ 4 Other .......................................... 59 Total liabilities ............................ 3,512 -------- Total net assets............................ $186,076 ======== Net Assets $0.01 par value capital stock Capital stock.................................. $ 83 Additional paid-in capital..................... 115,820 Accumulated undistributed income (loss): Accumulated undistributed net investment loss.. (1,503) Accumulated undistributed net realized gain on investments ............................... 50,143 Net unrealized appreciation of investments..... 21,533 -------- Net assets applicable to outstanding units of capital.................................. $186,076 ======== Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $22.45 Class B ......................................... $22.41 Class C ......................................... $22.42 Class Y ......................................... $23.53 Capital shares outstanding: Class A ......................................... 101 Class B ......................................... 75 Class C ......................................... 7,966 Class Y ......................................... 152 Capital shares authorized......................... 400,000 STATEMENT OF OPERATIONS INTERNATIONAL GROWTH FUND For the Six Months Ended September 30, 2000 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends (net of foreign withholding taxes of $43) ...................................... $ 948 Interest and amortization...................... 369 ------- Total income ................................. 1,317 ------- Expenses (Note 2): Investment management fee...................... 863 Distribution fee: Class A ...................................... --* Class B ...................................... 2 Class C ...................................... 743 Class Y ...................................... 5 Transfer agency and dividend disbursing: Class A ...................................... 1 Class B ...................................... 1 Class C ...................................... 257 Service fee: Class A ...................................... 1 Class B ...................................... 1 Class C ...................................... 251 Accounting services fee........................ 24 Custodian fees................................. 132 Audit fees..................................... 10 Legal fees..................................... 4 Shareholder servicing fee -- Class Y........... 3 Other.......................................... 55 -------- Total expenses ............................... 2,353 -------- Net investment loss......................... (1,036) -------- Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3) Realized net gain on securities ................. 15,442 Realized net loss from foreign currency transactions................................... (215) -------- Realized net gain on investments............... 15,227 Unrealized depreciation in value of investments during the period.............................. (65,814) -------- Net loss on investments........................ (50,587) -------- Net decrease in net assets resulting from operations............................. $(51,623) ======== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS INTERNATIONAL GROWTH FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 Increase (Decrease) in Net Assets Operations: Net investment loss....................... $(1,036) $(2,221) Realized net gain on investments.......... 15,227 44,418 Unrealized appreciation (depreciation).... (65,814) 66,004 -------------------- Net increase (decrease) in net assets resulting from operations.............. (51,623) 108,201 -------------------- Distributions to shareholders from realized net gain on investment transactions (Note 1E):* Class C ................................. -- (12,763) Class Y ................................. -- (188) -------------------- -- (12,951) Capital share transactions (Note 5) ........ (877) 42,933 -------------------- Total increase (decrease)................. (52,500) 138,183 Net Assets Beginning of period ........................ 238,576 100,393 -------------------- End of period .............................. $186,076 $238,576 ===================== Undistributed net investment loss .......... $(1,503) $(252) ===================== *See "Financial Highlights" on pages 46-49. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $24.33 ------- Loss from investment operations: Net investment loss ............................. (0.03) Net realized and unrealized loss on investments . (1.85) ------- Total from investment operations.................. (1.88) ------- Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) Total distributions............................... (0.00) ------- Net asset value, end of period.................... $22.45 ======= Total return**.................................... -7.73% Net assets, end of period (in millions)........... $2 Ratio of expenses to average net assets........... 1.80%+ Ratio of net investment loss to average net assets ...................................... -1.27%+ Portfolio turnover rate........................... 56.16%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-10-00* to 9-30-00 Net asset value, beginning of period.............. $24.59 ------ Loss from investment operations: Net investment loss ............................. (0.06) Net realized and unrealized loss on investments . (2.12) ------ Total from investment operations.................. (2.18) ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $22.41 ====== Total return...................................... -8.87% Net assets, end of period (in millions)........... $2 Ratio of expenses to average net assets........... 2.56%** Ratio of net investment loss to average net assets ...................................... -1.87%** Portfolio turnover rate........................... 56.16%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND* Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period: For the six months For the fiscal year ended March 31, ended ----------------------------------------- 9-30-00 2000 1999 1998 1997 1996 Net asset value, beginning of period $28.58 $15.58 $15.04 $12.40 $ 9.94 $9.36 --------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)..... (0.16) (0.34) (0.07) (0.10) (0.03) 0.08 Net realized and unrealized gain (loss) on investments.... (6.00) 15.14 1.55 4.12 2.50 0.63 --------------------------------------------------- Total from investment operations ......... (6.16) 14.80 1.48 4.02 2.47 0.71 --------------------------------------------------- Less distributions: From net investment income............ (0.00) (0.00) (0.00) (0.00) (0.01) (0.11) In excess of net investment income. (0.00) (0.00) (0.00) (0.00) (0.00) (0.02) From capital gains . (0.00) (1.80) (0.94) (1.38) (0.00) (0.00) --------------------------------------------------- Total distributions.. (0.00) (1.80) (0.94) (1.38) (0.01) (0.13) --------------------------------------------------- Net asset value, end of period ...... $22.42 $28.58 $15.58 $15.04 $12.40 $9.94 =================================================== Total return......... -21.55% 97.89% 10.36% 35.24% 24.85% 7.64% Net assets, end of period (in millions) ...... $179 $233 $100 $87 $50 $21 Ratio of expenses to average net assets . 2.33%** 2.37% 2.35% 2.35% 2.46% 2.50% Ratio of net investment income (loss) to average net assets . -1.25%** -1.48% -0.53% -0.82% -0.52% 0.63% Portfolio turnover rate ............... 56.16% 125.71% 116.25% 105.11% 94.76% 88.55% (A)See Note 5. *International Growth Fund (formerly Global Income Fund) changed its name and investment objective effective April 20, 1995. **Annualized. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the six For the fiscal period from months year ended March 31, 12-29-95* ended ----------------------- to 9-30-00 2000 1999 1998 1997 3-31-96 Net asset value, beginning of period $29.86 $16.08 $15.35 $12.52 $ 9.95 $9.70 --------------------------------------------------- Income (loss) from investment operations: Net investment income (loss)..... (0.01) (1.41) 0.05 0.01 0.02 0.02 Net realized and unrealized gain (loss) on investments.... (6.32) 16.99 1.62 4.20 2.56 0.23 --------------------------------------------------- Total from investment operations ......... (6.33) 15.58 1.67 4.21 2.58 0.25 --------------------------------------------------- Less distributions: From net investment income............ (0.00) (0.00) (0.00) (0.00) (0.01) (0.00) From capital gains . (0.00) (1.80) (0.94) (1.38) (0.00) (0.00) --------------------------------------------------- Total distributions.. (0.00) (1.80) (0.94) (1.38) (0.01) (0.00) --------------------------------------------------- Net asset value, end of period ...... $23.53 $29.86 $16.08 $15.35 $12.52 $9.95 =================================================== Total return......... -21.20% 99.74% 11.41% 36.45% 25.93% 2.58% Net assets, end of period (000 omitted) ...... $3,574 $5,296 $629 $419 $227 $7 Ratio of expenses to average net assets . 1.46%** 1.48% 1.44% 1.51% 1.59% 1.84%** Ratio of net investment income (loss) to average net assets . -0.35%** -0.80% 0.36% 0.07% 0.05% 1.07%** Portfolio turnover rate ............... 56.16% 125.71% 116.25% 105.11% 94.76% 88.55%** *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND Large Cap Growth Fund GOAL To seek the appreciation of capital. Strategy Invests primarily in a diversified portfolio of common stock issued by growth-oriented large to medium sized U.S. and foreign companies that the Manager believes have appreciation potential. Founded 2000 Scheduled Dividend Frequency Annually Performance Summary -- Class A Shares Per Share Data For the Period Ended September 30, 2000 Net Asset Value on 9-30-00 $12.61 6-30-00 10.00 ------ Change per share $ 2.61 ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) 18.85% 26.10% 20.55% 25.55% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)6-30-00 for Class A shares and 7-6-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) CLASS C CLASS Y(B) With Without Period CDSC(C) CDSC(D) 1-year period ended 9-30-00 -- -- -- 5-year period ended 9-30-00 -- -- -- 10-year period ended 9-30-00 -- -- -- Cumulative return since inception of Class(E) 24.80% 25.80% 25.95% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (C)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at the end of the first year after investment. (D)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (E)7-3-00 for Class C shares and 7-6-00 for Class Y shares (the date on which shares were first acquired by shareholders). The recent growth rate and volatility in the stock market has helped produce short-term returns that may not be typical and may not continue in the future. A substantial portion of the Fund's returns during recent periods is attributable to investments in initial public offerings. No assurance can be given that the Fund will continue to be able to invest in such offerings to the same extent as it has in the past or that future offerings in which the Fund invests will have as equally beneficial impact on performance. SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND Portfolio Highlights On September 30, 2000, Large Cap Growth Fund had net assets totaling $18,492,902 invested in a diversified portfolio of: 71.10% Common Stock 28.90% Cash and Cash Equivalents As a shareholder of Large Cap Growth Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Manufacturing Stocks $43.01 Cash and Cash Equivalents $28.90 Services Stocks $16.24 Finance, Insurance and Real Estate Stocks $ 6.39 Wholesale and Retail Trade Stocks $ 3.78 Mining Stocks $ 1.68 THE INVESTMENTS OF LARGE CAP GROWTH FUND September 30, 2000 COMMON STOCKS Shares Value Business Services -- 13.69% Brocade Communications Systems, Inc.* ........ 1,600 $ 377,850 Cerner Corporation* .......................... 3,500 162,641 CheckFree Holdings Corporation* .............. 2,000 83,812 Intuit Inc.* ................................. 2,300 131,172 Microsoft Corporation* ....................... 3,600 217,125 Oracle Corporation* .......................... 8,600 677,250 Rational Software Corporation* ............... 6,100 423,378 Siebel Systems, Inc.* ........................ 4,000 445,125 Veritas Software Corp.* ...................... 100 14,222 2,532,575 Chemicals and Allied Products -- 14.95% Forest Laboratories, Inc.* ................... 4,600 527,563 Johnson & Johnson ............................ 400 37,575 Merck & Co., Inc. ............................ 2,800 208,425 Pfizer Inc. .................................. 16,900 759,444 Pharmacia Corporation ........................ 6,300 379,181 Schering-Plough Corporation .................. 7,800 362,700 Smith International, Inc.* ................... 6,000 489,375 2,764,263 Electronic and Other Electric Equipment -- 12.57% ADC Telecommunications, Inc.* ................ 14,200 380,294 Altera Corporation* .......................... 2,900 138,566 JDS Uniphase Corporation* .................... 1,900 179,847 Maxim Integrated Products, Inc.* ............. 2,800 225,137 McData Corporation* .......................... 5,000 614,531 Nortel Networks Corporation .................. 7,000 416,938 Xilinx, Inc.* ................................ 4,300 368,456 2,323,769 General Merchandise Stores -- 2.59% Kohl's Corporation* .......................... 8,300 478,806 Health Services -- 1.24% Health Management Associates, Inc., Class A* . 11,000 228,938 Industrial Machinery and Equipment -- 8.34% Applied Materials, Inc.* ..................... 800 47,400 Cisco Systems, Inc.* ......................... 5,500 303,875 Cooper Cameron Corporation* .................. 4,400 324,225 EMC Corporation* ............................. 5,300 525,363 Sun Microsystems, Inc.* ...................... 2,900 340,659 1,541,522 Instruments and Related Products -- 4.46% Guidant Corporation* ......................... 5,800 409,987 Medtronic, Inc. .............................. 8,000 414,500 824,487 Insurance Carriers -- 0.10% MGIC Investment Corporation .................. 300 18,337 Motion Pictures -- 1.31% Time Warner Incorporated ..................... 3,100 242,575 Nondepository Institutions -- 5.04% Fannie Mae ................................... 7,900 564,850 Freddie Mac .................................. 6,800 367,625 932,475 Oil and Gas Extraction -- 1.68% BJ Services Company* ......................... 5,100 311,738 Security and Commodity Brokers -- 1.25% Stilwell Financial Inc. ...................... 5,300 230,550 Transportation Equipment -- 2.69% Harley-Davidson, Inc. ........................ 10,400 497,900 Wholesale Trade -- Nondurable Goods -- 1.19% Philip Morris Companies Inc. ................. 7,500 220,781 TOTAL COMMON STOCKS -- 71.10% ................ $ 13,148,716 (Cost: $12,529,285) Principal Amount in SHORT-TERM SECURITIES Thousands Value Commercial Paper -- 1.06% Nondepository Institutions PACCAR Financial Corp., 6.49%, Master Note.......................... $ 195 $ 195,000 Repurchase Agreements -- 26.31% J.P. Morgan Securities Inc., 6.37% Repurchase Agreement dated 9-29-00, to be repurchased at $4,868,583 on 10-2-00**................................ 4,866 4,866,000 TOTAL SHORT-TERM SECURITIES -- 27.37% ........ $ 5,061,000 (Cost: $5,061,000) TOTAL INVESTMENT SECURITIES -- 98.47% ........ $ 18,209,716 (Cost: $17,590,285) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 1.53% 283,186 NET ASSETS -- 100.00% ........................ $ 18,492,902 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. **Collateralized by $4,716,000 U.S. Treasury Bonds, 6.375% due 8-15-27; market value and accrued interest aggregate $4,949,147. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES LARGE CAP GROWTH FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) Assets Investment securities -- at value (Notes 1 and 3) $ 18,210 Cash .......................................... 1 Receivables: Fund shares sold............................... 252 Dividends and interest......................... 6 Prepaid registration fee ........................ 55 ---------- Total assets ................................. 18,524 ---------- Liabilities Payable to Fund shareholders .................... 16 Accrued transfer agency and dividend disbursing (Note 2)............................ 4 Accrued service fee (Note 2) .................... 2 Accrued distribution fee ........................ 2 Accrued accounting services fee (Note 2) ........ 1 Other .......................................... 6 ---------- Total liabilities ............................ 31 ---------- Total net assets............................ $ 18,493 ========== Net Assets $0.01 par value capital stock Capital stock.................................. $ 15 Additional paid-in capital..................... 17,199 Accumulated undistributed income: Accumulated undistributed net investment income ....................................... 47 Accumulated undistributed net realized gain on investments ............................... 613 Net unrealized appreciation of investments..... 619 --------- Net assets applicable to outstanding units of capital.................................. $ 18,493 ========== Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $12.61 Class B ......................................... $12.58 Class C ......................................... $12.59 Class Y ......................................... $12.62 Capital shares outstanding: Class A ......................................... 989 Class B ......................................... 85 Class C ......................................... 368 Class Y ......................................... 25 Capital shares authorized......................... 400,000 STATEMENT OF OPERATIONS LARGE CAP GROWTH FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization...................... $ 69 Dividends...................................... 8 ------ Total income ................................. 77 ------ Expenses (Note 2): Investment management fee...................... 17 Distribution fee: Class A ...................................... 1 Class B ...................................... 1 Class C ...................................... 4 Class Y ...................................... --* Transfer agency and dividend disbursing: Class A ...................................... 3 Class B ...................................... 1 Class C ...................................... 2 Legal fees..................................... 5 Registration fees.............................. 4 Service fee: Class A ...................................... 2 Class B ...................................... 1 Class C ...................................... 1 Custodian fees................................. 3 Accounting services fee........................ 1 Shareholder servicing fee -- Class Y........... --* Other.......................................... 1 ------ Total ........................................ 47 Less expenses in excess of voluntary waiver of management fee (Note 2) ................ (17) ------ Total expenses ............................ 30 ------ Net investment income .................. 47 ------ Realized and Unrealized Gain on Investments (Notes 1 and 3) Realized net gain on investments ................ 613 Unrealized appreciation in value of investments during the period.............................. 619 ------ Net gain on investments........................ 1,232 ------ Net increase in net assets resulting from operations.................................. $1,279 ====== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS LARGE CAP GROWTH FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INCREASE IN NET ASSETS Operations: Net investment income.......................... $ 47 Realized net gain on investments............... 613 Unrealized appreciation........................ 619 ------- Net increase in net assets resulting from operations............................. 1,279 ------- Capital share transactions (Note 5) ............. 14,214 ------- Total increase................................. 15,493 Net Assets Beginning of period ............................. 3,000 ------- End of period ................................... $18,493 ======= Undistributed net investment income ............. $47 ======= *See "Financial Highlights" on pages 59-62. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 6-30-00* to 9-30-00 Net asset value, beginning of period.............. $10.00 ------ Income from investment operations: Net investment income ........................... 0.04 Net realized and unrealized gain on investments . 2.57 ------ Total from investment operations.................. 2.61 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $12.61 ====== Total return**.................................... 26.10% Net assets, end of period (in millions)........... $12 Ratio of expenses to average net assets........... 0.95%+ Ratio of net investment income to average net assets ...................................... 2.26%+ Portfolio turnover rate........................... 21.95% *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-6-00* to 9-30-00 Net asset value, beginning of period.............. $10.02 ------ Income from investment operations: Net investment income ........................... 0.01 Net realized and unrealized gain on investments.................................... 2.55 ------ Total from investment operations.................. 2.56 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $12.58 ====== Total return...................................... 25.55% Net assets, end of period (in millions)........... $1 Ratio of expenses to average net assets........... 2.43%** Ratio of net investment income to average net assets ...................................... 0.60%** Portfolio turnover rate........................... 21.95% *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class C Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $10.00 ------ Income from investment operations: Net investment income ........................... 0.02 Net realized and unrealized gain on investments.................................... 2.60 ------ Total from investment operations.................. 2.62 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $12.62 ====== Total return...................................... 25.80% Net assets, end of period (in millions)........... $5 Ratio of expenses to average net assets........... 1.78%** Ratio of net investment income to average net assets ...................................... 1.24%** Portfolio turnover rate........................... 21.95% *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-6-00* to 9-30-00 Net asset value, beginning of period.............. $10.02 ------ Income from investment operations: Net investment income ........................... 0.05 Net realized and unrealized gain on investments.................................... 2.55 ------ Total from investment operations.................. 2.60 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $12.62 ====== Total return...................................... 25.95% Net assets, end of period (000 omitted)........... $314 Ratio of expenses to average net assets........... 0.93%** Ratio of net investment income to average net assets ...................................... 