Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS

The Funds will be subject to the risks associated with fixed-income securi- ties. These risks include interest rate risk, credit risk and call/extension risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that the issuer could default on its obligations and a Fund will not recover its investment. Call risk and extension risk are normally present in adjustable rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed securities. For example, homeowners have the option to prepay their mort- gages. Therefore, the duration of a security backed by home mortgages can either shorten (call risk) or lengthen (extension risk). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.

The Funds may, as described in this Prospectus, invest in (a) derivative instruments, (b) foreign securities, (c) municipal securities, (d) illiquid securities and (e) temporary cash investments. These investments will pres- ent additional risks as described further below.

In addition, the Funds are subject to certain fundamental investment restrictions that are described in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund as defined in the Additional Statement. Each Fund's investment objectives and all policies not specifi- cally designated as fundamental are non-fundamental and may be changed with- out shareholder approval. If there is a change in a Fund's investment objec- tive, shareholders should consider whether that Fund remains an appropriate investment in light of their then current financial positions and needs.

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The Investment Adviser will not consider the portfolio turnover rate a lim- iting factor in making investment decisions for a Fund. A high rate of port- folio turnover (100% or more) involves correspondingly greater expenses which must be borne by a Fund and its shareholders. See "Financial High- lights" in Appendix B for a statement of the Funds' historical portfolio turnover rates. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of a Fund's portfolio securities, excluding secu- rities having a maturity at the date of purchase of one year or less.

B. OTHER PORTFOLIO RISKS

RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options, futures, options on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities and currency trans- actions involve additional risk of loss that can result from a lack of cor- relation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in secu- rities prices, interest rates or currency prices. Each Fund may also invest in derivative investments for non-hedging purposes (that is, to seek to increase total return), which is considered a speculative practice and pre- sents even greater risk of loss.

Derivative Mortgage-Backed Securities (such as principal-only ("POs"), interest-only ("IOs") or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flow and the market value of these securi- ties. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of slower than anticipated prepayments generally adversely affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced Mortgage-Backed Securities. In addition, par- ticular derivative securities may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magni- fied.

Floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced below market rates if a desig- nated interest rate floats outside of a specified interest rate band or col- lar. Dual index or yield curve floaters are subject to lower prices in the event of an unfavorable change in the spread between two designated interest rates.

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APPENDIX A

RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securi- ties of U.S. issuers. Foreign investments may be affected by changes in cur- rency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency block- age). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the port- folio security. In addition, if the currency in which a Fund receives divi- dends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

The introduction of a single currency, the euro, on January 1, 1999 for par- ticipating nations in the European Economic and Monetary Union ("EMU") pre- sents unique uncertainties, including the legal treatment of certain out- standing financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates for currencies being converted into the euro; the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries such as the United Kingdom and Denmark into the euro and the admission of other non-EMU countries such as Poland, Latvia and Lithuania as members of the EMU may have an impact on the euro. These or other factors, including political and economic risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by the Funds.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such proce- dures have been unable to keep pace with the volume of securities transac- tions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States. Foreign securities markets

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may have substantially less volume than U.S. securities markets and securi- ties of many foreign issuers are less liquid and more volatile than securi- ties of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on divi- dend or interest payments (or, in some cases, capital gains), limitations on the removal of funds or other assets of the Funds, and political or social instability or diplomatic developments which could affect investments in those countries.

Investment in sovereign debt obligations by certain Funds involves risks not present in debt obligations of corporate issuers. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and a Fund may have limited recourse in the event of a default. Periods of economic uncertainty may result in volatility of market prices of sovereign debt, and in turn a Fund's NAV, to a greater extent than the volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's willingness or ability to repay principal and pay inter- est in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availabil- ity of sufficient foreign exchange on the date a payment is due, the rela- tive size of the debt service burden to the economy as a whole, the sover- eign debtor's policy toward international lenders and the political constraints to which a sovereign debtor may be subject.

RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of issuers located in emerging countries. The risks of foreign investment are heightened when the issuer is located in an emerging country.

Many emerging countries may be subject to a substantial degree of economic, political and social instability. Governments of some emerging countries are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other emerging countries have periodi- cally used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffec- tion, among other factors, have also led to social unrest, violence and/or labor unrest in emerging countries. Investing in emerging countries involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested.

A Fund's investment in emerging countries may also be subject to withholding or other taxes, which may be significant and may reduce the return from an investment in such country to the Fund. Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and may

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APPENDIX A

involve a Fund's delivery of securities before receipt of payment for their sale. In addition, significant delays are common in certain markets in reg- istering the transfer of securities. Settlement or registration problems may make it more difficult for a Fund to value its portfolio securities and could cause the Fund to miss attractive investment opportunities, to have a portion of its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities the Fund has delivered or the Fund's inability to complete its contractual obligations.

The small size and inexperience of the securities markets in certain emerg- ing countries and the limited volume of trading in securities in those coun- tries may make a Fund's investments in such countries less liquid and more volatile than investments in countries with more developed securities mar- kets (such as the United States, Japan and most Western European countries).