2.35%** Portfolio turnover rate........................... 21.95% *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND Limited-Term Bond Fund GOAL To seek a high level of current income consistent with preservation of capital. Strategy Invests primarily in investment-grade debt securities of U.S. issuers, including corporate bonds, mortgage-backed securities and U.S. Government securities. The Fund maintains a dollar-weighted average maturity of not less than two years and not more than five years. Founded 1992 Scheduled Dividend Frequency Monthly Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Dividends Paid $0.25 ----- Net Asset Value on 9-30-00 $9.89 3-31-00 9.76 ----- Change per share $0.13 ===== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -3.16% 1.14% -2.92% 2.08% A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. B)Performance data is based on deduction of 4.25% sales load on the initial purchase in the period. C)Performance data does not take into account the sales load deducted on an initial purchase. D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. F)8-17-00 for Class A shares and 7-3-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 4.90% 5.88% 5-year period ended 9-30-00 4.33% -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 4.21% 4.92% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)9-21-92 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND Portfolio Highlights On September 30, 2000, Limited-Term Bond Fund had net assets totaling $18,841,957 invested in a diversified portfolio of: 96.26% Bonds 3.74% Cash and Cash Equivalents As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Corporate Bonds $60.20 U.S. Government Securities $34.80 Cash and Cash Equivalents $ 3.74 Municipal Bond $ 1.26 THE INVESTMENTS OF LIMITED-TERM BOND FUND Principal Amount in CORPORATE DEBT SECURITIES Thousands Value Auto Repair, Services and Parking -- 3.18% Hertz Corporation (The), 7.375%, 6-15-01 .............................. $600 $599,772 Communication -- 3.21% Westinghouse Electric Corporation, 8.875%, 6-1-01 ............................... 600 605,112 Depository Institutions -- 5.94% Mercantile Bancorporation Inc., 7.625%, 10-15-02 ............................. 600 607,560 Wells Fargo & Company, 8.375%, 5-15-02 .............................. 500 512,215 1,119,775 Electric, Gas and Sanitary Services -- 6.73% NorAm Energy Corp., 6.375%, 11-1-03 .............................. 600 587,526 UtiliCorp United, 6.875%, 10-1-04 .............................. 500 489,980 WMX Technologies, Inc., 7.0%, 5-15-05 ................................ 200 190,496 1,268,002 Food and Kindred Products -- 3.21% Grand Metropolitan Investment Corp., 7.125%, 9-15-04 .............................. 600 603,864 General Merchandise Stores -- 2.57% Penney (J.C.) Company, Inc., 7.6%, 4-1-07 ................................. 600 485,046 Industrial Machinery and Equipment -- 2.13% Black & Decker Corp., 7.5%, 4-1-03 ................................. 400 400,352 Instruments and Related Products -- 4.39% Baxter International Inc., 8.125%, 11-15-01 ............................. 350 353,182 Raytheon Company, 6.75%, 8-15-07 ............................... 500 473,680 826,862 Insurance Carriers -- 1.86% Aon Corporation, 7.4%, 10-1-02 ................................ 350 350,609 Nondepository Institutions -- 14.14% American General Finance Corporation, 6.2%, 3-15-03 ................................ $500 $ 490,910 Aristar, Inc., 5.85%, 1-27-04 ............................... 500 479,970 Avco Financial Services, Inc., 7.375%, 8-15-01 .............................. 600 601,980 Ford Motor Credit Company, 6.7%, 7-16-04 ................................ 500 491,865 General Motors Acceptance Corporation, 7.0%, 9-15-02 ................................ 600 599,958 2,664,683 Petroleum and Coal Products -- 3.38% Chevron Corporation Profit Sharing/Savings Plan Trust Fund, 8.11%, 12-1-04 ............................... 375 382,214 USX Corporation, 9.8%, 7-1-01 ................................. 250 254,547 636,761 Railroad Transportation -- 6.30% Norfolk Southern Corporation, 7.35%, 5-15-07 ............................... 588 583,684 Union Pacific Corporation, 7.875%, 2-15-02 .............................. 600 603,564 1,187,248 Transportation Equipment -- 3.16% Lockheed Martin Corporation, 7.25%, 5-15-06 ............................... 600 595,170 TOTAL CORPORATE DEBT SECURITIES -- 60.20% .... $11,343,256 (Cost: $11,585,871) MUNICIPAL BOND -- 1.26% Kansas Kansas Development Finance Authority, Health Facilities Revenue Bonds (Stormont-Vail HealthCare, Inc.), Taxable, 7.25%, 11-15-02 .............................. 235$ 237,937 (Cost: $235,000) UNITED STATES GOVERNMENT SECURITIES Federal Home Loan Mortgage Corporation: 6.05%, 9-15-20.............................. $325$ 321,358 6.5%, 6-15-24............................... 573 564,792 Federal National Mortgage Association: 6.0%, 11-1-00............................... 55 53,968 6.21%, 8-15-05.............................. 500 482,890 7.5%, 11-15-06.............................. 500 493,280 8.0%, 2-1-08................................ 75 76,252 6.5%, 12-1-10............................... 333 326,659 6.0%, 1-1-11................................ 289 278,416 6.5%, 2-1-11................................ 338 331,165 7.0%, 5-1-11................................ 195 194,251 7.0%, 7-1-11................................ 225 223,785 7.0%, 9-1-12................................ 272 270,122 6.0%, 11-1-13............................... 414 397,877 7.0%, 8-25-14............................... 500 497,030 7.0%, 9-1-14................................ 458 455,612 7.0%, 4-1-26................................ 277 271,604 Government National Mortgage Association: 6.5%, 1-15-14............................... 401 395,126 7.0%, 4-15-29............................... 550 541,983 7.0%, 7-15-29............................... 387 381,609 TOTAL UNITED STATES GOVERNMENT SECURITIES -- 34.80% $ 6,557,779 (Cost: $6,649,406) TOTAL SHORT-TERM SECURITIES -- 5.00% ......... $ 941,000 (Cost: $941,000) TOTAL INVESTMENT SECURITIES -- 101.26% ....... $19,079,972 (Cost: $19,411,277) LIABILITIES, NET OF CASH AND OTHER ASSETS -- (1.26%)........................... (238,015) NET ASSETS -- 100.00% ........................ $18,841,957 Notes to Schedule of Investments See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES LIMITED-TERM BOND FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3) $19,080 Cash .......................................... 1 Receivables: Dividends and interest......................... 307 Fund shares sold............................... 1 Prepaid insurance premium ....................... --* Other assets .................................... 24 ------- Total assets ................................. 19,413 ------- Liabilities Payable for investment securities purchased ..... 496 Payable to Fund shareholders .................... 55 Accrued transfer agency and dividend disbursing (Note 2)............................ 7 Dividends payable ............................... 7 Accrued service fee (Note 2) .................... 4 Accrued accounting services fee (Note 2) ........ 1 Accrued distribution fee (Note 2) ............... 1 ------- Total liabilities ............................ 571 ------- Total net assets............................ $18,842 ======= Net Assets $0.01 par value capital stock Capital stock.................................. $19 Additional paid-in capital..................... 19,462 Accumulated undistributed loss: Accumulated undistributed net realized loss on investments .......................... (308) Net unrealized depreciation of investments..... (331) ------- Net assets applicable to outstanding units of capital............................ $18,842 ======= Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $9.89 Class B ......................................... $9.89 Class C ......................................... $9.89 Class Y ......................................... $9.89 Capital shares outstanding: Class A ......................................... 10 Class B ......................................... 30 Class C ......................................... 1,733 Class Y ......................................... 133 Capital shares authorized......................... 200,000 *Not shown due to rounding. STATEMENT OF OPERATIONS LIMITED-TERM BOND FUND For the Six Months Ended September 30, 2000 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization...................... $661 ---- Expenses (Note 2): Distribution fee: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 67 Class Y ...................................... 2 Investment management fee...................... 48 Transfer agency and dividend disbursing: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 33 Service fee: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 23 Registration fees.............................. 15 Accounting services fee........................ 5 Custodian fees................................. 3 Audit fees..................................... 8 Legal fees..................................... 1 Shareholder servicing fee -- Class Y........... 1 Other.......................................... 1 ---- Total.......................................... 207 Less expenses in excess of voluntary waiver of management fee (Note 2).................. (48) ---- Total expenses.............................. 159 ---- Net investment income ..................... 502 ---- Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3) Realized net loss on investments ................ (33) Unrealized appreciation in value of investments during the period.................. 283 ---- Net gain on investments........................ 250 ---- Net increase in net assets resulting from operations............................. $752 ==== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS LIMITED-TERM BOND FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 Decrease in Net Assets Operations: Net investment income..................... $ 502 $ 1,079 Realized net loss on investments.......... (33) (122) Unrealized appreciation (depreciation).... 283 (799) ------------------------- Net increase in net assets resulting from operations.............. 752 158 ------------------------- Distributions to shareholders from net investment income (Note 1E):* Class A ................................. (1) -- Class B ................................. (2) -- Class C ................................. (460) (1,045) Class Y ................................. (39) (34) ------------------------- (502) (1,079) ------------------------- Capital share transactions (Note 5) ........ (1,603) (458) ------------------------- Total decrease............................ (1,353) (1,379) Net Assets Beginning of period ........................ 20,195 21,574 ------------------------- End of period .............................. $18,842 $20,195 ========================= Undistributed net investment income ........ $ -- $ -- ========================= *See "Financial Highlights" on pages 72-75. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 8-17-00* to 9-30-00 Net asset value, beginning of period.............. $9.84 ----- Income from investment operations: Net investment income ........................... 0.07 Net realized and unrealized gain on investments.................................... 0.05 ----- Total from investment operations.................. 0.12 ----- Less distributions: Declared from net investment income ............. (0.07) From capital gains .............................. (0.00) ----- Total distributions............................... (0.07) ----- Net asset value, end of period.................... $9.89 ===== Total return**.................................... 1.14% Net assets, end of period (000 omitted)........... $95 Ratio of expenses to average net assets........... 1.27%+ Ratio of net investment income to average net assets ...................................... 5.54%+ Portfolio turnover rate........................... 3.17%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $9.80 ----- Income from investment operations: Net investment income ........................... 0.12 Net realized and unrealized gain on investments.................................... 0.09 ----- Total from investment operations.................. 0.21 ----- Less distributions: Declared from net investment income ............. (0.12) From capital gains .............................. (0.00) ----- Total distributions............................... (0.12) ----- Net asset value, end of period.................... $9.89 ===== Total return...................................... 2.08% Net assets, end of period (000 omitted)........... $297 Ratio of expenses to average net assets........... 1.99%** Ratio of net investment income to average net assets ...................................... 4.81%** Portfolio turnover rate........................... 3.17%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period: For the six Months For the fiscal year ended March 31, ended ----------------------------------------- 9-30-00 2000 1999 1998 1997 1996 Net asset value, beginning of period $9.76 $10.16 $10.14 $ 9.90 $10.00 $ 9.70 -------------------------------------------------- Income from investment operations: Net investment income............ 0.25 0.47 0.44 0.45 0.44 0.41 Net realized and unrealized gain (loss) on investments.... 0.13 (0.40) 0.02 0.24 (0.09) 0.30 -------------------------------------------------- Total from investment operations ......... 0.38 0.07 0.46 0.69 0.35 0.71 -------------------------------------------------- Less distributions: Declared from net investment income. (0.25) (0.47) (0.44) (0.45) (0.44) (0.41) From capital gains . (0.00) (0.00) (0.00) (0.00) (0.01) (0.00) -------------------------------------------------- Total distributions.. (0.25) (0.47) (0.44) (0.45) (0.45) (0.41) -------------------------------------------------- Net asset value, end of period ...... $9.89 $ 9.76 $10.16 $10.14 $ 9.90 $10.00 ================================================== Total return......... 3.99% 0.73% 4.65% 7.15% 3.52% 7.41% Net assets, end of period (000 omitted) ...... $17,138 $18,966 $21,311 $18,148 $17,770 $23,682 Ratio of expenses to average net assets 1.72%* 1.81% 2.11% 2.12% 2.07% 2.10% Ratio of net investment income to average net assets ......... 5.14%* 4.75% 4.34% 4.52% 4.40% 4.14% Portfolio turnover rate ............... 3.17% 37.02% 32.11% 27.37% 23.05% 22.08% (A)See Note 5. *Annualized. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the six For the fiscal period from months year ended March 31, 12-29-95* ended ------------------------------- to 9-30-00 2000 1999 1998 1997 3-31-96 Net asset value, beginning of period $9.76 $10.16 $10.14 $ 9.90 $10.00 $10.16 -------------------------------------------------- Income (loss) from investment operations: Net investment income............ 0.30 0.57 0.53 0.53 0.52 0.11 Net realized and unrealized gain (loss) on investments.... 0.13 (0.40) 0.02 0.24 (0.09) (0.16) -------------------------------------------------- Total from investment operations ......... 0.43 0.17 0.55 0.77 0.43 (0.05) -------------------------------------------------- Less distributions: Declared from net investment income. (0.30) (0.57) (0.53) (0.53) (0.52) (0.11) From capital gains . (0.00) (0.00) (0.00) (0.00) (0.01) (0.00) -------------------------------------------------- Total distributions.. (0.30) (0.57) (0.53) (0.53) (0.53) (0.11) -------------------------------------------------- Net asset value, end of period ...... $9.89 $ 9.76 $10.16 $10.14 $ 9.90 $10.00 ================================================== Total return......... 4.50% 1.69% 5.60% 7.91% 4.33% -0.49% Net assets, end of period (000 omitted) ......$1,312 $1,229 $263 $184 $105 $1 Ratio of expenses to average net assets . 0.72%** 0.69% 1.20% 1.32% 1.04% 1.18%** Ratio of net investment income to average net assets ......... 6.14%** 6.03% 5.25% 5.32% 5.62% 4.70%** Portfolio turnover rate ............... 3.17% 37.02% 32.11% 27.37% 23.05% 22.08%** *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND Mid Cap Growth Fund GOAL To seek the growth of capital. Strategy Invests primarily in common stocks of U.S. and foreign companies whose market capitalizations are within the range of capitalizations of companies comprising the Russell Mid Cap Growth Index and that the Manager believes offer above-average growth potential. Founded 2000 Scheduled Dividend Frequency Annually Performance Summary -- Class A Shares Per Share Data For the Period Ended September 30, 2000 Net Asset Value on 9-30-00 $11.70 6-30-00 10.00 ------ Change per share $ 1.70 ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) 10.27% 17.00% 11.58% 16.58% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)6-30-00 for Class A shares and 7-6-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) CLASS C CLASS Y(B) With Without Period CDSC(C) CDSC(D) 1-year period ended 9-30-00 -- -- -- 5-year period ended 9-30-00 -- -- -- 10-year period ended 9-30-00 -- -- -- Cumulative return since inception of Class(E) 15.80% 16.80% 14.37% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (C)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at the end of the first year after investment. (D)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (E)7-3-00 for Class C shares and 7-10-00 for Class Y shares (the date on which shares were first acquired by shareholders). A substantial portion of the Fund's returns during recent periods is attributable to investments in initial public offerings. No assurance can be given that the Fund will continue to be able to invest in such offerings to the same extent as it has in the past or that future offerings in which the Fund invests will have as equally beneficial impact on performance. SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND Portfolio Highlights On September 30, 2000, Mid Cap Growth Fund had net assets totaling $10,321,586 invested in a diversified portfolio of: 67.61% Common Stock 32.39% Cash and Cash Equivalents As a shareholder of Mid Cap Growth Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Cash and Cash Equivalents $32.39 Manufacturing Stocks $28.03 Services Stocks $16.79 Transportation, Communication, Electric and Sanitary Services Bonds $10.71 Finance, Insurance and Real Estate Stocks $ 5.03 Mining Stocks $ 4.99 Wholesale and Retail Trade Stocks $ 2.06 THE INVESTMENTS OF MID CAP GROWTH FUND COMMON STOCKS Shares Value Business Services -- 12.88% Aether Systems, Inc.* ........................ 850 $89,702 Cerner Corporation* .......................... 2,900 134,759 Certicom Corp.* .............................. 1,500 59,766 CheckFree Holdings Corporation* .............. 5,250 220,008 Critical Path, Inc.* ......................... 1,450 87,498 Descartes Systems* ........................... 5,850 288,844 Digital Insight Corporation* ................. 4,500 159,609 Getty Images, Inc.* .......................... 2,200 66,894 Quintus Corporation* ......................... 20,700 176,921 S1 Corporation* .............................. 3,800 45,481 1,329,482 Chemicals and Allied Products -- 7.80% Biogen, Inc.* ................................ 2,250 137,320 Cubist Pharmaceuticals, Inc.* ................ 3,100 161,297 Genzyme Corporation -- General Division* ..... 1,150 78,452 IVAX Corporation* ............................ 2,300 105,800 King Pharmaceuticals, Inc.* .................. 6,450 215,672 QLT Inc.* .................................... 1,500 106,359 804,900 Data Processing and Preparation -- 2.91% Acxiom Corporation* .......................... 9,500 300,437 Depository Institutions -- 5.03% Concord EFS, Inc.* ........................... 14,600 518,756 Educational Services -- 1.00% Edison Schools Inc.* ......................... 3,250 103,391 Electric, Gas and Sanitary Services -- 3.52% El Paso Energy Corporation ................... 5,900 363,588 Electronic and Other Electric Equipment -- 7.93% C-MAC Industries Inc.* ....................... 2,900 166,750 Cypress Semiconductor Corporation* ........... 4,550 189,109 Lattice Semiconductor Corporation* ........... 3,700 198,760 Maytag Corporation ........................... 900 27,956 Micron Technology, Inc.* ..................... 3,600 165,600 Viasystems Group, Inc.* ...................... 4,150 70,550 818,725 Industrial Machinery and Equipment -- 11.01% Baker Hughes Incorporated .................... 10,200 378,675 Concurrent Computer Corp.* ................... 13,500 256,922 Cooper Cameron Corporation* .................. 2,850 210,010 CoSine Communications, Inc.* ................. 3,050 168,131 RSA Security Inc.* ........................... 2,850 122,817 1,136,555 Instruments and Related Products -- 1.29% PE Corporation -- Celera Genomics Group* ..... 750 74,719 PE Corporation -- PE Biosystems Group ........ 500 58,250 132,969 Oil and Gas Extraction -- 4.99% Burlington Resources Incorporated ............ 8,050 296,341 Noble Affiliates, Inc. ....................... 5,900 219,037 515,378 Telephone and Radiotelephone Communication -- 7.19% LCC International, Inc.* ..................... 9,000 130,781 Research In Motion Limited* .................. 6,200 611,281 742,062 Wholesale Trade -- Nondurable Goods -- 2.06% Repeater Technologies, Inc.* ................. 18,500 212,172 TOTAL COMMON STOCKS -- 67.61% ................ $6,978,415 (Cost: $6,830,228) Principal Amount in SHORT-TERM SECURITIES Thousands Commercial Paper -- 3.77% Nondepository Institutions PACCAR Financial Corp., 6.49%, Master Note....................... $ 389 389,000 Repurchase Agreements -- 33.08% J.P. Morgan Securities Inc., 6.37% Repurchase Agreement dated 9-29-00, to be repurchased at $3,416,813 on 10-2-00** 3,415 3,415,000 TOTAL SHORT-TERM SECURITIES -- 36.85% ........ $ 3,804,000 (Cost: $3,804,000) TOTAL INVESTMENT SECURITIES -- 104.46% ....... $10,782,415 (Cost: $10,634,228) LIABILITIES, NET OF CASH AND OTHER ASSETS -- (4.46%)........................... (460,829) NET ASSETS -- 100.00% ........................ $10,321,586 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. **Collateralized by $3,445,503 U.S. Treasury Bonds, 6.375% due 8-15-27; market value and accrued interest aggregate $3,473,638. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MID CAP GROWTH FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3)................................ $10,782 Cash .......................................... 1 Receivables: Investment securities sold..................... 154 Fund shares sold............................... 131 Dividends and interest......................... 4 Prepaid registration fees ....................... 51 ------- Total assets ................................. 11,123 ------- Liabilities Payable for investment securities purchased ..... 761 Payable to Fund shareholders .................... 31 Accrued transfer agency and dividend disbursing (Note 2)............................ 3 Accrued distribution fee (Note 2) ............... 1 Accrued service fee (Note 2) .................... 1 Other .......................................... 4 ------- Total liabilities ............................ 801 ------- Total net assets............................ $10,322 ======= Net Assets $0.01 par value capital stock Capital stock.................................. $ 9 Additional paid-in capital..................... 9,612 Accumulated undistributed income: Accumulated undistributed net investment income ....................................... 27 Accumulated undistributed net realized gain on investments .......................... 526 Net unrealized appreciation of investments..... 148 ------- Net assets applicable to outstanding units of capital.................................. $10,322 ======= Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $11.70 Class B ......................................... $11.67 Class C ......................................... $11.68 Class Y ......................................... $11.70 Capital shares outstanding: Class A ......................................... 621 Class B ......................................... 60 Class C ......................................... 185 Class Y ......................................... 16 Capital shares authorized......................... 400,000 STATEMENT OF OPERATIONS MID CAP GROWTH FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization...................... $ 44 Dividends...................................... 2 ---- Total income ................................. 46 ---- Expenses (Note 2): Investment management fee...................... 14 Distribution fee: Class A ...................................... 1 Class B ...................................... 1 Class C ...................................... 2 Class Y ...................................... --* Transfer agency and dividend disbursing: Class A ...................................... 2 Class B ...................................... 1 Class C ...................................... 1 Registration fees.............................. 4 Legal fees..................................... 3 Service fee: Class A ...................................... 1 Class B ...................................... --* Class C ...................................... 1 Custodian fees................................. 2 Shareholder servicing fee -- Class Y........... --* ---- Total ........................................ 33 Less expenses in excess of voluntary waiver of management fee (Note 2) ................ (14) ---- Total expenses ............................ 19 ---- Net investment income ................... 27 ---- Realized and Unrealized Gain on Investments (Notes 1 and 3) Realized net gain on investments ................ 526 Unrealized appreciation in value of investments during the period.................. 148 ---- Net gain on investments........................ 674 ---- Net increase in net assets resulting from operations............................. $701 ==== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS MID CAP GROWTH FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INCREASE IN NET ASSETS Operations: Net investment income.......................... $ 27 Realized net gain on investments............... 526 Unrealized appreciation........................ 148 ------- Net increase in net assets resulting from operations............................. 701 ------- Capital share transactions (Note 5) ............. 6,621 ------- Total increase................................. 7,322 NET ASSETS Beginning of period ............................. 3,000 ------- End of period ................................... $10,322 ======= Undistributed net investment income ............. $27 ======= *See "Financial Highlights" on pages 84-87. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 6-30-00* to 9-30-00 Net asset value, beginning of period.............. $10.00 ------ Income from investment operations: Net investment income ........................... 0.04 Net realized and unrealized gain on investments.................................... 1.66 ------ Total from investment operations.................. 1.70 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $11.70 ====== Total return**.................................... 17.00% Net assets, end of period (in millions)........... $7 Ratio of expenses to average net assets........... 0.94%+ Ratio of net investment income to average net assets ...................................... 1.98%+ Portfolio turnover rate........................... 47.66% *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-6-00* to 9-30-00 Net asset value, beginning of period.............. $10.01 ------ Income from investment operations: Net investment income ........................... 0.01 Net realized and unrealized gain on investments . 1.65 ------ Total from investment operations.................. 1.66 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $11.67 ====== Total return...................................... 16.58% Net assets, end of period (in millions)........... $1 Ratio of expenses to average net assets........... 2.34%** Ratio of net investment income to average net assets ...................................... 0.37%** Portfolio turnover rate........................... 47.66% *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class C Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $10.00 ------ Income from investment operations: Net investment income ........................... 0.01 Net realized and unrealized gain on investments................................. 1.67 ------ Total from investment operations.................. 1.68 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $11.68 ====== Total return...................................... 16.80% Net assets, end of period (in millions)........... $2 Ratio of expenses to average net assets........... 2.02%** Ratio of net investment income to average net assets ...................................... 0.72%** Portfolio turnover rate........................... 47.66% *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-10-00* to 9-30-00 Net asset value, beginning of period.............. $10.23 ------ Income from investment operations: Net investment income ........................... 0.02 Net realized and unrealized gain on investments................................. 1.45 ------ Total from investment operations.................. 1.47 ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $11.70 ====== Total return...................................... 14.37% Net assets, end of period (000 omitted)........... $182 Ratio of expenses to average net assets........... 1.12%** Ratio of net investment income to average net assets ...................................... 1.61%** Portfolio turnover rate........................... 47.66% *Commencement of operations. **Annualized. THE INVESTMENTS OF MONEY MARKET FUND Principal Amount in BANK OBLIGATIONS Thousands Value Commercial Paper -- 4.39% ANZ (DE) Inc., 6.5%, 11-3-00............................... $190 $188,868 Notes -- 2.91% First Chicago NBD Corporation (Bank One Corporation), 6.785%, 12-20-00............................ 125 125,107 TOTAL BANK OBLIGATIONS -- 7.30% .............. $313,975 (Cost: $313,975) CORPORATE OBLIGATIONS Commercial Paper Chemicals and Allied Products -- 9.24% BOC Group Inc. (DE), 6.73%, 10-3-00.............................. 200 199,925 General Electric Capital Corporation, 6.51%, 12-13-00............................. 200 197,360 397,285 Electric, Gas and Sanitary Services -- 18.80% Allegheny Energy Inc., 6.55%, 11-20-00............................. 160 158,544 Carolina Power & Light Co., 6.51%, 10-12-00............................. 150 149,702 Kansas City Power & Light Co., 6.5%, 11-15-00.............................. 180 178,538 Pacific Gas & Electric Co., 6.62%, 10-12-00............................. 138 137,721 Southern California Edison Co., 6.48%, 10-4-00.............................. 184 183,901 808,406 Fabricated Metal Products -- 4.79% Danaher Corporation, 6.62%, Master Note.......................... 206 206,000 Nondepository Institutions -- 2.53% PACCAR Financial Corp., 6.49%, Master Note.......................... 109 109,000 Telephone and Radiotelephone Communication -- 4.38% British Telecommunications PLC, 6.53%, 11-21-00............................. 190 188,242 Total Commercial Paper -- 39.74% ............. 1,708,933 Commercial Paper (backed by irrevocable bank letter of credit) -- 2.32% Chemicals and Allied Products Formosa Plastics Corp. U.S.A. (Bank of America N.A.), 6.63%, 10-12-00............................. 100 99,797 Notes Nondepository Institutions -- 6.62% Deere (John) Capital Corp., 6.08%, 12-18-00............................. 135 134,748 Ford Motor Credit Company, 6.93%, 12-20-00............................. 150 150,191 284,939 Wholesale Trade -- Nondurable Goods -- 4.61% Philip Morris Cos. Inc., 6.0%, 7-15-01............................... 200 198,160 Total Notes -- 11.23% ........................ 483,099 TOTAL CORPORATE OBLIGATIONS -- 53.29% ........ $2,291,829 (Cost: $2,291,829) MUNICIPAL OBLIGATIONS California -- 4.30% Oakland-Alameda County Coliseum Authority, Lease Revenue Bonds (Oakland Coliseum Arena Project), 1996 Series A-2 Variable Rate Lease Revenue Bonds (Taxable), (Canadian Imperial Bank of Commerce), 6.55%, 11-1-00.............................. $185 $185,000 Florida -- 4.27% City of Gainesville, Florida, Utilities System, Commercial Paper Notes, Series D (Federally Taxable), (Suntrust), 6.53%, 11-13-00............................. 185 183,557 Indiana -- 4.07% City of Whiting, Indiana, Industrial Sewage and Solid Waste Disposal Revenue Bonds, (Amoco Oil Company Project), Taxable Series 1995 (Amoco Corporation), 6.62%, 11-2-00.............................. 175 175,000 Louisiana -- 13.14% Gulf Coast Industrial Development Authority, Environmental Facilities Revenue Bonds (CITGO Petroleum Corporation Project), Taxable Series 1998 (Royal Bank of Canada), 6.63%, 11-6-00.............................. 200 200,000 Industrial Development Board of the Parish Of Calcasieu, Inc., Environmental Revenue Bonds (CITGO Petroleum Corporation Project), Series 1996 (Taxable), (Westdeutsche Landesbank Girozentrale), 6.62%, 12-6-00.............................. 185 185,000 Industrial District No. 3 of the Parish of West Baton Rouge, State of Louisiana, Variable Rate Demand Revenue Bonds, Series 1995 (Taxable), (The Dow Chemical Company Project), 6.64%, 11-3-00.............................. 180 180,000 565,000 Texas -- 5.79% Dallas Area Rapid Transit, Sales Tax Revenue Commercial Paper Notes, Series D (Westdeutsche Landesbank Girozentrale), 6.54%, 10-11-00............................. 150 149,728 Metrocrest Hospital Authority, Series 1989A (The Bank of New York), 6.62%, 10-25-00............................. 100 99,558 249,286 Virginia -- 2.33% Shoosmith Bros., Inc., Taxable Variable Rate Demand Bonds, Series 2000 (Wachovia Bank, N.A.), 6.62%, 10-4-00.............................. 100 100,000 Washington -- 2.33% Wenatchee Valley Clinic, P.S., Floating Rate Taxable Bonds, Series 1998 (U.S. Bank National Association), 6.59%, 10-5-00.............................. 100 100,000 TOTAL MUNICIPAL OBLIGATIONS -- 36.23% ........ $1,557,843 (Cost: $1,557,843) TOTAL INVESTMENT SECURITIES -- 96.82% ........ $4,163,647 (Cost: $4,163,647) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 3.18%........................ 136,640 NET ASSETS -- 100.00% ........................ $4,300,287 Notes to Schedule of Investments See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MONEY MARKET FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3) $4,164 Receivables: Fund shares sold............................... 110 Dividends and interest......................... 13 Prepaid registration fees ....................... 36 ------ Total assets ................................. 4,323 ------ Liabilities Payable to Fund shareholders .................... 13 Dividends payable ............................... 2 Accrued transfer agency and dividend disbursing (Note 2)............................ 1 Accrued distribution fee (Note 2) ............... --* Accrued service fee (Note 2) .................... --* Other .......................................... 7 ------ Total liabilities ............................ 23 ------ Total net assets............................ $4,300 ====== Net Assets $0.01 par value capital stock Capital stock.................................. $ 43 Additional paid-in capital..................... 4,257 Net assets applicable to outstanding units of capital............................ $4,300 Net asset value, redemption and offering price per share: Class A ......................................... $1.00 Class B ......................................... $1.00 Class C ......................................... $1.00 Capital shares outstanding: Class A ......................................... 3,403 Class B ......................................... 77 Class C ......................................... 820 Capital shares authorized......................... 350,000 *Not shown due to rounding. STATEMENT OF OPERATIONS MONEY MARKET FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INVESTMENT INCOME Interest and amortization (Note 1B) ....................... $64 --- Expenses (Note 2): Investment management fee................................ 4 Registration fees........................................ 4 Custodian fees........................................... 2 Distribution fee: Class A ................................................ -- Class B ................................................ --* Class C ................................................ 1 Legal fees............................................... 1 Transfer agency and dividend disbursing: Class A ................................................ 1 Class B ................................................ --* Class C ................................................ --* Service fee: Class A ................................................ --* Class B ................................................ --* Class C ................................................ --* Other.................................................... 3 --- Total .................................................. 16 Less expenses in excess of voluntary waiver of management fee (Note 2) .......................... (4) --- Total expenses ...................................... 12 --- Net investment income.............................. 52 --- Net increase in net assets resulting from operations ............................... $52 === *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS MONEY MARKET FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income.......................... $ 52 ------ Net increase in net assets resulting from operations.................................. 52 ------ Distributions to shareholders from net investment income (Note 1E):* Class A ...................................... (44) Class B ...................................... --** Class C ...................................... (8) ------ (52) ------ Capital share transactions (Note 5) ............. 1,300 ------ Total increase................................. 1,300 Net Assets Beginning of period ............................. 3,000 ------ End of period ................................... $4,300 ====== Undistributed net investment income ............. $ -- ====== *See "Financial Highlights" on pages 95-97. **Not shown due to rounding. FINANCIAL HIGHLIGHTS MONEY MARKET FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 6-30-00* to 9-30-00 Net asset value, beginning of period.............. $1.00 ------- Net investment income............................. 0.0139 Less dividends declared........................... (0.0139) ------- Net asset value, end of period.................... $1.00 ======= Total return...................................... 1.33% Net assets, end of period (000 omitted)........... $3,403 Ratio of expenses to average net assets........... 1.07%** Ratio of net investment income to average net assets ...................................... 5.42%** *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS MONEY MARKET FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-12-00* to 9-30-00 Net asset value, beginning of period.............. $1.00 ------- Net investment income............................. 0.0101 Less dividends declared........................... (0.0101) ------- Net asset value, end of period.................... $1.00 ======= Total return...................................... 0.96% Net assets, end of period (000 omitted)........... $77 Ratio of expenses to average net assets........... 2.56%** Ratio of net investment income to average net assets ...................................... 4.13%** *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS MONEY MARKET FUND Class C Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $1.00 ------- Net investment income............................. 0.0114 Less dividends declared........................... (0.0114) ------- Net asset value, end of period.................... $1.00 ======= Total return...................................... 1.09% Net assets, end of period (000 omitted)........... $820 Ratio of expenses to average net assets........... 2.01%** Ratio of net investment income to average net assets ...................................... 4.68%** *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND Municipal Bond Fund GOAL To seek income which is not subject to Federal income tax. (Income may be subject to state and local taxes, and a significant portion may be subject to the Federal alternative minimum tax.) Strategy Invests primarily in tax-exempt municipal bonds, mainly of investment grade. The Fund diversifies its holdings among two main types of municipal bonds: general obligation bonds and revenue bonds. Founded 1992 Scheduled Dividend Frequency Monthly Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Dividends Paid $0.21 ===== Net Asset Value on 9-30-00 $10.25 3-31-00 10.11 ------ Change per share $ 0.14 ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -4.87% -0.65% -4.58% 0.42% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 4.25% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)9-15-00 for Class A shares and 8-8-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 1.42% 2.19% 5-year period ended 9-30-00 4.16% -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 4.89% -0.50% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)9-21-92 for Class C shares and 12-30-98 for Class Y shares (the date on which shares were first acquired and continuously held by shareholders). SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND Portfolio Highlights On September 30, 2000, Municipal Bond Fund had net assets totaling $25,796,455 invested in a diversified portfolio. As a shareholder of Municipal Bond Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Hospital Revenue Bonds $18.04 Housing Revenue Bonds $14.39 Lifecare/Nursing Centers Revenue Bonds $13.47 Education Revenue Bonds $11.25 Cash and Cash Equivalents and Options $ 8.58 Special Tax Bonds $ 8.44 Other Municipal Bonds $ 6.48 Industrial Revenue Bonds $ 4.95 Leasing/Certificates of Participation Bonds $ 3.95 Sales Revenue Bonds $ 3.92 Resource Recovery Revenue Bonds $ 3.57 Electric Utility Revenue Bonds $ 2.96 THE INVESTMENTS OF MUNICIPAL BOND FUND Principal Amount in MUNICIPAL BONDS Thousands Value Arizona -- 1.07% City of Bullhead City, Arizona, Bullhead Parkway Improvement District, Improvement Bonds, 6.1%, 1-1-13 ...................................... $ 270 $276,075 Arkansas -- 1.57% Baxter County, Arkansas, Industrial Development Revenue Refunding Bonds (Aeroquip Corporation Project), Series 1993, 5.8%, 10-1-13 ..................................... 400 405,000 Colorado -- 10.31% City of Aspen, Colorado, Sales Tax Revenue Bonds, Series 1999, 5.25%, 11-1-15 .................................... 1,050 1,010,625 Boulder County, Colorado, Hospital Development Revenue Bonds (Longmont United Hospital Project), Series 1997, 5.6%, 12-1-27 ..................................... 1,000 833,750 Colorado Health Facilities Authority, Hospital Revenue Bonds (Steamboat Springs Health Care Association Project), Series 1997, 5.75%, 9-15-22 .................................... 1,000 816,250 2,660,625 District of Columbia -- 1.52% District of Columbia, Redevelopment Land Agency (Washington, D.C.), Sports Arena Special Tax Revenue Bonds (Series 1996), 5.625%, 11-1-10 ................................... 390 392,324 Florida -- 2.70% Housing Finance Authority of Palm Beach County, Florida, Multifamily Housing Revenue Bonds (Windsor Park Apartments Project), Series 1998A, 5.9%, 6-1-38 ...................................... 750 697,500 Illinois -- 1.90% School District Number 116, Champaign County, Illinois (Urbana), General Obligation School Building Bonds, Series 1999C, 0.0%, 1-1-11 ...................................... 850 489,813 Indiana -- 5.43% Dyer (Indiana) Redevelopment Authority, Economic Development Lease Rental Bonds, Series 1999, 6.5%, 1-15-24 ..................................... 1,000 1,012,500 East Chicago Elementary School Building Corporation (Lake County, Indiana), First Mortgage Bonds, Series 1993A, 5.5%, 1-15-16 ..................................... 400 387,500 1,400,000 Iowa -- 1.34% Scott County, Iowa, Refunding Certificates of Participation (County Golf Course Project, Series 1993), 6.2%, 5-1-13 ...................................... 340 344,675 Kansas -- 4.37% Sedgwick County, Kansas and Shawnee County, Kansas, Single Family Mortgage Revenue Bonds (Mortgage-Backed Securities Program), 2000 Series A-2 (AMT), 6.0%, 12-1-31 ..................................... 1,000 1,128,750 Maryland -- 4.14% Montgomery County Revenue Authority (Maryland), Golf Course System Revenue Bonds, Series 1996A, 6.125%, 10-1-22 ................................... 650 626,438 Maryland Health and Higher Educational Facilities Authority, Project and Refunding Revenue Bonds, Doctors Community Hospital Issue, Series 1993, 5.75%, 7-1-13 ..................................... 500 442,500 1,068,938 Massachusetts -- 7.65% Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Caritas Christi Obligated Group Issue, Series A, 5.625%, 7-1-20 .................................... 1,250 1,051,562 Massachusetts Industrial Finance Agency, Resource Recovery Revenue Refunding Bonds (Ogden Haverhill Project), Series 1998A, 5.5%, 12-1-13 ..................................... 1,000 922,500 1,974,062 Michigan -- 6.43% Michigan Strategic Fund, Limited Obligation Revenue Bonds (Porter Hills Presbyterian Village, Inc. Project), Series 1998, 5.375%, 7-1-28 .................................... 1,000 865,000 City of Flint Hospital Building Authority, Revenue Rental Bonds, Series 1998B (Hurley Medical Center), 5.375%, 7-1-18 .................................... 1,000 793,750 1,658,750 Minnesota -- 5.28% City of Victoria, Minnesota, Private School Facility Revenue Bonds (Holy Family Catholic High School Project), Series 1999A, 5.6%, 9-1-19 ...................................... 1,500 1,361,250 Missouri -- 8.88% The Industrial Development Authority of the County of Taney, Missouri, Hospital Revenue Bonds (The Skaggs Community Hospital Association), Series 1998, 5.3%, 5-15-18 ..................................... 860 715,950 Health and Educational Facilities Authority of the State of Missouri, Educational Facilities Revenue Bonds (Southwest Baptist University Project), Series 1998, 5.375%, 10-1-23 ................................... 700 627,375 Tax Increment Financing Commission of Kansas City, Missouri, Tax Increment Refunding and Improvement Revenue Bonds (Briarcliff West Project), Series 1999, 6.1%, 8-1-14 ...................................... 500 496,250 City of Fenton, Missouri, Public Facilities Authority, Leasehold Revenue Bonds, Series 1997 (City of Fenton, Missouri, Lessee), 5.25%, 1-1-18....................................... 500 450,625 2,290,200 Nebraska -- 2.04% Nebraska Higher Education Loan Program, Inc., Senior Subordinate Bonds, 1993-2 Series A-5A, 6.2%, 6-1-13 ...................................... 500 526,250 Oklahoma -- 4.66% Oklahoma Housing Finance Agency, Single Family Mortgage Revenue Bonds (Homeownership Loan Program), 1996 Series A, 7.05%, 9-1-26 ..................................... 875 926,406 Tulsa Public Facilities Authority (Oklahoma): Assembly Center Lease Payment Revenue Bonds, Refunding Series 1985, 6.6%, 7-1-14 ...................................... 200 224,000 Recreational Facilities Revenue Bonds, Series 1985, 6.2%, 11-1-12 ..................................... 50 52,000 1,202,406 Pennsylvania -- 6.49% Montgomery County Industrial Development Authority, Retirement Community Revenue Bonds (Adult Communities Total Services, Inc. Obligated Group), Series 1996B, 5.625%, 11-15-12 .................................. 1,750 1,673,438 Tennessee -- 3.63% The Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, Tennessee, Multi-Modal Interchangeable Rate Health Facility Revenue Bonds (Richland Place, Inc. Project), Series 1993, 5.5%, 5-1-23 ...................................... 1,000 936,250 Texas -- 8.62% Texas Department of Housing and Community Affairs, Single Family Mortgage Revenue Bonds, 1997 Series D (AMT) TEAMS Structure, 5.7%, 9-1-29 ...................................... 