Many emerging countries have experienced currency devaluations and substan- tial (and, in some cases, extremely high) rates of inflation, which have a negative effect on the economies and securities markets of such emerging countries. Economies in emerging countries generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

A Fund's use of foreign currency management techniques in emerging countries may be limited. Due to the limited market for these instruments in emerging countries, the Investment Adviser does not currently anticipate that a sig- nificant portion of the Funds' currency exposure in emerging countries, if any, will be covered by such instruments.

RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in illiquid securities which cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include:

.Both domestic and foreign securities that are not readily marketable

.Certain municipal leases and participation interests

.Certain stripped Mortgage-Backed Securities

. Repurchase agreements and time deposits with a notice or demand period of more than seven days

.Certain over-the-counter options

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. Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted security, that a restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and, therefore, is liquid

Investing in restricted securities eligible for resale pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the extent that quali- fied institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liq- uid market exists.

C. PORTFOLIO SECURITIES AND TECHNIQUES

This section provides further information on certain types of securities and investment techniques that may be used by the Funds, including their associ- ated risks. Further information is provided in the Additional Statement, which is available upon request.

U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS

U.S. Government Securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or spon- sored enterprises. U.S. Government Securities may be supported by (a) the full faith and credit of the U.S. Treasury (such as the Government National Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as securities of the Student Loan Marketing Association), (c) the discretionary authority of the U.S. government to pur- chase certain obligations of the issuer (such as the Federal National Mort- gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government Securities also include Treasury receipts, zero coupon bonds and other stripped U.S. Government Securities, where the interest and principal compo- nents of stripped U.S. Government Securities are traded independently.

Interest in U.S. Government Securities may be purchased in the form of cus- todial receipts that evidence ownership of future interest payments, princi- pal payments or both on certain notes or bonds issued or guaranteed as to principal and interest by the U.S. government, its agencies, instrumentali- ties, political subdivisions or authorities. For certain securities law pur- poses, custodial receipts are not considered obligations of U.S. government.

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APPENDIX A

MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Mortgage-Backed Securities can be backed by either fixed rate mortgage loans or adjustable rate mortgage loans, and may be issued by either a governmental or non-governmental entity. Privately issued Mortgage- Backed Securities are normally structured with one or more types of "credit enhancement." However, these Mortgage-Backed Securities typically do not have the same credit standing as U.S. government guaranteed Mortgage-Backed Securities.

Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or participation certificates. CMOs provide an investor with a specified interest in the cash flow from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In most cases, payments of principal are applied to the CMO classes in the order of their respective stated maturi- ties, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real prop- erty and other permitted investments.

Mortgaged-Backed Securities also include stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. SMBS are usually structured with two different classes: one that receives 100% of the interest payments and the other that receives 100% of the prin- cipal payments from a pool of mortgage loans. The market value of SMBS con- sisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on SMBS that receive all or most of the interest from mortgage loans are generally higher than pre- vailing market yields on other Mortgage-Backed Securities because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped.

Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to both call risk and extension risk as previously described. Because of these risks, these securities can have significantly greater price and yield vola- tility than with traditional fixed-income securities.

The value of Mortgage-Backed Securities that are structured as pass-through mortgage securities that are collateralized by ARMs are less likely to rise during periods of declining interest rates to the same extent as fixed-rate securities. This is because interest rate declines may result in accelerated prepayments of mortgages

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with the result that proceeds from prepayments will be reinvested at lower interest rates. On the other hand, during periods of rising interest rates, the value of ARMs will lag behind changes in the market rate. ARMs are also typically subject to maximum increases and decreases in the interest rate adjustment which can be made on any one adjustment date, in any one year, or during the life of the security. In the event of dramatic increases or decreases in prevailing market interest rates, the value of a Fund's invest- ments in ARMs may fluctuate more substantially since these limits may pre- vent the security from fully adjusting its interest rate to the prevailing market rates.

ASSET-BACKED SECURITIES

Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset- backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of pre- payments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Asset-backed securities present credit risks that are not presented by Mortgage-Backed Securities. This is because asset- backed securities generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. There is the possibil- ity that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.

MUNICIPAL SECURITIES

Municipal Securities include bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of the states, territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agen- cies or instrumentalities, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from federal alterna- tive minimum tax or from state or local taxes). Because of their tax-exempt status, the yields and market values of Municipal Securities may be more adversely impacted by changes in the tax rates and policies than taxable fixed-income securities.

Municipal Securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Municipal Securities include private activity bonds, municipal

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APPENDIX A

leases, certificates of participation, pre-refunded municipal securities and auction rate securities.

The obligations of the issuer to pay the principal of and interest on a Municipal Security are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other con- ditions, the power or ability of the issuer to pay when due the principal of or interest on a Municipal Security may be materially affected. Municipal lease obligations and certificates of participation are subject to the added risk that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although these obliga- tions may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to recover fully a Fund's original investment.