1,000 958,750 Sabine River Authority of Texas, Collateralized Pollution Control Revenue Refunding Bonds (Texas Utilities Electric Company Project), Series 1993B Bonds, 5.85%, 5-1-22 ..................................... 800 763,000 Dallas-Fort Worth International Airport, Facility Improvement Corporation, American Airlines, Inc., Revenue Refunding Bonds, Series 2000B, 6.05%, 5-1-29....................................... 500 502,500 2,224,250 Utah -- 3.39% Tooele County, Utah, Hazardous Waste Treatment Revenue Bonds (Union Pacific Corporation/USPCI, Inc. Project), Series A, 5.7%, 11-1-26 ..................................... $1,000 $ 873,750 TOTAL MUNICIPAL BONDS -- 91.42%..................... $ 23,584,306 (Cost: $25,100,081) Number of OPTIONS -- 0.15% Contracts December 96 Put Options on 2000 Treasury Bond Futures ........................................ 100 $ 39,062 (Cost: $57,047) TOTAL SHORT-TERM SECURITIES -- 6.85%................ $ 1,766,000 (Cost: $1,766,000) TOTAL INVESTMENT SECURITIES -- 98.42%............... $ 25,389,368 (Cost: $26,923,128) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 1.58%.. 407,087 NET ASSETS -- 100.00%............................... $ 25,796,455 Notes to Schedule of Investments See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MUNICIPAL BOND FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3)................................ $25,389 Cash .......................................... 1 Receivables: Dividends and interest......................... 403 Fund shares sold............................... 61 Prepaid insurance premium ....................... 20 Other assets .................................... 3 ------- Total assets ................................. 25,877 ------- Liabilities Payable to Fund shareholders .................... 58 Dividends payable ............................... 8 Accrued transfer agency and dividend disbursing (Note 2)............................ 6 Accrued service fee (Note 2) .................... 5 Accrued accounting services fee (Note 2) ........ 2 Accrued distribution fee (Note 2) ............... 1 Accrued management fee (Note 2) ................. 1 ------- Total liabilities ............................ 81 ------- Total net assets............................ $25,796 ======= Net Assets $0.01 par value capital stock Capital stock.................................. $ 25 Additional paid-in capital..................... 27,784 Accumulated undistributed loss: Accumulated undistributed net realized loss on investments ............................... (479) Net unrealized depreciation of investments..... (1,534) ------- Net assets applicable to outstanding units of capital.................................. $25,796 ======= Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $10.25 Class B ......................................... $10.25 Class C ......................................... $10.25 Class Y ......................................... $10.25 Capital shares outstanding: Class A ......................................... 3 Class B ......................................... 1 Class C ......................................... 2,512 Class Y ......................................... --* Capital shares authorized......................... 200,000 *Not shown due to rounding. STATEMENT OF OPERATIONS MUNICIPAL BOND FUND For the Six Months Ended September 30, 2000 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization...................... $823 ---- Expenses (Note 2): Distribution fee: Class A ...................................... -- Class B ...................................... --* Class C ...................................... 100 Class Y ...................................... --* Investment management fee...................... 70 Transfer agency and dividend disbursing: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 34 Service fee: Class A ...................................... --* Class B ...................................... --* Class C ...................................... 33 Registration fees.............................. 14 Accounting services fee........................ 10 Audit fees..................................... 7 Custodian fees................................. 1 Legal fees..................................... 1 Shareholder servicing fee -- Class Y........... --* Other.......................................... 2 ---- Total expenses ............................... 272 ---- Net investment income....................... 551 ---- Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3) Realized net loss on securities ................. (417) Realized net gain on put options ................ 17 ---- Realized net loss on investments............... (400) ---- Unrealized appreciation in value of securities during the period................... 776 Unrealized depreciation on options during the period..................................... (18) ---- Unrealized appreciation........................ 758 ---- Net gain on investments ...................... 358 ---- Net increase in net assets resulting from operations ........................... $909 ==== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS MUNICIPAL BOND FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 Decrease in Net Assets Operations: Net investment income..................... $ 551 $ 1,487 Realized net gain (loss) on investments... (400) 48 Unrealized appreciation (depreciation).... 758 (4,314) ----------------------- Net increase (decrease) in net assets resulting from operations.............. 909 (2,779) ----------------------- Distributions to shareholders from (Note 1E):* Net investment income Class A ................................. --* -- Class B ................................. --* -- Class C ................................. (551) (1,487) Class Y ................................. --* --* Realized net gain on investment transactions: Class C ................................. -- (58) Class Y ................................. - -* ----------------------- (551) (1,545) ----------------------- Capital share transactions (Note 5) ........ (2,925) (10,221) ----------------------- Total decrease............................ (2,567) (14,545) Net Assets Beginning of period ........................ 28,363 42,908 ----------------------- End of period .............................. $25,796 $28,363 ======================= Undistributed net investment income ........ $ -- $ -- ======================= *Not shown due to rounding. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 9-15-00* to 9-30-00 Net asset value, beginning of period.............. $10.33 ------ Income (loss) from investment operations: Net investment income ........................... 0.02 Net realized and unrealized loss on investments.................................... (0.08) ------ Total from investment operations.................. (0.06) ------ Less distributions: Declared from net investment income ............. (0.02) From capital gains .............................. (0.00) ------ Total distributions............................... (0.02) ------ Net asset value, end of period.................... $10.25 ====== Total return**.................................... -0.65% Net assets, end of period (000 omitted)........... $26 Ratio of expenses to average net assets........... 1.51%+ Ratio of net investment income to average net assets ...................................... 4.54%+ Portfolio turnover rate........................... 6.62%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 8-8-00* to 9-30-00 Net asset value, beginning of period.............. $10.26 ------ Income from investment operations: Net investment income ........................... 0.06 Net realized and unrealized loss on investments.................................... (0.01) ------ Total from investment operations.................. 0.05 ------ Less distributions: Declared from net investment income ............. (0.06) From capital gains .............................. (0.00) ------ Total distributions............................... (0.06) ------ Net asset value, end of period.................... $10.25 ====== Total return...................................... 0.42% Net assets, end of period (000 omitted)........... $9 Ratio of expenses to average net assets........... 2.27%** Ratio of net investment income to average net assets ...................................... 3.73%** Portfolio turnover rate........................... 6.62%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period: For the six months For the fiscal year ended March 31, ended ----------------------------------------- 9-30-00 2000 1999 1998 1997 1996 Net asset value, beginning of period $10.11 $11.24 $11.45 $10.74 $10.63 $10.30 --------------------------------------------------- Income (loss) from investment operations: Net investment income............ 0.21 0.42 0.42 0.44 0.45 0.43 Net realized and unrealized gain (loss) on investments.... 0.14 (1.11) 0.10 0.71 0.11 0.33 --------------------------------------------------- Total from investment operations........ 0.35 (0.69) 0.52 1.15 0.56 0.76 --------------------------------------------------- Less distributions: Declared from net investment income. (0.21) (0.42) (0.42) (0.44) (0.45) (0.43) From capital gains . (0.00) (0.02) (0.31) (0.00) (0.00) (0.00) --------------------------------------------------- Total distributions.. (0.21) (0.44) (0.73) (0.44) (0.45) (0.43) --------------------------------------------------- Net asset value, end of period ...... $10.25 $10.11 $11.24 $11.45 $10.74 $10.63 =================================================== Total return......... 3.52% -6.21% 4.64% 10.89% 5.32% 7.48% Net assets, end of period (in millions) ...... $26 $28 $43 $40 $37 $34 Ratio of expenses to average net assets . 2.05%* 1.98% 1.88% 1.89% 1.92% 1.93% Ratio of net investment income to average net assets ......... 4.15%* 3.94% 3.68% 3.94% 4.18% 4.05% Portfolio turnover rate ............... 6.62% 16.95% 41.53% 27.86% 34.72% 42.02% (A)See Note 5. *Annualized. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the For the For the For the six fiscal period from For the fiscal period from months year 12-30-98+ period year 12-29-95* ended ended to ended ended to 9-30-00 3-31-00 3-31-99 6-23-97** 3-31-97 3-31-96 Net asset value, beginning of period $10.11 $11.24 $11.58 $10.74 $10.63 $10.94 Income (loss) from investment operations: Net investment income............ 0.25 0.48 0.13 0.10 0.52 0.12 Net realized and unrealized gain (loss) on investments.... 0.14 (1.11) (0.03) 0.29 0.11 (0.31) Total from investment operations ......... 0.39 (0.63) 0.10 0.39 0.63 (0.19) Less distributions: Declared from net investment income. (0.25) (0.48) (0.13) (0.10) (0.52) (0.12) From capital gains . (0.00) (0.02) (0.31) (0.00) (0.00) (0.00) Total distributions.. (0.25) (0.50) (0.44) (0.10) (0.52) (0.12) Net asset value, end of period ...... $10.25 $10.11 $11.24 $11.03 $10.74 $10.63 Total return......... 3.97% -5.69% 0.80% 3.22% 5.96% -1.80% Net assets, end of period (000 omitted) ...... $2 $2 $2 $0 $1 $1 Ratio of expenses to average net assets ............. 1.35%++ 1.40% 1.00%++ 4.95%++ 1.28% 1.18%++ Ratio of net investment income to average net assets ......... 4.87%++ 4.52% 4.40%++ 4.12%++ 4.83% 4.33%++ Portfolio turnover rate ............... 6.62% 16.95% 41.53%++ 27.86%++ 34.72% 42.02%++ *Initial commencement of operations. **All outstanding shares were redeemed on June 23, 1997 at the ending net asset value shown in the table. +Recommencement of operations. ++Annualized. SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND Science and Technology Fund GOAL To seek long-term capital growth. Strategy Invests primarily in the equity securities of U.S. and foreign science and technology companies. Science and technology companies have products, processes or services that are being or are expected to be significantly benefited by the use or commercial application of scientific or technological developments or discoveries. Founded 1997 Scheduled Dividend Frequency Annually (December) Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Net Asset Value on 9-30-00 $ 34.72 3-31-00 45.03 ------- Change per share $(10.31) ======= Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -6.13% -0.40% -5.54% -0.57% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)7-3-00 for Class A and Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 56.51% 55.77% 5-year period ended 9-30-00 -- -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 48.40% 58.44% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)7-31-97 for Class C shares and 6-9-98 for Class Y shares (the date on which shares were first acquired by shareholders). The recent growth rate and volatility in the stock market has helped produce short-term returns that may not be typical and may not continue in the future. A substantial portion of the Fund's returns during recent periods is attributable to investments in initial public offerings. No assurance can be given that the Fund will continue to be able to invest in such offerings to the same extent as it has in the past or that future offerings in which the Fund invests will have as equally beneficial impact on performance. SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND Portfolio Highlights On September 30, 2000, Science and Technology Fund had net assets totaling $224,254,536 invested in a diversified portfolio of: 76.06% Common Stocks 23.94% Cash and Cash Equivalents As a shareholder of Science and Technology Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Manufacturing Stocks $45.49 Cash and Cash Equivalents $23.94 Services Stocks $22.12 Transportation, Communication, Electric, Gas and Sanitary Services Stocks $ 4.79 Mining Stocks $ 2.19 Finance, Insurance and Real Estate Stocks $ 1.47 THE INVESTMENTS OF SCIENCE AND TECHNOLOGY FUND COMMON STOCKS Shares Value Business Services -- 18.89% America Online, Inc.*............................... 79,900 $ 4,294,625 CheckFree Holdings Corporation*..................... 22,200 930,319 Critical Path, Inc.*................................ 21,700 1,309,459 eBay Inc.*.......................................... 36,900 2,535,722 Electronic Data Systems Corporation................. 5,000 207,500 Getty Images, Inc.*................................. 72,000 2,189,250 Intuit Inc.*........................................ 70,000 3,992,187 NetIQ Corporation*.................................. 39,500 2,595,891 Oracle Corporation*................................. 24,900 1,960,875 Phone.com, Inc.*.................................... 32,500 3,706,016 Redback Networks*................................... 31,000 5,092,719 Siebel Systems, Inc.*............................... 34,600 3,850,331 TMP Worldwide Inc.*................................. 38,600 3,097,650 Veritas Software Corp.*............................. 46,500 6,613,172 42,375,716 Chemicals and Allied Products -- 14.09% American Home Products Corporation.................. 42,200 2,386,938 Bristol-Myers Squibb Company........................ 84,000 4,798,500 Forest Laboratories, Inc.*.......................... 52,900 6,066,969 Johnson & Johnson................................... 24,800 2,329,650 King Pharmaceuticals, Inc.*......................... 60,100 2,009,594 Merck & Co., Inc.................................... 32,600 2,426,662 Pfizer Inc.......................................... 75,000 3,370,313 Pharmacyclics, Inc.*................................ 50,500 2,529,734 QLT Inc.*........................................... 43,600 3,091,512 Schering-Plough Corporation......................... 55,600 2,585,400 31,595,272 Communication -- 2.50% EchoStar Communications Corporation, Class A*....... 48,000 2,535,000 USA Networks, Inc.*................................. 140,000 3,066,875 5,601,875 Depository Institutions -- 1.47% Concord EFS, Inc.*.................................. 93,000 3,304,406 Electronic and Other Electric Equipment -- 14.67% Broadcom Corporation, Class A*...................... 26,000 6,339,125 Gemstar -- TV Guide International, Inc.*............ 24,500 2,136,859 Inet Technologies, Inc.*............................ 38,500 1,132,141 Integrated Device Technology, Inc.*................. 27,500 2,487,891 JDS Uniphase Corporation*........................... 17,800 1,684,881 LSI Logic Corporation*.............................. 52,700 1,541,475 Maxim Integrated Products, Inc.*.................... 44,600 3,586,119 McData Corporation*................................. 3,800 467,044 Micron Technology, Inc.*............................ 54,000 2,484,000 Nokia Corporation, Series A, ADR.................... 84,500 3,364,198 Nortel Networks Corporation......................... 53,500 3,186,594 Sanmina Corporation*................................ 22,000 2,061,812 Sycamore Networks, Inc.*............................ 22,500 2,423,672 32,895,811 Engineering and Management Services -- 2.59% Gene Logic Inc.*.................................... 40,000 917,500 Incyte Pharmaceuticals, Inc.*....................... 45,000 1,849,219 Paychex, Inc........................................ 57,600 3,036,600 5,803,319 Health Services -- 0.64% Tenet Healthcare Corporation*....................... 39,500 1,436,813 Industrial Machinery and Equipment -- 11.44% Applied Materials, Inc.*............................ 26,800 1,587,900 Caterpillar Inc..................................... 61,200 2,065,500 Cisco Systems, Inc.*................................ 33,300 1,839,825 Cooper Cameron Corporation*......................... 13,600 1,002,150 EMC Corporation*.................................... 30,200 2,993,575 Ingersoll-Rand Company.............................. 50,400 1,707,300 Juniper Networks, Inc.*............................. 46,800 10,237,500 Sun Microsystems, Inc.*............................. 35,900 4,217,128 25,650,878 Instruments and Related Products -- 2.38% Beckman Coulter, Inc................................ 8,600 663,275 Guidant Corporation*................................ 49,200 3,477,825 PE Corporation -- Celera Genomics Group*............ 12,000 1,195,500 5,336,600 Oil and Gas Extraction -- 2.19% Apache Corporation.................................. 65,500 $ 3,872,688 Schlumberger Limited................................ 12,600 1,037,137 4,909,825 Telephone and Radiotelephone Communication -- 2.29% BellSouth Corporation............................... 43,000 1,730,750 Illuminet Holdings, Inc.*........................... 31,000 855,406 Sprint Corporation -- PCS Group*.................... 72,800 2,552,550 5,138,706 Transportation Equipment -- 2.91% Boeing Company (The)................................ 67,500 4,252,500 General Dynamics Corporation........................ 36,100 2,267,531 6,520,031 TOTAL COMMON STOCKS -- 76.06%....................... $170,569,252 (Cost: $120,387,252) Principal Amount in SHORT-TERM SECURITIES Thousands Electric, Gas and Sanitary Services -- 2.91% Pacific Gas & Electric Co., 6.5%, 10-6-00 ..................................... $ 3,925 3,921,457 Southern California Edison Co., 6.48%, 10-4-00 .................................... 2,614 2,612,588 6,534,045 Food and Kindred Products -- 2.42% General Mills, Inc., 5.67%, Master Note ................................ 5,421 5,421,000 Food Stores -- 4.46% Albertson's Inc., 6.54%, 10-3-00 .................................... 10,000 9,996,367 Instruments and Related Products -- 1.78% Baxter International Inc., 6.5%, 10-19-00 .................................... 4,000 3,987,000 Nondepository Institutions -- 3.16% PACCAR Financial Corp., 6.49%, Master Note ................................ 3,547 3,547,000 Textron Financial Corp., 6.75%, 10-2-00 .................................... 3,535 3,534,337 7,081,337 Printing and Publishing -- 4.90% Tribune Co., 6.6%, 10-6-00 ..................................... 11,000 10,989,917 Telephone and Radiotelephone Communication -- 2.13% Bell Atlantic Financial Services, Inc., 6.5%, 10-11-00 .................................... 4,785 4,776,360 TOTAL SHORT-TERM SECURITIES -- 21.76%............... $ 48,786,026 (Cost: $48,786,026) TOTAL INVESTMENT SECURITIES -- 97.82%............... $219,355,278 (Cost: $169,173,278) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 2.18%.. 4,899,258 NET ASSETS -- 100.00%............................... $224,254,536 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES SCIENCE AND TECHNOLOGY FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3)................................ $219,355 Cash .......................................... 3 Receivables: Investment securities sold..................... 4,970 Fund shares sold............................... 337 Dividends and interest......................... 64 Prepaid insurance premium ....................... 2 Other assets .................................... 20 -------- Total assets ................................. 224,751 -------- Liabilities Payable to Fund shareholders .................... 357 Accrued transfer agency and dividend disbursing (Note 2)............................ 58 Accrued service fee (Note 2) .................... 46 Accrued management fee (Note 2) ................. 10 Accrued distribution fee (Note 2) ............... 9 Accrued accounting services fee (Note 2) ........ 5 Other .......................................... 11 -------- Total liabilities ............................ 496 -------- Total net assets............................ $224,255 ======== Net Assets $0.01 par value capital stock Capital stock.................................. $ 65 Additional paid-in capital..................... 139,040 Accumulated undistributed income (loss): Accumulated undistributed net investment loss.. (621) Accumulated undistributed net realized gain on investments .......................... 35,589 Net unrealized appreciation of investments..... 50,182 -------- Net assets applicable to outstanding units of capital............................ $224,255 ======== Net asset value per share (net assets divided by shares outstanding): Class A ......................................... $34.77 Class B ......................................... $34.71 Class C ......................................... $34.72 Class Y ......................................... $35.13 Capital shares outstanding: Class A ......................................... 91 Class B ......................................... 81 Class C ......................................... 6,244 Class Y ......................................... 43 Capital shares authorized......................... 400,000 STATEMENT OF OPERATIONS SCIENCE AND TECHNOLOGY FUND For the Six Months Ended September 30, 2000 (In Thousands) INVESTMENT LOSS Income (Note 1B): Interest and amortization...................... $ 1,732 Dividends...................................... 90 -------- Total income ................................. 1,822 -------- Expenses (Note 2): Investment management fee...................... 923 Distribution fee: Class A ...................................... --* Class B ...................................... 3 Class C ...................................... 805 Class Y ...................................... 2 Transfer agency and dividend disbursing: Class A ...................................... 2 Class B ...................................... 2 Class C ...................................... 320 Service fee: Class A ...................................... 1 Class B ...................................... 1 Class C ...................................... 266 Registration fees.............................. 32 Accounting services fee........................ 25 Custodian fees................................. 11 Audit fees..................................... 7 Legal fees..................................... 6 Shareholder servicing fee -- Class Y........... 1 Other.......................................... 36 -------- Total expenses ............................... 2,443 -------- Net investment loss......................... (621) -------- Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 3) Realized net gain on investments ................ 30,284 Unrealized depreciation in value of investments during the period.................. (95,046) -------- Net loss on investments ...................... (64,762) -------- Net decrease in net assets resulting from operations ........................... $(65,383) ======== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS SCIENCE AND TECHNOLOGY FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 Increase (Decrease) in Net Assets Operations: Net investment loss....................... $ (621) $ (2,440) Realized net gain on investments.......... 30,284 9,123 Unrealized appreciation (depreciation).... (95,046) 133,188 ----------------------- Net increase (decrease) in net assets resulting from operations.............. (65,383) 139,871 ----------------------- Distributions to shareholders from realized net gain on investment transactions (Note 1E):* Class C ................................. -- (1,295) Class Y ................................. -- (9) ----------------------- -- (1,304) ----------------------- Capital share transactions (Note 5) ........ 4,657 101,990 ----------------------- Total increase (decrease)................. (60,726) 240,557 Net Assets Beginning of period ........................ 284,981 44,424 ----------------------- End of period .............................. $224,255 $284,981 ======================= Undistributed net investment loss .......... $(621) $ -- ======================= *See "Financial Highlights" on pages 123-126. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $34.91 ------ Income (loss) from investment operations: Net investment income ........................... 0.00 Net realized and unrealized loss on investments.................................... (0.14) ------ Total from investment operations.................. (0.14) ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $34.77 ====== Total return**.................................... -0.40% Net assets, end of period (in millions)........... $3 Ratio of expenses to average net assets........... 1.78%+ Ratio of net investment income to average net assets ...................................... 0.06%+ Portfolio turnover rate........................... 58.21%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period.............. $34.91 ------ Income (loss) from investment operations: Net investment loss ............................. (0.00) Net realized and unrealized loss on investments.................................... (0.20) ------ Total from investment operations.................. (0.20) ------ Less distributions: From net investment income ...................... (0.00) From capital gains .............................. (0.00) ------ Total distributions............................... (0.00) ------ Net asset value, end of period.................... $34.71 ====== Total return...................................... -0.57% Net assets, end of period (in millions)........... $3 Ratio of expenses to average net assets........... 2.48%** Ratio of net investment loss to average net assets ...................................... -0.58%** Portfolio turnover rate........................... 58.21%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period: For the For the six For the fiscal year period from months ended March 31, 7-31-97* ended ------------------- to 9-30-00 2000 1999 3-31-98 Net asset value, beginning of period ............. $45.03 $17.45 $12.01 $10.00 ----------------------------------------- Income (loss) from investment operations: Net investment loss (0.10) (0.95) (0.09) (0.07) Net realized and unrealized gain (loss) on investments....... (10.21) 28.77 5.53 2.08 ----------------------------------------- Total from investment operations ......... (10.31) 27.82 5.44 2.01 ----------------------------------------- Less distributions from capital gains .............. (0.00) (0.24) (0.00) (0.00) ----------------------------------------- Net asset value, end of period ...... $34.72 $45.03 $17.45 $12.01 ========================================= Total return......... -22.90% 159.75% 45.30% 20.10% Net assets, end of period (in millions) ...... $217 $283 $44 $8 Ratio of expenses to average net assets . 2.25%** 2.20% 2.57% 3.20%** Ratio of net investment loss to average net assets ......... -0.58%** -1.68% -1.26% -1.66%** Portfolio turnover rate ............... 58.21% 44.19% 51.00% 26.64% (A)See Note 5. *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the For the six fiscal period from months year 6-9-98* ended ended to 9-30-00 3-31-00 3-31-99 Net asset value, beginning of period.. $45.36 $17.65 $12.20 ------------------------------- Income (loss) from investment operations: Net investment income (loss) ........ 0.08 (6.09) 0.01 Net realized and unrealized gain (loss) on investments.............. (10.31) 34.04 5.44 ------------------------------- Total from investment operations...... (10.23) 27.95 5.45 ------------------------------- Less distribution from capital gains.. (0.00) (0.24) (0.00) ------------------------------- Net asset value, end of period........ $35.13 $45.36 $17.65 =============================== Total return.......................... -22.55% 158.67% 44.67% Net assets, end of period (000 omitted) ....................... $1,493 $2,108 $53 Ratio of expenses to average net assets .......................... 1.35%** 1.36% 0.62%** Ratio of net investment income (loss) to average net assets ............... 0.31%** -0.96% 0.54%** Portfolio turnover rate............... 58.21% 44.19% 51.00%** *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND Small Cap Growth Fund (formerly, Growth Fund) GOAL To seek growth of capital. Strategy Invests primarily in common stocks of U.S. and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category. The Fund emphasizes relatively new or unseasoned companies in the early stages of development or smaller companies positioned in new or emerging industries where there is an opportunity for rapid growth. Founded 1992 Scheduled Dividend Frequency Annually (December) Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Net Asset Value on 9-30-00 $18.22 3-31-00 21.64 ------ Change per share $(3.42) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -12.42% -7.08% -10.13% -5.40% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)7-3-00 for Class A shares and 7-6-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 31.04% 32.15% 5-year period ended 9-30-00 22.59% -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 24.68% 24.33% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)9-21-92 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). The recent growth rate and volatility in the stock market has helped produce short-term returns that may not be typical and may not continue in the future. SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND Portfolio Highlights On September 30, 2000, Small Cap Growth Fund had net assets totaling $668,365,517 invested in a diversified portfolio of: 78.11% Common Stocks 21.39% Cash and Cash Equivalents 0.50% Corporate Debt Security As a shareholder of Small Cap Growth Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Services Stocks $39.06 Manufacturing Stocks $24.59 Cash and Cash Equivalents $21.39 Transportation, Communication, Electric and Sanitary Services Stocks $ 8.80 Wholesale and Retail Trade Stocks $ 4.53 Mining Stocks $ 1.13 Corporate Debt Security $ 0.50 THE INVESTMENTS OF SMALL CAP GROWTH FUND COMMON STOCKS Shares Value Automotive Dealers and Service Stations -- 1.01% O'Reilly Automotive, Inc.* ................... 460,000 $ 6,741,875 Business Services -- 20.40% Catalina Marketing Corporation* .............. 147,600 5,553,450 Cerner Corporation* .......................... 749,200 34,814,388 CheckFree Holdings Corporation* .............. 370,000 15,505,312 Digital Insight Corporation* ................. 464,000 16,457,500 FactSet Research Systems, Inc. ............... 338,000 12,708,800 Getty Images, Inc.* .......................... 620,000 18,851,875 MemberWorks Incorporated* .................... 465,000 15,272,344 Sanchez Computer Associates, Inc.* ........... 300,000 4,725,000 USINTERNETWORKING, Inc.* ..................... 461,900 3,081,751 Walt Disney Internet Group* .................. 881,500 9,365,937 136,336,357 Chemicals and Allied Products -- 2.64% Pharmacyclics, Inc.* ......................... 352,500 17,658,047 Communication -- 1.93% Emmis Communications Corporation, Class A* ... 520,000 12,853,750 Data Processing and Preparation -- 7.30% Acxiom Corporation* .......................... 920,000 29,095,000 Fiserv, Inc.* ................................ 261,900 15,689,447 ProBusiness Services, Inc.* .................. 135,000 4,033,125 48,817,572 Electronic and Other Electric Equipment -- 9.83% Advanced Fibre Communications, Inc.* ......... 627,500 23,805,781 Glenayre Technologies, Inc.* ................. 1,146,300 12,501,834 Rambus Inc.* ................................. 151,200 11,930,625 Tekelec* ..................................... 431,400 14,168,794 Wilson Greatbatch Technologies, Inc.* ........ 142,600 3,261,975 65,669,009 Engineering and Management Services -- 2.46% Gene Logic Inc.* ............................. 264,600 6,069,262 MAXIMUS, Inc.* ............................... 470,000 10,398,750 16,468,012 Food and Kindred Products -- 1.88% American Italian Pasta Company, Class A* ..... 656,300 12,592,756 Health Services -- 1.75% American Healthways, Inc.* ................... 500,000 3,906,250 Amsurg Corp., Class A* ....................... 118,000 1,659,375 Amsurg Corp., Class B* ....................... 484,509 6,147,208 11,712,833 Instruments and Related Products -- 7.18% ACLARA BioSciences, Inc.* .................... 224,100 $ 6,814,041 Cytyc Corporation* ........................... 266,000 11,521,125 PINNACLE SYSTEMS, INC.* ...................... 277,000 3,107,594 VISX, Incorporated* .......................... 985,800 26,554,987 47,997,747 Leather and Leather Products -- 0.25% Kenneth Cole Productions, Inc., Class A* ..... 47,900 1,691,469 Oil and Gas Extraction -- 1.13% Global Industries, Ltd.* ..................... 604,300 7,534,866 Prepackaged Software -- 7.15% Citrix Systems, Inc.* ........................ 300,000 6,028,125 Dendrite International, Inc.* ................ 893,200 23,921,012 OTG Software, Inc.* .......................... 56,100 2,310,619 Transaction Systems Architects, Inc., Class A* ................................... 952,800 15,512,775 47,772,531 Stone, Clay and Glass Products -- 0.14% Cabot Microelectronics Corporation* .......... 20,100 964,172 Telephone and Radiotelephone Communication -- 5.29% Illuminet Holdings, Inc.* .................... 377,100 10,405,603 RCN Corporation* ............................. 431,100 8,945,325 US Unwired Inc., Class A* .................... 150,000 1,427,347 Western Wireless Corporation, Class A* ....... 410,000 14,593,438 35,371,713 Transportation by Air -- 1.58% Midwest Express Holdings, Inc.* .............. 526,200 10,589,775 Transportation Equipment -- 2.67% Gentex Corporation* .......................... 713,900 17,825,191 Wholesale Trade -- Durable Goods -- 2.04% MSC Industrial Direct Co., Inc., Class A* .... 893,800 13,630,450 Wholesale Trade -- Nondurable Goods -- 1.48% Allscripts, Inc.* ............................ 696,700 9,862,659 TOTAL COMMON STOCKS -- 78.11% ................ $522,090,784 (Cost: $456,624,820) Principal Amount in CORPORATE DEBT SECURITY -- 0.50% Thousands Value Communication Kestrel Solutions, Inc., 5.5%, 7-15-05, Convertible (A).............. $ 3,000 $ 3,315,000 (Cost: $3,000,000) SHORT-TERM SECURITIES Commercial Paper Amusement and Recreation Services -- 1.35% Walt Disney Company (The), 6.5%, 10-6-00............................... 9,000 8,991,875 Depository Institutions -- 2.99% Barclays U.S. Funding Corp., 6.5%, 10-11-00.............................. 20,000 19,963,889 Electric, Gas and Sanitary Services -- 6.52% Carolina Power & Light Co., 6.51%, 10-16-00............................. 2,036 2,030,477 Michigan Consolidated Gas Co., 6.6%, 10-3-00............................... 12,135 12,130,550 PS Colorado Credit Corp., 6.66%, 10-3-00.............................. 14,823 14,817,516 Public Service Electric and Gas Company, 6.69%, 10-20-00............................. 6,000 5,978,815 Questar Corp., 6.53%, 10-17-00............................. 8,619 8,593,986 43,551,344 Electronic and Other Electric Equipment -- 1.49% Sony Capital Corp., 6.5%, 10-12-00.............................. 10,000 9,980,139 Food and Kindred Products -- 0.80% General Mills, Inc., 5.9875%, Master Note........................ 386 386,000 McCormick & Co. Inc., 6.68%, 10-13-00............................. 5,000 4,988,867 5,374,867 Holding and Other Investment Offices -- 1.49% Morgan (J.P.) & Co. Inc., 6.51%, 10-11-00............................. 10,005 9,986,908 Instruments and Related Products -- 0.70% Snap-On Inc., 6.52%, 10-13-00............................. 4,680 4,669,829 Nondepository Institutions -- 0.46% PACCAR Financial Corp., 6.49%, Master Note.......................... 3,061 3,061,000 Paper and Allied Products -- 2.65% International Paper Company, 6.7%, 11-1-00............................... 14,000 13,919,228 Westvaco Corp., 6.7%, 11-16-00.............................. 3,860 3,826,954 17,746,182 Printing and Publishing -- 0.75% Tribune Co., 6.52%, 10-16-00............................. 5,000 4,986,416 Wholesale Trade -- Nondurable Goods -- 1.49% Enron Corp., 6.62%, 10-19-00............................. 10,000 9,966,900 Total Commercial Paper -- 20.69% ............. 138,279,349 Commercial Paper (backed by irrevocable bank letter of credit) -- 1.50% Oil and Gas Extraction Dallas Area Rapid Transit, Texas (Westdeutsche Landesbank Girozentrale), 6.51%, 10-3-00.............................. 10,000 $ 9,996,383 TOTAL SHORT-TERM SECURITIES -- 22.19% ........ $ 148,275,732 (Cost: $148,275,732) TOTAL INVESTMENT SECURITIES -- 100.80% ....... $ 673,681,516 (Cost: $607,900,552) LIABILITIES, NET OF CASH AND OTHER ASSETS -- (0.80%) (5,315,999 ) NET ASSETS -- 100.00% ........................ $ 668,365,517 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2000, the value of this security amounted to $3,315,000, or 0.50% of net assets. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES SMALL CAP GROWTH FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3) .... $673,682 Cash ................................................. 2 Receivables: Fund shares sold.................................... 10,183 Dividends and interest.............................. 46 Prepaid insurance premium ............................ 5 Other assets ......................................... 20 -------- Total assets ...................................... 683,938 -------- Liabilities Payable to Fund shareholders ......................... 11,198 Payable for investment securities purchased .......... 4,032 Accrued service fee (Note 2) ......................... 130 Accrued transfer agency and dividend disbursing (Note 2)................................. 125 Accrued management fee (Note 2) ...................... 30 Accrued distribution fee (Note 2) .................... 26 Accrued accounting services fee (Note 2) ............. 7 Other ............................................... 24 -------- Total liabilities ................................. 15,572 -------- Total net assets................................. $668,366 ======== Net Assets $0.01 par value capital stock Capital stock....................................... $366 Additional paid-in capital.......................... 405,705 Accumulated undistributed income (loss): Accumulated undistributed net investment loss....... (2,120) Accumulated undistributed net realized gain on investments .................................... 198,634 Net unrealized appreciation of investments.......... 65,781 -------- Net assets applicable to outstanding units of capital....................................... $668,366 ======== Net asset value per share (net assets divided by shares outstanding): Class A .............................................. $18.25 Class B .............................................. $18.22 Class C .............................................. $18.22 Class Y .............................................. $19.16 Capital shares outstanding: Class A .............................................. 146 Class B .............................................. 211 Class C .............................................. 35,460 Class Y .............................................. 816 Capital shares authorized.............................. 400,000 STATEMENT OF OPERATIONS SMALL CAP GROWTH FUND For the Six Months Ended September 30, 2000 (In Thousands) INVESTMENT LOSS Income (Note 1B): Interest and amortization........................... $ 5,248 Dividends........................................... 40 -------- Total income ...................................... 5,288 -------- Expenses (Note 2): Investment management fee........................... 3,012 Distribution fee: Class A ........................................... --* Class B ........................................... 4 Class C ........................................... 2,595 Class Y ........................................... 20 Service fee: Class A ........................................... 1 Class B ........................................... 1 Class C ........................................... 874 Transfer agency and dividend disbursing: Class A ........................................... 1 Class B ........................................... 2 Class C ........................................... 683 Accounting services fee............................. 36 Registration fees................................... 33 Custodian fees...................................... 23 Legal fees.......................................... 14 Shareholder servicing fee -- Class Y................ 12 Audit fees.......................................... 10 Other .............................................. 87 -------- Total expenses .................................... 7,408 -------- Net investment loss.............................. (2,120) -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net gain on investments ..................... 38,250 Unrealized depreciation in value of investments during the period....................... (164,133) -------- Net loss on investments ........................... (125,883) -------- Net decrease in net assets resulting from operations ................................ $(128,003) ======== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS SMALL CAP GROWTH FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 Increase (Decrease) in Net Assets Operations: Net investment loss....................... $ (2,120) $ (5,284) Realized net gain on investments.......... 38,250 236,897 Unrealized appreciation (depreciation).... (164,133) 112,584 ----------------------- Net increase (decrease) in net assets resulting from operations.............. (128,003) 344,197 ----------------------- Distributions to shareholders from realized net gain on investment transactions (Note 1E):* Class C ................................. -- (98,873) Class Y ................................. -- (2,024) ----------------------- -- (100,897) ----------------------- Capital share transactions (Note 5) ........ (20,977) 141,492 ----------------------- Total increase (decrease)................. (148,980) 384,792 Net Assets Beginning of period ........................ 817,346 432,554 ----------------------- End of period .............................. $668,366 $817,346 ======================= Undistributed net investment loss .......... $ (2,120) $ -- ======================= *See "Financial Highlights" on pages 137-140. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period................... $19.64 ------ Income (loss) from investment operations: Net investment income ................................ 0.00 Net realized and unrealized loss on investments ...... (1.39) ------ Total from investment operations....................... (1.39) Less distribution from capital gains................... (0.00) ------ Net asset value, end of period......................... $18.25 ====== Total return**......................................... -7.08% Net assets, end of period (in millions)................ $3 Ratio of expenses to average net assets................ 1.51%+ Ratio of net investment income to average net assets ........................................... 0.06%+ Portfolio turnover rate................................ 27.88%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-6-00* to 9-30-00 Net asset value, beginning of period................... $19.26 Loss from investment operations: Net investment loss .................................. (0.02) Net realized and unrealized loss on investments ...... (1.02) Total from investment operations....................... (1.04) Less distributions from capital gains.................. (0.00) Net asset value, end of period......................... $18.22 Total return........................................... -5.40% Net assets, end of period (in millions)................ $4 Ratio of expenses to average net assets................ 2.26%** Ratio of net investment loss to average net assets..... -0.70%** Portfolio turnover rate................................ 27.88%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND(A) Class C Shares(B) For a Share of Capital Stock Outstanding Throughout Each Period:* For the six Months For the fiscal year ended March 31, Ended ------------------------------------- 9-30-00 2000 1999 1998 1997 1996 Net asset value, beginning of period ............. $21.64 $14.74 $14.29 $ 9.08 $10.50 $ 8.45 Income (loss) from Investment operations: Net investment loss.............. (0.06) (0.18) (0.11) (0.13) (0.03) (0.01) Net realized and unrealized gain (loss) on investments....... (3.36) 10.22 2.91 5.91 (1.09) 2.25 Total from investment operations ......... (3.42) 10.04 2.80 5.78 (1.12) 2.24 Less distribution from capital gains ...... (0.00) (3.14) (2.35) (0.57) (0.30) (0.19) Net asset value, end of period ...... $18.22 $21.64 $14.74 $14.29 $ 9.08 $10.50 Total return.........-15.80% 73.38% 21.61% 65.37% -10.97% 26.57% Net assets, end of period (in millions) ...... $646 $801 $425 $330 $198 $203 Ratio of expenses to average net assets ......... 2.11%** 2.11% 2.10% 2.13% 2.12% 2.14% Ratio of net investment loss to average net assets ......... -0.62%** -0.90% -0.90% -1.12% -0.27% -0.25% Portfolio turnover rate ............... 27.88% 82.24% 51.41% 33.46% 37.20% 31.84% (A)Small Cap Growth Fund (formerly Growth Fund) changed its name effective June 30, 2000. (B)See Note 5. *Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. **Annualized. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND(A) Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period:* For the For the six For the fiscal period from months year ended March 31, 12-29-95** ended ------------------------------- to 9-30-00 2000 1999 1998 1997 3-31-96 Net asset value, beginning of period ............. $22.65 $15.21 $14.55 $ 9.16 $10.52 $10.11 Income (loss) from Investment operations: Net investment income (loss)..... (0.01) (0.15) 0.00 (0.03) 0.01 0.02 Net realized and unrealized gain (loss) on investments....... (3.48) 10.73 3.01 5.99 (1.07) 0.39 Total from investment operations ......... (3.49) 10.58 3.01 5.96 (1.06) 0.41 Less distribution from capital gains ...... (0.00) (3.14) (2.35) (0.57) (0.30) (0.00) Net asset value, end of period ...... $19.16 $22.65 $15.21 $14.55 $9.16 $10.52 Total return......... -15.41% 74.71% 22.73% 66.78% -10.37% 4.11% Net assets, end of period (000 omitted) ......$15,638 $16,770 $7,942 $633 $264 $1 Ratio of expenses to average net assets ......... 1.29%+ 1.30% 1.18% 1.30% 1.17% 1.17%+ Ratio of net investment income (loss) to average net assets ......... 0.20%+ -0.09% 0.08% -0.30% 0.31% 0.78%+ Portfolio turnover rate ............... 27.88% 82.24% 51.41% 33.46% 37.20% 31.84%+ (A)Small Cap Growth Fund (formerly Growth Fund) changed its name effective June 30, 2000. *Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. **Commencement of operations. +Annualized. SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND Tax-Managed Equity Fund GOAL To seek long-term growth of capital while minimizing taxable gains and income to shareholders. Strategy Invests primarily in a diversified portfolio of common stocks issued by large to medium sized U.S. and foreign companies. The Fund seeks stocks that are favorably priced in relation to their fundamental value and that will likely grow over time. Founded 2000 Scheduled Dividend Frequency Annually Performance Summary -- Class A Shares Per Share Data For the Period Ended September 30, 2000 Net Asset Value on 9-30-00 $ 9.52 6-30-00 10.00 ------- Change per share $(0.48) ======= Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -10.37% -4.90% -10.48% -5.77% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)6-30-00 for Class A shares and 7-13-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) CLASS C With Without Period CDSC(B) CDSC(C) 1-year period ended 9-30-00 -- -- 5-year period ended 9-30-00 -- -- 10-year period ended 9-30-00 -- -- Cumulative return since inception of Class(D) -6.14% -5.20% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at the end of the first year after investment. (C)Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (D)7-6-00 for Class C shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND Portfolio Highlights On September 30, 2000, Tax-Managed Equity Fund had net assets totaling $3,399,367 invested in a diversified portfolio of: 95.80% Common Stock 4.20% Cash and Cash Equivalents As a shareholder of Tax-Managed Equity Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Manufacturing Stocks $35.93 Services Stocks $23.35 Transportation, Communication, Electric and Sanitary Services Stocks $13.10 Finance, Insurance and Real Estate Stocks $11.61 Wholesale and Retail Trade Stocks $ 9.55 Cash and Cash Equivalents $ 4.20 Mining Stocks $ 2.26 THE INVESTMENTS OF TAX-MANAGED EQUITY FUND COMMON STOCKS Shares Value Business Services -- 21.06% Amdocs Limited* .............................. 1,000 $ 62,375 America Online, Inc.* ........................ 1,700 91,375 CheckFree Holdings Corporation* .............. 1,400 58,669 Clear Channel Communications, Inc.* .......... 2,000 113,000 Critical Path, Inc.* ......................... 700 42,241 Microsoft Corporation* ....................... 2,100 126,656 Oracle Corporation* .......................... 1,400 110,250 Siebel Systems, Inc.* ........................ 1,000 111,281 715,847 Chemicals and Allied Products -- 19.73% Amgen Inc.* .................................. 1,000 69,687 Bristol-Myers Squibb Company ................. 1,500 85,688 Merck & Co., Inc. ............................ 1,300 96,769 Pfizer Inc. .................................. 1,600 71,900 QLT Inc.* .................................... 1,000 70,906 Schering-Plough Corporation .................. 4,000 186,000 Smith International, Inc.* ................... 1,100 89,719 670,669 Communication -- 6.56% Cox Communications, Inc., Class A* ........... 4,300 164,475 Viacom Inc., Class B* ........................ 1,000 58,500 222,975 Electronic and Other Electric Equipment -- 5.09% Nokia Corporation, Series A, ADR ............. 2,100 83,607 Nortel Networks Corporation .................. 1,500 89,344 172,951 Food Stores -- 2.06% Kroger Co. (The)* ............................ 3,100 69,944 General Merchandise Stores -- 2.19% Target Corporation ........................... 2,900 74,312 Health Services -- 2.29% HCA -- The Healthcare Company ................ 2,100 77,963 Industrial Machinery and Equipment -- 8.98% Cisco Systems, Inc.* ......................... 1,100 60,775 Dell Computer Corporation* ................... 2,200 67,719 EMC Corporation* ............................. 1,000 99,125 Hewlett-Packard Company ...................... 800 77,600 305,219 Instruments and Related Products -- 2.13% Medtronic, Inc. .............................. 1,400 72,537 Insurance Carriers -- 8.62% American International Group, Inc. ........... 900 86,119 Berkshire Hathaway Inc., Class B* ............ 100 207,000 293,119 Nondepository Institutions -- 2.99% Financial Federal Corporation* ............... 4,200 101,588 Oil and Gas Extraction -- 2.26% Apache Corporation ........................... 1,300 76,862 Telephone and Radiotelephone Communication -- 6.54% AT&T Wireless Group* ......................... 3,100 64,712 SBC Communications Inc. ...................... 1,300 65,000 Telefonaktiebolaget LM Ericsson, ADR, Class B 3,700 54,691 Williams Communications Group, Inc.* ......... 1,900 38,000 222,403 Wholesale Trade -- Nondurable Goods -- 5.30% Allscripts, Inc.* ............................ 5,300 75,028 Enron Corp. .................................. 1,200 105,150 180,178 TOTAL COMMON STOCKS -- 95.80% ................ $3,256,567 (Cost: $3,361,749) TOTAL SHORT-TERM SECURITIES -- 2.91% ......... $99,000 (Cost: $99,000) TOTAL INVESTMENT SECURITIES -- 98.71% ........ $3,355,567 (Cost: $3,460,749) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 1.29% 43,800 NET ASSETS -- 100.00% ........................ $3,399,367 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES TAX-MANAGED EQUITY FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3) .... $3,356 Cash ................................................. 1 Receivables: Investment securities sold.......................... 49 Fund shares sold.................................... 16 Dividends and interest.............................. 1 Prepaid registration fees ............................ 44 ------ Total assets ...................................... 3,467 ------ LIABILITIES Payable for investment securities purchased .......... 62 Accrued service fee (Note 2) ......................... 1 Accrued transfer agency and dividend disbursing (Note 2) --* Accrued distribution fee (Note 2) .................... --* Other ............................................... 5 ------ Total liabilities ................................. 68 ------ Total net assets................................. 3,399 ====== NET ASSETS $0.01 par value capital stock Capital stock....................................... $4 Additional paid-in capital.......................... 3,558 Accumulated undistributed income (loss): Accumulated undistributed net investment income..... 8 Accumulated undistributed net realized loss on investments .................................... (66) Net unrealized depreciation of investments.......... (105) ------ Net assets applicable to outstanding units of capital................................. $3,399 ====== Net asset value per share (net assets divided by shares outstanding): Class A .............................................. $9.52 Class B .............................................. $9.49 Class C .............................................. $9.49 Capital shares outstanding: Class A .............................................. 337 Class B .............................................. 6 Class C .............................................. 14 Capital shares authorized.............................. 400,000 *Not shown due to rounding. STATEMENT OF OPERATIONS TAX-MANAGED EQUITY FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INVESTMENT INCOME (LOSS) Income (Note 1B): Interest and amortization........................... $15 Dividends........................................... 1 ---- Total income ...................................... 16 ---- Expenses (Note 2): Investment management fee........................... 5 Registration fees................................... 4 Custodian fees...................................... 2 Service fee: Class A ........................................... 1 Class B ........................................... --* Class C ........................................... --* Distribution fee: Class A ........................................... --* Class B ........................................... --* Class C ........................................... --* Transfer agency and dividend disbursing: Class A ........................................... --* Class B ........................................... --* Class C ........................................... --* Legal fees.......................................... --* Other .............................................. 1 ---- Total .............................................. 13 Less expenses in excess of voluntary waiver of management fee (Note 2)....................... (5) ---- Total expenses................................... 8 ---- Net investment income .......................... 8 ---- Realized and Unrealized Loss on Investments (Notes 1 and 3) Realized net loss on investments ..................... (66) Unrealized depreciation in value of investments during the period................................... (105) ---- Net loss on investments ........................... (171) ---- Net decrease in net assets resulting from operations ................................ $(163) ==== *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS TAX-MANAGED EQUITY FUND For the Fiscal Period Ended September 30, 2000 (In Thousands) INCREASE IN NET ASSETS Operations: Net investment income............................... $ 8 Realized net loss on investments.................... (66) Unrealized depreciation............................. (105) ------ Net decrease in net assets resulting from operations.................................. (163) ------ Capital share transactions (Note 5) .................. 562 ------ Total increase...................................... 399 NET ASSETS Beginning of period .................................. 3,000 ------ End of period ........................................ $3,399 ====== Undistributed net investment income .................. $8 ====== *See "Financial Highlights" on pages 149-151. FINANCIAL HIGHLIGHTS TAX-MANAGED EQUITY FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 6-30-00* to 9-30-00 Net asset value, beginning of period................... $10.00 ------- Income (loss) from investment operations: Net investment income ................................ 0.02 Net realized and unrealized loss on investments ...... (0.50) ------- Total from investment operations....................... (0.48) ------- Less distributions: From net investment income ........................... (0.00) From capital gains ................................... (0.00) ------- Total distributions.................................... (0.00) ------- Net asset value, end of period......................... $ 9.52 ======= Total return**......................................... -4.90% Net assets, end of period (in millions)................ $3 Ratio of expenses to average net assets................ 0.96%+ Ratio of net investment income to average net assets ........................................... 1.06%+ Portfolio turnover rate................................ 4.67% *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. FINANCIAL HIGHLIGHTS TAX-MANAGED EQUITY FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-13-00* to 9-30-00 Net asset value, beginning of period................... $10.06 ------- Loss from investment operations: Net investment loss .................................. (0.01) Net realized and unrealized loss on investments ...... (0.56) ------- Total from investment operations....................... (0.57) ------- Less distributions: From net investment income ........................... (0.00) From capital gains ................................... (0.00) ------- Total distributions.................................... (0.00) ------- Net asset value, end of period......................... $ 9.49 ======= Total return........................................... -5.77% Net assets, end of period (000 omitted)................ $60 Ratio of expenses to average net assets................ 1.53%** Ratio of net investment loss to average net assets ........................................... -1.12%** Portfolio turnover rate................................ 4.67% *Commencement of operations. **Annualized. FINANCIAL HIGHLIGHTS TAX-MANAGED EQUITY FUND Class C Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-6-00* to 9-30-00 Net asset value, beginning of period................... $10.01 ------ Loss from investment operations: Net investment loss .................................. (0.01) Net realized and unrealized loss on investments ...... (0.51) ------ Total from investment operations....................... (0.52) ------ Less distributions: From net investment income ........................... (0.00) From capital gains ................................... (0.00) ------ Total distributions.................................... (0.00) ------ Net asset value, end of period......................... $ 9.49 ====== Total return........................................... -5.20% Net assets, end of period (000 omitted)................ $132 Ratio of expenses to average net assets................ 2.11%** Ratio of net investment loss to average net assets ........................................... -0.43%** Portfolio turnover rate................................ 4.67% *Commencement of operations. **Annualized. SHAREHOLDER SUMMARY OF TOTAL RETURN FUND Total Return Fund GOAL To seek capital growth and income. Strategy Invests primarily in common stocks of U.S. and foreign companies with dominant market positions in their industries and that have a record of paying regular dividends on common stock or have the potential for capital appreciation. Founded 1992 Scheduled Dividend Frequency Annually (December) Performance Summary -- Class C Shares Per Share Data For the Six Months Ended September 30, 2000 Net Asset Value on 9-30-00 $13.91 3-31-00 13.76 ------ Change per share $ 0.15 ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF TOTAL RETURN FUND Average Annual Total Return(A) CLASS A CLASS B With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) 1-year period ended 9-30-00 -- -- -- -- 5-year period ended 9-30-00 -- -- -- -- 10-year period ended 9-30-00 -- -- -- -- Cumulative return since inception of Class(F) -5.41% 0.36% -6.28% -1.35% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data is based on deduction of 5.75% sales load on the initial purchase in the period. (C)Performance data does not take into account the sales load deducted on an initial purchase. (D)Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of the period. (E))Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of the period. (F)7-3-00 for Class A shares and 7-11-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period CLASS C(B) CLASS Y(C) 1-year period ended 9-30-00 24.79% 25.84% 5-year period ended 9-30-00 17.77% -- 10-year period ended 9-30-00 -- -- Since inception of Class(D) 16.70% 19.43% (A)Performance data represents share price appreciation, including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C)Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D)9-21-92 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). The recent growth rate and volatility in the stock market has helped produce short-term returns that may not be typical and may not continue in the future. SHAREHOLDER SUMMARY OF TOTAL RETURN FUND Portfolio Highlights On September 30, 2000, Total Return Fund had net assets totaling $574,255,140 invested in a diversified portfolio of: 97.49% Common Stocks 2.14% Cash and Cash Equivalents 0.37% Preferred Stock As a shareholder of Total Return Fund, for every $100 you had invested on September 30, 2000, your Fund owned: Manufacturing Stocks $46.80 Finance, Insurance and Real Estate Stocks $13.53 Wholesale and Retail Trade Stocks $ 9.55 Services Stocks $ 9.22 Transportation, Communication, Electric and Sanitary Services Stocks $ 9.17 Mining Stocks $ 7.85 Cash and Cash Equivalents $ 2.14 Miscellaneous Investing Institutions Stocks $ 1.37 Preferred Stock $ 0.37 THE INVESTMENTS OF TOTAL RETURN FUND COMMON STOCKS Shares Value Amusement and Recreation Services -- 1.31% Walt Disney Company (The) .................... 196,000 $ 7,497,000 Building Materials and Garden Supplies -- 0.56% Home Depot, Inc. (The) ....................... 60,150 3,191,709 Business Services -- 6.24% America Online, Inc.* ........................ 71,700 3,853,875 Clear Channel Communications, Inc.* .......... 95,800 5,412,700 Microsoft Corporation* ....................... 219,100 13,214,469 Oracle Corporation* .......................... 69,900 5,504,625 Veritas Software Corp.* ...................... 55,100 7,836,253 35,821,922 Chemicals and Allied Products -- 22.19% Air Products and Chemicals, Inc. ............. 139,200 5,011,200 American Home Products Corporation ........... 130,500 7,381,406 Biogen, Inc.* ................................ 52,700 3,216,347 Bristol-Myers Squibb Company ................. 109,100 6,232,338 Dow Chemical Company (The) ................... 310,000 7,730,625 du Pont (E.I.) de Nemours and Company ........ 159,400 6,605,137 Forest Laboratories, Inc.* ................... 115,400 13,234,938 Johnson & Johnson ............................ 89,600 8,416,800 King Pharmaceuticals, Inc.* .................. 86,900 2,905,719 Merck & Co., Inc. ............................ 125,200 9,319,575 Pfizer Inc. .................................. 460,075 20,674,620 Pharmacia Corporation ........................ 243,473 14,654,031 QLT Inc.* .................................... 140,100 9,933,966 Schering-Plough Corporation .................. 259,800 12,080,700 127,397,402 Communication -- 2.42% Cox Communications, Inc., Class A* ........... 226,100 8,648,325 General Motors Corporation, Class H* ......... 140,700 5,231,226 13,879,551 Depository Institutions -- 4.32% Bank of America Corporation .................. 166,700 8,730,913 Chase Manhattan Corporation (The) ............ 122,000 5,634,875 Citigroup Inc. ............................... 192,900 10,428,656 24,794,444 Electric, Gas and Sanitary Services -- 1.20% El Paso Energy Corporation ................... 111,600 6,877,350 Electronic and Other Electric Equipment -- 6.51% General Electric Company ..................... 213,200 $ 12,298,975 Intel Corporation ............................ 164,200 6,819,431 JDS Uniphase Corporation* .................... 29,100 2,754,497 Micron Technology, Inc.* ..................... 49,100 2,258,600 Nortel Networks Corporation .................. 106,300 6,331,494 Rambus Inc.* ................................. 87,800 6,927,969 37,390,966 Fabricated Metal Products -- 0.57% Gillette Company (The) ....................... 106,550 3,289,731 Food and Kindred Products -- 0.29% Anheuser-Busch Companies, Inc. ............... 39,500 1,671,344 Food Stores -- 4.40% Kroger Co. (The)* ............................ 747,900 16,874,494 Safeway Inc.* ................................ 179,900 8,399,081 25,273,575 Furniture and Home Furnishings Stores -- 1.66% Best Buy Co., Inc.* .......................... 52,200 3,321,225 Circuit City Stores, Inc. -- Circuit City Group.......................... 269,300 6,193,900 9,515,125 General Merchandise Stores -- 1.82% Target Corporation ........................... 407,900 10,452,438 Holding and Other Investment Offices -- 1.37% ABB Ltd. (A) ................................. 81,050 7,891,278 Industrial Machinery and Equipment -- 8.56% Baker Hughes Incorporated .................... 317,800 11,798,325 Caterpillar Inc. ............................. 77,300 2,608,875 Cisco Systems, Inc.* ......................... 122,000 6,740,500 Dell Computer Corporation* ................... 207,500 6,387,110 EMC Corporation* ............................. 129,800 12,866,425 International Business Machines Corporation .. 52,200 5,872,500 Sun Microsystems, Inc.* ...................... 24,700 2,901,478 49,175,213 Instruments and Related Products -- 2.78% Guidant Corporation* ......................... 162,900 11,514,994 Medtronic, Inc. .............................. 60,400 3,129,475 Raytheon Company, Class A .................... 48,199 1,319,447 15,963,916 Insurance Carriers -- 3.45% American International Group, Inc. ........... 110,250 10,549,547 Chubb Corporation (The) ...................... 117,300 9,281,362 19,830,909 Motion Pictures -- 1.67% Time Warner Incorporated ..................... 122,300 9,569,975 Nondepository Institutions -- 4.87% Fannie Mae ............................ 195,400 13,971,100 Freddie Mac .................................. 259,300 14,018,406 27,989,506 Oil and Gas Extraction -- 7.85% Anadarko Petroleum Corporation ............... 248,800 16,535,248 Burlington Resources Incorporated ............ 257,600 9,482,900 Schlumberger Limited ......................... 164,100 13,507,481 Transocean Sedco Forex Inc. .................. 95,146 5,577,934 45,103,563 Paper and Allied Products -- 0.95% International Paper Company .................. 189,100 5,424,806 Petroleum and Coal Products -- 3.17% Exxon Mobil Corporation ...................... 110,784 9,873,624 Royal Dutch Petroleum Company ................ 139,400 8,355,288 18,228,912 Primary Metal Industries -- 0.83% Alcoa Incorporated ........................... 188,600 4,773,937 Security and Commodity Brokers -- 0.89% Charles Schwab Corporation (The) ............. 95,550 3,392,025 Goldman Sachs Group, Inc. (The) .............. 14,900 1,697,669 5,089,694 Telephone and Radiotelephone Communication -- 5.55% Nippon Telegraph and Telephone Corporation (A)............................. 330 3,242,642 SBC Communications Inc. ...................... 240,300 12,015,000 Telefonaktiebolaget LM Ericsson, ADR, Class B ................................... 436,000 6,444,625 Vodafone Airtouch Public Limited Company, ADR................................ 152,700 5,649,900 Worldcom, Inc.* .............................. 149,500 4,541,062 31,893,229 Transportation Equipment -- 0.95% Lockheed Martin Corporation .................. 165,200 5,444,992 Wholesale Trade -- Nondurable Goods -- 1.11% Enron Corp. .................................. 73,000 6,396,625 TOTAL COMMON STOCKS -- 97.49% ................ $559,829,112 (Cost: $387,140,896) PREFERRED STOCK -- 0.37% Shares Value Communication Cox Communications, Inc., 7.0% Convertible ... 39,200 $ 2,097,200 (Cost: $1,956,350) TOTAL SHORT-TERM SECURITIES -- 2.00% ......... $ 11,509,517 (Cost: $11,509,517) TOTAL INVESTMENT SECURITIES -- 99.86% ........ $573,435,829 (Cost: $400,606,763) CASH AND OTHER ASSETS, NET OF LIABILITIES -- 0.14% 819,311 NET ASSETS -- 100.00% ........................ $574,255,140 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A) Listed on an exchange outside the United States. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES TOTAL RETURN FUND September 30, 2000 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (Notes 1 and 3) .... $573,436 Cash ................................................. 1 Receivables: Investment securities sold.......................... 4,459 Fund shares sold.................................... 443 Dividends and interest.............................. 381 Prepaid insurance premium ............................ 4 Other assets ......................................... 20 -------- Total assets ...................................... 578,744 -------- LIABILITIES Payable for investment securities purchased .......... 2,955 Payable to Fund shareholders ......................... 1,231 Accrued service fee (Note 2) ......................... 117 Accrued transfer agency and dividend disbursing (Note 2)................................. 106 Accrued distribution fee (Note 2) .................... 23 Accrued management fee (Note 2) ...................... 22 Accrued accounting services fee (Note 2) ............. 7 Other ............................................... 28 -------- Total liabilities ................................. 4,489 -------- Total net assets................................. $574,255 ======== NET ASSETS $0.01 par value capital stock Capital stock....................................... $413 Additional paid-in capital.......................... 307,921 Accumulated undistributed income (loss): Accumulated undistributed net investment loss....... (2,747) Accumulated undistributed net realized gain on investments .................................... 95,844 Net unrealized appreciation of investments.......... 172,824 -------- Net assets applicable to outstanding units of capital................................. $574,255 ======== Net asset value per share (net assets divided by shares outstanding): Class A .............................................. $13.94 Class B .............................................. $13.91 Class C .............................................. $13.91 Class Y .............................................. $14.30 Capital shares outstanding: Class A .............................................. 146 Class B .............................................. 198 Class C .............................................. 40,768 Class Y .............................................. 159 Capital shares authorized.............................. 400,000 STATEMENT OF OPERATIONS TOTAL RETURN FUND For the Six Months Ended September 30, 2000 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends (net of foreign withholding taxes of $11). $ 2,531 Interest and amortization........................... 420 ------- Total income ...................................... 2,951 ------- Expenses (Note 2): Distribution fee: Class A ........................................... --* Class B ........................................... 2 Class C ........................................... 2,154 Class Y ........................................... 3 Investment management fee........................... 2,021 Service fee: Class A ........................................... --* Class B ........................................... 1 Class C ........................................... 718 Transfer agency and dividend disbursing: Class A ........................................... 1 Class B ........................................... 1 Class C ........................................... 584 Registration fees................................... 45 Accounting services fee............................. 36 Custodian fees...................................... 23 Audit fees.......................................... 11 Legal fees.......................................... 10 Shareholder servicing fee -- Class Y................ 2 Other .............................................. 59 ------- Total expenses .................................... 5,671 ------- Net investment loss.............................. (2,720) ------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net gain on investments ..................... 38,959 Unrealized depreciation in value of investments during the period................................... (29,821) ------- Net gain on investments............................. 9,138 ------- Net increase in net assets resulting from operations $ 6,418 ======= *Not shown due to rounding. STATEMENT OF CHANGES IN NET ASSETS TOTAL RETURN FUND (In Thousands) For the six For the fiscal months ended year ended September 30, March 31, 2000 2000 INCREASE (DECREASE) IN NET ASSETS Operations: Net investment loss....................... $ (2,720) $ (635) Realized net gain on investments.......... 38,959 67,641 Unrealized appreciation (depreciation).... (29,821) 51,174 ----------------------- Net increase in net assets resulting from operations........................ 6,418 118,180 ----------------------- Distributions to shareholders from (Note 1E):* Net investment income: Class C ................................. -- (1,151) Class Y ................................. -- (16) Realized net gain on investment transactions: Class C ................................. -- (18,926) Class Y ................................. -- (56) ----------------------- .................................... -- (20,149) ----------------------- Capital share transactions (Note 5) ........ (19,608) (20,177) ----------------------- Total increase (decrease)................. (13,190) 77,854 NET ASSETS Beginning of period ........................ 587,445 509,591 ----------------------- End of period .............................. $574,255 $587,445 ======================= Undistributed net investment loss......... $(2,747) $(27) ======================= *See "Financial Highlights" on pages 162-165. FINANCIAL HIGHLIGHTS TOTAL RETURN FUND Class A Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-3-00* to 9-30-00 Net asset value, beginning of period................... $13.89 ------ Income from investment operations: Net investment loss .................................. (0.00) Net realized and unrealized gain on investments ...... 0.05 ------ Total from investment operations....................... 0.05 ------ Less distributions: From net investment income ........................... (0.00) From capital gains ................................... (0.00) ------ Total distributions.................................... (0.00) ------ Net asset value, end of period......................... $13.94 ====== Total return**......................................... 0.36% Net assets, end of period (in millions)................ $2 Ratio of expenses to average net assets................ 1.33%+ Ratio of net investment loss to average net assets..... -0.27%+ Portfolio turnover rate................................ 19.32%++ *Commencement of operations. **Total return calculated without taking into account the sales load deducted on an initial purchase. +Annualized. ++Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS TOTAL RETURN FUND Class B Shares For a Share of Capital Stock Outstanding Throughout The Period: For the period from 7-11-00* to 9-30-00 Net asset value, beginning of period................... $14.10 ------ Loss from investment operations: Net investment loss .................................. (0.02) Net realized and unrealized loss on investments ...... (0.17) ------ Total from investment operations....................... (0.19) ------ Less distributions: From net investment income ........................... (0.00) From capital gains ................................... (0.00) ------ Total distributions.................................... (0.00) ------ Net asset value, end of period......................... $13.91 ====== Total return........................................... -1.35% Net assets, end of period (in millions)................ $3 Ratio of expenses to average net assets................ 2.17%** Ratio of net investment loss to average net assets..... -1.01%** Portfolio turnover rate................................ 19.32%+ *Commencement of operations. **Annualized. +Portfolio turnover is for the six months ended September 30, 2000. FINANCIAL HIGHLIGHTS TOTAL RETURN FUND Class C Shares(A) For a Share of Capital Stock Outstanding Throughout Each Period:* For the six months For the fiscal year ended March 31, ended ---------------------------------------- 9-30-00 2000 1999 1998 1997 1996 Net asset value, beginning of period ............. $13.76 $11.52 $12.24 $ 9.09 $8.17 $6.37 Income from investment operations: Net investment income (loss)..... (0.07) (0.01) 0.03 (0.02) (0.01) (0.01) Net realized and unrealized gain on investments.... 0.22 2.71 0.82 3.56 0.98 1.84 Total from investment operations ......... 0.15 2.70 0.85 3.54 0.97 1.83 Less distributions: From net investment income............ (0.00) (0.03) (0.01) (0.00) (0.00) (0.00) From capital gains............. (0.00) (0.43) (1.56) (0.39) (0.05) (0.03) Total distributions ...... (0.00) (0.46) (1.57) (0.39) (0.05) (0.03) Net asset value, end of period ...... $13.91 $13.76 $11.52 $12.24 $9.09 $8.17 Total return......... 1.09% 23.98% 7.47% 39.57% 11.93% 28.75% Net assets, end of period (in millions) ......$567 $585 $508 $473 $317 $208 Ratio of expenses to average net assets ......... 1.97%** 1.98% 1.93% 1.92% 1.95% 1.99% Ratio of net investment income (loss) to average net assets ......... -0.95%** -0.12% 0.30% -0.23% -0.17% -0.11% Portfolio turnover rate ............... 19.32% 75.64% 54.73% 36.94% 26.23% 16.78% (A)See Note 5. *Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. **Annualized. FINANCIAL HIGHLIGHTS TOTAL RETURN FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period:* For the For the six For the fiscal period from Months year ended March 31, 12-29-95** Ended -------------------------------- to 9-30-00 2000 1999 1998 1997 3-31-96 Net asset value, beginning of period ............. $14.08 $11.78 $12.46 $ 9.18 $8.19 $7.66 Income from investment operations: Net investment income (loss)..... (0.01) 0.06 0.12 0.05 0.02 0.02 Net realized and unrealized gain on investments.... 0.23 2.80 0.84 3.62 1.02 0.51 Total from investment operations ......... 0.22 2.86 0.96 3.67 1.04 0.53 Less distributions: From net investment income............ (0.00) (0.13) (0.08) (0.00) (0.00) (0.00) From capital gains............. (0.00) (0.43) (1.56) (0.39) (0.05) (0.00) Total distributions ...... (0.00) (0.56) (1.64) (0.39) (0.05) (0.00) Net asset value, end of period........ $14.30 $14.08 $11.78 $12.46 $9.18 $8.19 Total return......... 1.56% 24.96% 8.37% 40.63% 12.69% 6.92% Net assets, end of period (000 omitted) ...... $2,272$2,152 $1,381 $943 $504 $87 Ratio of expenses To average net assets ......... 1.15%+ 1.16% 1.15% 1.20% 1.18% 0.96%+ Ratio of net Investment income (loss) to average net assets ......... -0.13%+ 0.67% 1.10% 0.50% 0.65% 1.04%+ Portfolio turnover rate ............... 19.32% 75.64% 54.73% 36.94% 26.23% 16.78%+ *Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. **Commencement of operations. +Annualized. NOTES TO FINANCIAL STATEMENTS September 30, 2000 Note 1 -- Significant Accounting Policies W&R Funds, Inc. (the "Corporation"), formerly Waddell & Reed Funds, Inc., is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Corporation issues twelve series of capital shares; each series represents ownership of a separate mutual fund. The assets belonging to each Fund are held separately by the custodian. The capital shares of each Fund represent a pro rata beneficial interest in the principal, net income and realized and unrealized capital gains or losses of its respective investments and other assets. The following is a summary of significant accounting policies consistently followed by the Corporation in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. A. Security valuation -- Each stock and convertible bond is valued at the latest sale price thereof on the last business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over- the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Corporation's Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market. Short-term debt securities denominated in foreign currencies are valued at amortized cost in that currency. B. Security transactions and related investment income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Original issue discount (as defined in the Internal Revenue Code), premiums and post-1984 market discount on the purchase of bonds are amortized for both financial and tax reporting purposes over the remaining lives of the bonds. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis. See Note 3 -- Investment Securities Transactions. C. Foreign currency translations -- All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. The Corporation combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments. D. Federal income taxes -- It is the Corporation's policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, the Corporation intends to pay distributions as required to avoid imposition of excise tax. Accordingly, provision has not been made for Federal income taxes. See Note 4 -- Federal Income Tax Matters. E. Dividends and distributions -- Dividends and distributions to shareholders are recorded by each Fund on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers. Net investment income, net realized gains and net assets are not affected by these changes. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. NOTE 2 -- Investment Management and Payments to Affiliated Persons Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO provides advice and supervises investments for which services it is paid a fee. The fee is payable by each Fund at the following annual rates: Fund Net Assets Breakpoints Annual Rate W&R Asset Strategy Fund Up to $1 Billion .700% Over $1 Billion up to $2 Billion .650% Over $2 Billion up to $3 Billion .600% Over $3 Billion .550% W&R High Income Fund Up to $500 Million .625% Over $500 Million up to $1 Billion .600% Over $1 Billion up to $1.5 Billion .550% Over $1.5 Billion .500% W&R International Up to $1 Billion .850% Growth Fund Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Large Cap Growth Fund Up to $1 Billion .700% Over $1 Billion up to $2 Billion .650% Over $2 Billion up to $3 Billion .600% Over $3 Billion .550% W&R Limited-Term Bond Fund Up to $500 Million .500% Over $500 Million up to $1 Billion .450% Over $1 Billion up to $1.5 Billion .400% Over $1.5 Billion .350% W&R Mid Cap Growth Fund Up to $1 Billion .850% Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Money Market Fund All levels .400% W&R Municipal Bond Fund Up to $500 Million .525% Over $500 Million up to $1 Billion .500% Over $1 Billion up to $1.5 Billion .450% Over $1.5 Billion .400% W&R Science and Up to $1 Billion .850% Technology Fund Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Small Cap Growth Fund Up to $1 Billion .850% Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Tax-Managed Up to $1 Billion .625% Equity Fund Over $1 Billion up to $2 Billion .600% Over $2 Billion up to $3 Billion .550% Over $3 Billion .500% W&R Total Return Fund Up to $1 Billion .700% Over $1 Billion up to $2 Billion .650% Over $2 Billion up to $3 Billion .600% Over $3 Billion .550% The fee is accrued and paid daily. However, Waddell & Reed Investment Management Company ("WRIMCO"), the Corporation's investment manager, has agreed to waive a Fund's management fee on any day that the Fund's net assets are less than $25 million, subject to WRIMCO's right to change or modify this waiver. The Corporation has an Accounting Services Agreement with Waddell & Reed Services Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the agreement, WARSCO acts as the agent in providing accounting services and assistance to the Corporation and pricing daily the value of shares of the Corporation. For these services, each of the Funds pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the following table. Accounting Services Fee Average Net Asset Level Annual Fee (in millions) Rate for Each Level From $ 0 to $ 10 $ 0 From $ 10 to $ 25 $ 11,000 From $ 25 to $ 50 $ 22,000 From $ 50 to $ 100 $ 33,000 From $ 100 to $ 200 $ 44,000 From $ 200 to $ 350 $ 55,000 From $ 350 to $ 550 $ 66,000 From $ 550 to $ 750 $ 77,000 From $ 750 to $1,000 $ 93,500 $1,000 and Over $110,000 In addition, for each class of shares in excess of one, each Fund pays the Agent a monthly per-class fee equal to 2.5% of the monthly base fee. Prior to September 1, 2000, each of the Funds paid WARSCO a monthly fee of one-twelfth of the annual fee shown in the following table. Accounting Services Fee Average Net Asset Level Annual Fee (all dollars in millions) Rate for Each Level From $ 0 to $ 10 $ 0 From $ 10 to $ 25 $ 10,000 From $ 25 to $ 50 $ 20,000 From $ 50 to $ 100 $ 30,000 From $ 100 to $ 200 $ 40,000 From $ 200 to $ 350 $ 50,000 From $ 350 to $ 550 $ 60,000 From $ 550 to $ 750 $ 70,000 From $ 750 to $1,000 $ 85,000 $1,000 and Over $100,000 Under the Shareholder Servicing Agreement, with respect to Class A, Class B and Class C shares, for each shareholder account that was in existence at any time during the prior month: Asset Strategy Fund pays the Agent a monthly fee of $1.4125; High Income Fund, Limited-Term Bond Fund and Municipal Bond Fund each pay the Agent a monthly fee of $1.6125; and International Growth Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology Fund, Small Cap Growth Fund, Tax-Managed Equity Fund and Total Return Fund each pay the Agent a monthly fee of $1.3375. Money Market Fund pays the Agent a monthly fee of $1.75 for each shareholder account that was in existence at any time during the prior month plus, for Class A shareholder accounts, $0.75 for each shareholder check processed in the prior month. For Class Y shares, each Fund pays the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of the class for the preceding month. Each Fund also reimburses W&R and WARSCO for certain out-of-pocket costs. Prior to September 1, 2000, under the Shareholder Servicing Agreement, with respect to Class A, Class B and Class C shares, each Fund other than Money Market Fund paid WARSCO a monthly fee of $1.3125 for each shareholder account that was in existence at any time during the prior month, plus $0.30 for each account on which a dividend or distribution, of cash or shares, had a record date in that month. Each Fund also paid W&R and WARSCO for certain out-of-pocket costs. As principal underwriter for the Corporation's shares, W&R receives gross sales commissions (which are not an expense of the Corporation) for Class A shares. A contingent deferred sales charge ("CDSC") may be assessed against a shareholder's redemption amount of Class B, Class C or certain Class A shares and is paid to W&R. During the period ended September 30, 2000, W&R received the following amounts in gross sales commissions and deferred sales charges: CDSC Gross Sales -------------------------- Commissions Class A Class B Class C Asset Strategy Fund $21,816 $0 $ 26 $ 1,138 High Income Fund 5,824 0 0 98 International Growth Fund 38,331 0 12 8,698 Large Cap Growth Fund 74,312 0 0 236 Limited-Term Bond Fund 111 0 0 176 Mid Cap Growth Fund 55,257 0 0 154 Money Market Fund 0 0 250 497 Municipal Bond Fund 878 0 0 341 Science and Technology Fund 51,772 0 0 21,488 Small Cap Growth Fund 64,511 0 17 16,434 Tax-Managed Equity Fund 11,266 0 0 0 Total Return Fund 43,393 0 0 8,004 With respect to Class A, Class B and Class C shares, W&R pays sales commissions and all expenses in connection with the sale of the Corporation's shares, except for registration fees and related expenses. During the period ended September 30, 2000, W&R paid the following amounts: Asset Strategy Fund.................................... $ 41,856 High Income Fund....................................... 12,654 International Growth Fund.............................. 106,995 Large Cap Growth Fund.................................. 72,710 Limited-Term Bond Fund................................. 7,424 Mid Cap Growth Fund.................................... 53,847 Money Market Fund...................................... 0 Municipal Bond Fund.................................... 2,605 Science and Technology Fund............................ 149,936 Small Cap Growth Fund.................................. 222,274 Tax-Managed Equity Fund................................ 10,709 Total Return Fund...................................... 164,146 Under a Distribution and Service Plan for Class A shares adopted by the Corporation pursuant to Rule 12b-1 under the Investment Company Act of 1940, each Fund may pay monthly a distribution and/or service fee to W&R in an amount not to exceed 0.25% of the Fund's average annual net assets. The fee is to be paid to reimburse W&R for amounts it expends in connection with the distribution of the Class A shares and/or provision of personal services to Fund shareholders and/or maintenance of shareholder accounts. Under the Distribution and Service Plan adopted by the Corporation for Class B shares and Class C shares, respectively, each Fund may pay W&R a service fee not to exceed 0.25% and a distribution fee not to exceed 0.75% of a Fund's average annual net assets attributable to that class, paid monthly, to compensate W&R for its services in connection with the distribution of shares of that class and/or the service and/or maintenance of shareholder accounts of that class. The Class B Plan and the Class C Plan each permit W&R to receive compensation, through the distribution fee and service fee, respectively, for its distribution activities for that class, which are similar to the distribution activities described with respect to the Class A Plan, and for its activities in providing personal services to shareholders of that class and/or maintaining shareholder accounts of that class, which are similar to the corresponding activities for which it is entitled to reimbursement under the Class A Plan. Under the Class Y Plan, each Fund may pay the Distributor a fee of up to 0.25%, on an annual basis, of the average daily net assets of the Fund's Class Y shares to compensate the Distributor for, either directly or through third parties, distributing the Class Y shares of that Fund, providing personal service to Class Y shareholders and/or maintaining Class Y shareholder accounts. The Corporation paid Directors' fees of $28,623, which are included in other expenses. W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company. NOTE 3 -- Investment Securities Transactions Investment securities transactions for the period ended September 30, 2000 are summarized as follows: Asset High International Strategy Income Growth Fund Fund Fund Purchases of investment securities, excluding short-term and U.S. Government securities .....$32,745,573 $ 10,158,479 $113,004,216 Purchases of bullion......... 113,691 -- -- Purchases of U.S. Government securities ................ 592,078 -- -- Purchases of short-term securities ................ 66,399,790 101,948,469 285,127,624 Purchases of options......... 2,925,194 -- -- Proceeds from maturities and sales of investment securities, excluding short-term and U.S. Government securities ..... 37,214,028 12,285,938 106,954,198 Proceeds from maturities and sales of U.S. Government securities ................ 1,049,594 -- -- Proceeds from maturities and sales of short-term securities ................ 59,504,785 100,912,884 287,740,258 Proceeds from options........ 2,479,833 -- -- Investment securities transactions for the period ended September 30, 2000 are summarized as follows: Large Cap Limited- Mid Cap Growth Term Bond Growth Fund Fund Fund Purchases of investment securities, excluding short-term and U.S. Government securities .....$13,702,025 $92,959 $8,700,773 Purchases of bullion......... -- -- -- Purchases of U.S. Government securities ................ -- 495,781 -- Purchases of short-term securities ................272,822,000 3,158,000 173,167,000 Purchases of options......... -- -- -- Proceeds from maturities and sales of investment securities, excluding short-term and U.S. Government securities ..... 1,785,572 1,242,559 2,396,844 Proceeds from maturities and sales of U.S. Government securities ................ -- 1,315,925 -- Proceeds from maturities and sales of short-term securities ................267,761,000 2,451,000 169,363,000 Proceeds from options........ -- -- -- Investment securities transactions for the period ended September 30, 2000 are summarized as follows: Municipal Science and Small Cap Bond Technology Growth Fund Fund Fund Purchases of investment securities, excluding short-term and U.S. Government securities ..... $1,587,500 $102,488,223 $156,120,948 Purchases of bullion......... -- -- -- Purchases of U.S. Government securities ................ -- -- -- Purchases of short-term securities ................ 13,278,292 744,013,736 1,961,582,250 Purchases of options......... 183,454 -- -- Proceeds from maturities and sales of investment securities, excluding short-term and U.S. Government securities ..... 4,087,594 146,774,510 167,590,926 Proceeds from maturities and sales of U.S. Government securities ................ -- -- -- Proceeds from maturities and sales of short-term securities ................ 14,108,000 701,601,000 1,974,389,177 Proceeds from options........ 143,694 -- -- Investment securities transactions for the period ended September 30, 2000 are summarized as follows: Tax-Managed Total Equity Return Fund Fund Purchases of investment securities, excluding short-term and U.S. Government securities ..... $3,558,921 $108,802,154 Purchases of bullion......... -- -- Purchases of U.S. Government securities ................ -- -- Purchases of short-term securities ................ 57,945,000 278,114,380 Purchases of options......... -- -- Proceeds from maturities and sales of investment securities, excluding short-term and U.S. Government securities ..... 130,778 131,799,816 Proceeds from maturities and sales of U.S. Government securities ................ -- -- Proceeds from maturities and sales of short-term securities ................ 57,846,000 283,377,978 Proceeds from options........ -- -- For Federal income tax purposes, cost of investments owned at September 30, 2000 and the related unrealized appreciation (depreciation) were as follows: Aggregate Appreciation Cost Appreciation Depreciation (Depreciation) Asset Strategy Fund... $51,369,126 $6,686,195 $1,797,801 $4,888,394 High Income Fund...... 20,862,699 464,488 1,461,137 (996,649) International Growth Fund ........ 166,783,194 36,567,290 15,016,630 21,550,660 Large Cap Growth Fund ........ 17,590,285 1,222,363 602,932 619,431 Limited-Term Bond Fund .......... 19,411,277 20,975 352,280 (331,305) Mid Cap Growth Fund ........ 10,634,228 696,711 548,524 148,187 Money Market Fund..... 4,163,647 -- -- -- Municipal Bond Fund .......... 26,923,128 171,743 1,705,503 (1,533,760) Science and Technology Fund .... 169,173,278 59,162,932 8,980,932 50,182,000 Small Cap Growth Fund ........ 607,900,552 134,742,231 68,961,267 65,780,964 Tax-Managed Equity Fund ........ 3,460,749 161,569 266,751 (105,182) Total Return Fund..... 400,609,072 191,957,008 19,130,251 172,826,757 NOTE 4 -- Federal Income Tax Matters For Federal income tax purposes, Asset Strategy Fund and Science and Technology Fund realized capital gain net income of $8,669,418 and $6,575,181, respectively, during the fiscal year ended March 31, 2000, which included the effect of certain losses recognized from the prior year (see discussion below). For Federal income tax purposes, High Income Fund realized capital losses of $472,930 during the year ended March 31, 2000, which included the effect of certain losses deferred into the next fiscal year as well as the effect of losses recognized from the prior year (see discussion below). Capital loss carryovers aggregated $974,622 at March 31, 2000 and are available to offset future realized capital gain net income for Federal income tax purposes but will expire if not utilized as follows: $501,692 at March 31, 2007; and $472,930 at March 31, 2008. For Federal income tax purposes, International Growth Fund, Small Cap Growth Fund and Total Return Fund realized capital gain net income of $42,405,551, $231,612,570 and $66,904,750, respectively, during the year ended March 31, 2000. For Federal income tax purposes, Limited-Term Bond Fund realized no net capital gains or losses for the year ended March 31, 2000, because of the utilization of capital loss carryovers and the effect of certain losses deferred into the next fiscal year as well as the effect of losses recognized from the prior year (see discussion below). Remaining capital loss carryovers aggregated $147,952 at March 31, 2000, and are available to offset future realized capital gain net income for Federal income tax purposes but will expire if not utilized as follows: $83,452 at March 31, 2005; and $64,500 at March 31, 2006. For Federal income tax purposes, Municipal Bond Fund realized capital gain net income of $41,809 during the year ended March 31, 2000, which included the effect of certain losses deferred into the next fiscal year (see discussion below). A portion of the capital gain net income of Asset Strategy Fund, Science and Technology Fund, International Growth Fund, Small Cap Growth Fund, Total Return Fund and Municipal Bond Fund was paid to shareholders during the year ended March 31, 2000. Remaining capital gain net income for Asset Strategy Fund, Science and Technology Fund, International Growth Fund, Small Cap Growth Fund and Total Return Fund will be distributed to shareholders. Internal Revenue Code regulations permit each Fund to defer into its next fiscal year net capital losses or net long-term capital losses incurred between each November 1 and the end of its fiscal year ("post-October losses"). From November 1, 1999 through March 31, 2000, High Income Fund, Limited-Term Bond Fund and Municipal Bond Fund incurred net capital losses of $239,041, $127,534 and $79,105, respectively, which have been deferred to the fiscal year ending March 31, 2001. In addition, during the year ended March 31, 2000, Asset Strategy Fund, Science and Technology Fund, High Income Fund and Limited-Term Bond Fund recognized post-October losses of $477,952, $108,105, $259,064 and $3,090, respectively, that had been deferred from the year ended March 31, 1999. NOTE 5 -- Multiclass Operations Each Fund within the Corporation (other than Money Market Fund which offers only Class A, Class B and Class C shares) is authorized to offer four classes of shares, Class A, Class B, Class C and Class Y, each of which have equal rights as to assets and voting privileges. A comprehensive discussion of the terms under which shares of each class are offered is contained in the Prospectus and the Statement of Additional Information for the Corporation. Income, non-class specific expenses, and realized and unrealized gains and losses are allocated daily to each class of shares based on the value of their relative net assets as of the beginning of each day adjusted for the prior day's capital share activity. Class B shares were combined with Class C shares effective March 24, 2000 and were redesignated Class C shares. Transactions in capital stock for the fiscal period ended September 30, 2000 are summarized below. Amounts are in thousands. Asset High International Strategy Income Growth Fund Fund Fund Shares issued from sale of shares: Class A ................... 62 27 102 Class B ................... 41 37 75 Class C ................... 511 78 519 Class Y ................... 4 --* 47 Shares issued from reinvestment of dividends: Class A ................... -- --* -- Class B ................... -- --* -- Class C ................... -- 100 -- Class Y ................... -- --* -- Shares redeemed: Class A ................... --* --* (1) Class B ................... (2) --* --* Class C ................... (314) (410) (716) Class Y ................... (1) -- (72) ----------------------------------- Increase (decrease) in outstanding capital shares .................... 301 (168) (46) =================================== Value issued from sale of shares: Class A ................... $ 950 $ 239 $ 2,380 Class B ................... 619 327 1,789 Class C ................... 7,722 711 12,900 Class Y ................... 55 3 1,186 Value issued from reinvestment of dividends: Class A ................... -- 3 -- Class B ................... -- 3 -- Class C ................... -- 893 -- Class Y ................... -- --* -- Value redeemed: Class A ................... (3) (1) (16) Class B ................... (31) (4) (10) Class C ................... (4,760) (3,710) (17,273) Class Y ................... (21) -- (1,833) ----------------------------------- Increase (decrease) in Outstanding capital ....... $4,531 $(1,536) $ (877) =================================== *Not shown due to rounding. Transactions in capital stock for the fiscal period ended September 30, 2000 are summarized below. Amounts are in thousands. Large Cap Limited- Mid Cap Growth Term Bond Growth Fund Fund Fund Shares issued from sale of shares: Class A ................... 693 10 325 Class B ................... 85 30 60 Class C ................... 409 50 250 Class Y ................... 25 6 16 Shares issued from reinvestment of dividends: Class A ................... -- --* -- Class B ................... -- --* -- Class C ................... -- 47 -- Class Y ................... -- 4 -- Shares redeemed: Class A ................... (3) --* (4) Class B ................... --* --* -- Class C ................... (42) (308) (65) Class Y ................... -- (3) -- ----------------------------------- Increase (decrease) in outstanding capital shares ............ 1,167 (164) 582 =================================== Value issued from sale of shares: Class A ................... $ 8,515 $ 94 $3,703 Class B ................... 1,012 297 679 Class C ................... 4,951 489 2,866 Class Y ................... 277 59 177 Value issued from reinvestment of dividends: Class A ................... -- 1 -- Class B ................... -- 2 -- Class C ................... -- 456 -- Class Y ................... -- 39 -- Value redeemed: Class A ................... (33) --* (41) Class B ................... --* (3) -- Class C ................... (508) (3,005) (763) Class Y ................... -- (32) -- ------------------------------------- Increase (decrease) in outstanding capital ....... $14,214 $(1,603) $6,621 ===================================== *Not shown due to rounding. Transactions in capital stock for the fiscal period ended September 30, 2000 are summarized below. Amounts are in thousands. Money Municipal Science and Market Bond Technology Fund Fund Fund Shares issued from sale of shares: Class A ................... 387 3 94 Class B ................... 127 1 81 Class C ................... 3,405 36 850 Class Y ................... n/a -- 40 Shares issued from reinvestment of dividends: Class A ................... 41 --* -- Class B ................... --* --* -- Class C ................... 6 48 -- Class Y ................... n/a --* -- Shares redeemed: Class A ................... (25) -- (3) Class B ................... (50) -- --* Class C ................... (2,591) (377) (887) Class Y ................... n/a -- (44) ------------------------------------ Increase (decrease) in outstanding capital shares ............ 1,300 (289) 131 ==================================== Value issued from sale of shares: Class A ................... $ 387 $ 26 $ 3,231 Class B ................... 127 10 2,803 Class C ................... 3,405 364 28,448 Class Y ................... n/a -- 1,412 Value issued from reinvestment of dividends: Class A ................... 41 --* -- Class B ................... --* --* -- Class C ................... 6 489 -- Class Y ................... n/a --* -- Value redeemed: Class A ................... (25) --* (101) Class B ................... (50) -- (14) Class C ................... (2,591) (3,814) (29,673) Class Y ................... n/a -- (1,449) ------------------------------------ Increase (decrease) in outstanding capital ....... $1,300 $(2,925) $ 4,657 ==================================== *Not shown due to rounding. Transactions in capital stock for the fiscal period ended September 30, 2000 are summarized below. Amounts are in thousands. Tax- Small Cap Managed Total Growth Equity Return Fund Fund Fund Shares issued from sale of shares: Class A ................... 159 37 149 Class B ................... 219 6 199 Class C ................... 1,325 21 1,680 Class Y ................... 756 -- 24 Shares issued from reinvestment of dividends: Class A ................... -- -- -- Class B ................... -- -- -- Class C ................... -- -- -- Class Y ................... -- -- -- Shares redeemed: Class A ................... (13) -- (3) Class B ................... (8) --* (1) Class C ................... (2,869) (7) (3,460) Class Y ................... (680) -- (18) ------------------------------------ Increase (decrease) in outstanding capital shares ............ (1,111) 57 (1,430) ==================================== Value issued from sale of shares: Class A ................... $ 2,960 $363 $ 2,091 Class B ................... 4,096 61 2,767 Class C ................... 25,170 212 22,999 Class Y ................... 14,575 -- 346 Value issued from reinvestment of dividends: Class A ................... -- -- -- Class B ................... -- -- -- Class C ................... -- -- -- Class Y ................... -- -- -- Value redeemed: Class A ................... (231) -- (43) Class B ................... (141) --* (20) Class C ................... (54,323) (74) (47,495) Class Y ................... (13,083) -- (253) -------------------------------------- Increase (decrease) in outstanding capital ....... $(20,977) $562 $(19,608) ====================================== *Not shown due to rounding. Transactions in capital stock for the fiscal year ended March 31, 2000 are summarized below. Amounts are in thousands. Asset High Strategy Growth Income Fund Fund Fund Shares issued from sale of shares: Class B ................... 1,088 5,238 713 Class C ................... 3,465 37,161 2,520 Class Y ................... 7 865 --* Shares issued from reinvestment of dividends and/or capital gains distribution: Class B ................... 90 5,558 165 Class C ................... 1 84 6 Class Y ................... 1 112 --* Shares redeemed: Class B ................... (3,899) (39,601) (3,436) Class C ................... (34) (241) (59) Class Y ................... (2) (759) --* ------------------------------------ Increase (decrease) in outstanding capital shares ............ 717 8,417 (91) ==================================== Value issued from sale of shares: Class B ................... $13,016 $ 85,891 $6,880 Class C ................... 52,539 853,837 23,848 Class Y ................... 86 15,504 3 Value issued from reinvestment of dividends and/or capital gains distribution: Class B ................... 1,107 96,442 1,580 Class C ................... 17 1,449 55 Class Y ................... 13 2,024 --* Value redeemed: Class B ................... (57,701) (895,114) (32,608) Class C ................... (524) (5,366) (573) Class Y ................... (26) (13,175) (3) ------------------------------------- Increase (decrease) in outstanding capital ....... $ 8,527 $141,492 $ (818) ===================================== *Not shown due to rounding. Transactions in capital stock for the fiscal year ended March 31, 2000 are summarized below. Amounts are in thousands. International Limited- Municipal Growth Term Bond Bond Fund Fund Fund Shares issued from sale of shares: Class B ................... 1,553 786 451 Class C ................... 8,221 1,991 2,850 Class Y ................... 218 105 -- Shares issued from reinvestment of dividends and/or capital gains distribution: Class B ................... 542 95 124 Class C ................... 12 3 3 Class Y ................... 8 3 --* Shares redeemed: Class B ................... (8,498) (2,979) (4,391) Class C ................... (71) (50) (48) Class Y ................... (88) (8) -- ------------------------------------ Increase (decrease) in outstanding capital shares ............ 1,897 (54) (1,011) ==================================== Value issued from sale of shares: Class B ................... $29,238 $7,845 $ 4,958 Class C ................... 246,818 19,380 28,818 Class Y ................... 5,494 1,033 -- Value issued from reinvestment of dividends and/or capital gains distribution: Class B ................... 12,373 937 1,305 Class C ................... 280 25 26 Class Y ................... 188 32 --* Value redeemed: Class B ................... (247,001) (29,147) (44,833) Class C ................... (2,133) (486) (495) Class Y ................... (2,324) (77) -- ------------------------------------- Increase (decrease) in outstanding capital ....... $42,933 $ (458) $(10,221) ===================================== *Not shown due to rounding. Transactions in capital stock for the fiscal year ended March 31, 2000 are summarized below. Amounts are in thousands. Science and Total Technology Return Fund Fund Shares issued from sale of shares: Class B .............................. 3,257 6,120 Class C .............................. 6,359 42,965 Class Y .............................. 148 58 Shares issued from reinvestment of dividends and/or capital gains distribution: Class B .............................. 33 1,649 Class C .............................. 2 18 Class Y .............................. --* 6 Shares redeemed: Class B .............................. (5,834) (51,879) Class C .............................. (79) (435) Class Y .............................. (105) (28) ---------------------- Increase (decrease) in outstanding capital shares ....................... 3,781 (1,526) ====================== Value issued from sale of shares: Class B .............................. $ 77,915 $ 72,977 Class C .............................. 317,906 593,357 Class Y .............................. 4,519 719 Value issued from reinvestment of dividends and/or capital gains distribution: Class B .............................. 1,221 19,693 Class C .............................. 64 212 Class Y .............................. 9 72 Value redeemed: Class B .............................. (292,678) (700,957) Class C .............................. (3,731) (5,907) Class Y .............................. (3,235) (343) ----------------------- Increase (decrease) in outstanding capital .................. $101,990 $(20,177) ======================= *Not shown due to rounding. NOTE 6 -- Options Options purchased by a Fund are accounted for in the same manner as marketable portfolio securities. The cost of portfolio securities acquired through the exercise of call options is increased by the premium paid to purchase the call. The proceeds from securities sold through the exercise of put options are decreased by the premium paid to purchase the put. When a Fund writes (sells) an option, an amount equal to the premium received by the Fund is recorded as a liability. The amount of the liability is subsequently adjusted to reflect the current market value of the option written. The current market value of an option is the last sales price on the principal exchange on which the option is traded or, in the absence of transactions, the mean between the bid and asked prices or at a value supplied by a broker-dealer. When an option expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the call option was sold) and the liability related to such option is extinguished. When a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. For the Fund, when a put written is exercised, the cost basis of the securities purchased by the Fund is reduced by the amount of the premium. For Asset Strategy Fund, transactions in call options written were as follows: Number of Premiums Contracts Received Outstanding at March 31, 2000....... -- $ -- Options written..................... 1,356 1,490,082 Options terminated in closing purchase transactions ............ (702) (1,422,606) Options exercised................... -- -- Options expired..................... -- -- --------------------------- Outstanding at September 30, 2000... 654 $67,476 =========================== NOTE 7 -- Name Changes On June 30, 2000 the Corporation changed its name from Waddell & Reed Funds, Inc. to the current W&R Funds, Inc. Also on June 30, 2000, the former Growth Fund became known as the Small Cap Growth Fund. On October 2, 2000, the current Total Return Fund became the Core Equity Fund. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, W&R Funds, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedules of investments, of Asset Strategy Fund, High Income Fund, International Growth Fund, Large Cap Growth Fund, Limited-Term Bond Fund, Mid Cap Growth Fund, Money Market Fund, Municipal Bond Fund, Science and Technology Fund, Small Cap Growth Fund (formerly Growth Fund), Tax- Managed Equity Fund, and Total Return Fund (collectively the "Funds") comprising W&R Funds, Inc. (formerly Waddell & Reed Funds, Inc.) as of September 30, 2000, and the related statements of operations for the respective fiscal periods then ended, the statements of changes in net assets for the respective fiscal periods then ended and fiscal year ended March 31, 2000, and the financial highlights for the respective fiscal periods ended September 30, 2000 and for each of the five fiscal years in the period ended March 31, 2000. These financial statements and the financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2000 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of each of the Funds comprising W&R Funds, Inc. as of September 30, 2000, the results of their operations for the respective fiscal periods then ended, the changes in their net assets for the respective fiscal periods then ended and fiscal year ended March 31, 2000, and the financial highlights for the respective fiscal periods ended September 30, 2000 and for each of the five fiscal years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri November 3, 2000 To all traditional IRA Planholders: As required by law, income tax will automatically be withheld from any distribution or withdrawal from a traditional IRA unless you make a written election not to have taxes withheld. The election may be made by submitting forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell & Reed representative or by submitting Internal Revenue Service Form W-4P. Once made, an election can be revoked by providing written notice to Waddell & Reed, Inc. If you elect not to have tax withheld you may be required to make payments of estimated tax. Penalties may be imposed by the IRS if withholding and estimated tax payments are not adequate. DIRECTORS Keith A. Tucker Overland Park, Kansas Chairman of the Board James M. Concannon Topeka, Kansas John A. Dillingham Kansas City, Missouri David P. Gardner San Mateo, California Linda K. Graves Topeka, Kansas Joseph Harroz, Jr. Norman, Oklahoma John F. Hayes Hutchinson, Kansas Robert L. Hechler Overland Park, Kansas Henry J. Herrmann Overland Park, Kansas Glendon E. Johnson Miami, Florida William T. Morgan Coronado, California Ronald C. Reimer Mission Hills, Kansas Frank J. Ross, Jr. Kansas City, Missouri Eleanor B. Schwartz Kansas City, Missouri Frederick Vogel III Milwaukee, Wisconsin OFFICERS Robert L. Hechler President Michael L. Avery Vice President Bryan J. Bailey Vice President Daniel P. Becker Vice President John M. Holliday Vice President Theodore W. Howard Vice President and Treasurer Thomas A. Mengel Vice President Cynthia P. Prince-Fox Vice President Kristen A. Richards Vice President and Secretary Louise D. Rieke Vice President Grant P. Sarris Vice President Daniel C. Schulte Vice President Mark G. Seferovich Vice President Zachary H. Shafran Vice President W. Patrick Sterner Vice President Mira Stevovich Vice President Daniel J. Vrabac Vice President James D. Wineland Vice President W&R Funds, Inc. Asset Strategy Fund High Income Fund International Growth Fund Large Cap Growth Fund Limited-Term Bond Fund Mid Cap Growth Fund Money Market Fund Municipal Bond Fund Science and Technology Fund Small Cap Growth Fund Tax-Managed Equity Fund Total Return Fund For More Information: Contact your representative, or your local office as listed on your Account Statement, or contact: WADDELL & REED CUSTOMER SERVICE 6300 Lamar Avenue P.O. Box 29217 Shawnee Mission, KS 66201-9217 (888) WADDELL (888) 923-3355 Our INTERNET address is: http://www.waddell.com For more complete information regarding any of the mutual funds in W&R Funds, including charges and expenses, please obtain the Corporation's prospectus by calling or writing to the number or address listed above. Please read the prospectus carefully before investing. BULK RATE U.S. POSTAGE PAID WADDELL & REED WRR3000SA (9-00) W&R Funds, Inc. 6300 Lamar Avenue P. O. Box 29217 Shawnee Mission, Kansas 66201-9217 WADDELL & REED LOGO