Municipal Securities may be in the form of a tender option bond, which is a Municipal Security (generally held pursuant to a custodial arrangement) hav- ing a relatively long maturity and bearing interest at a fixed rate substan- tially higher than prevailing short-term, tax-exempt rates. The bond is typ- ically issued with the agreement of a third party, such as a bank, broker- dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the dif- ference between the bond's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. Certain tender option bonds may be illiquid.

In order to enhance the liquidity of Municipal Securities, a Fund may (but is not required to) acquire the right to sell a security to another party at a guaranteed price and date. This right to resell may be referred to as a "standby commitment" or liquidity put, depending on its characteristics. The aggregate price which a Fund pays for securities with standby commitments may be higher than the price which otherwise would be paid for the securi- ties. Standby commitments may not be available or may not be available on satisfactory terms.

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CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES

Corporate debt obligations include bonds, notes, debentures and other obli- gations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. A trust pre- ferred or capital security is a long dated bond (for example, 30 years) with preferred features. The preferred features are that payment of interest can be deferred for a specified period without initiating a default event. The securities are generally senior in claim to standard preferred stock but junior to other bondholders.

Convertible securities are preferred stock or debt obligations that are con- vertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar qual- ity. Convertible securities in which a Fund invests are subject to the same rating criteria as its other investments in fixed-income securities. Con- vertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible secu- rity, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

FOREIGN CURRENCY TRANSACTIONS

A Fund may, to the extent it invests in foreign securities, purchase or sell foreign currencies on a cash basis or through forward contracts. A forward contract involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract. A Fund may engage in foreign currency transactions for hedging purposes and to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, a Fund also may enter into such transactions to seek to increase total return when the Investment Adviser anticipates fluctuation in the value of the foreign currency, but securities denominated or quoted in that currency do not present attractive investment opportunities and are not held in the Fund's portfolio, which is considered a speculative practice. Some Funds may also engage in cross-hedging by using forward contracts in a cur- rency different from that in which the hedged security is denomi-

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APPENDIX A

nated or quoted if the Investment Adviser determines that there is a pattern of correlation between the two currencies. A Fund may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the Investment Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date, based on anticipated changes in the relevant exchange rate.

Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, a Fund's NAV to fluctuate (when the Fund's NAV fluctuates, the value of your shares may go up or down). Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad.

The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments offers less protection against defaults by the other party to such instruments than is available for currency instruments traded on an exchange. Such contracts are subject to the risk that the counterparty to the contract will default on its obli- gations. Since these contracts are not guaranteed by an exchange or clear- inghouse, a default on a contract would deprive a Fund of unrealized prof- its, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price.

STRUCTURED SECURITIES

Structured securities are securities whose value is determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the "Reference") or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. Structured securities may be posi- tively or negatively indexed, so that appreciation of the Reference may pro- duce an increase or decrease in the interest rate or value of the security at maturity. In addition, changes in the interest rates or the value of the security at maturity may be a multiple of changes in the value of the Refer- ence. Consequently, structured securities may entail a greater degree of market risk than other types of fixed-income securities, and may be more volatile, less liquid and more difficult to accurately price than less com- plex securities. Structured securities include, but are not limited to, inverse floating rate debt securities ("inverse floaters"). The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate var- ies by a magnitude that exceeds the magnitude

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of the change in the index rate of interest. The higher the degree of lever- age of an inverse floater, the greater the volatility of its market value.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

These securities are issued at a discount from their face value because interest payments are typically postponed until maturity. Pay-in-kind secu- rities are securities that have interest payable by the delivery of addi- tional securities. The market prices of these securities generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a greater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality.

MORTGAGE DOLLAR ROLLS

A mortgage dollar roll involves the sale by a Fund of securities for deliv- ery in the current month. The Fund simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal and interest paid on the securities sold. However, the Fund benefits to the extent of any difference between (a) the price received for the securities sold and (b) the lower forward price for the future purchase and/or fee income plus the interest earned on the cash proceeds of the securities sold. Unless the ben- efits of a mortgage dollar roll exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the roll, the use of this technique will diminish the Fund's investment performance.

Successful use of mortgage dollar rolls depends upon the Investment Advis- er's ability to predict correctly interest rates and mortgage prepayments. If the Investment Adviser is incorrect in its prediction, a Fund may experi- ence a loss. For financial reporting and tax purposes, the Funds treat mort- gage dollar rolls as two separate transactions: one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing, and do not treat them as borrowings.

OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES

A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instru- ment during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obliga- tion to sell, the underlying instrument

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APPENDIX A

during the option period. Each Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may also, to the extent it invests in foreign securities, purchase and sell (write) put and call options on foreign currencies.

The writing and purchase of options is a highly specialized activity which involves special investment risks. Options may be used for either hedging or cross-hedging purposes, or to seek to increase total return (which is con- sidered a speculative activity). The successful use of options depends in part on the ability of the Investment Adviser to manage future price fluctu- ations and the degree of correlation between the options and securities (or currency) markets. If the Investment Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in a Fund's investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase a Fund's brokerage transaction costs. Options written or purchased by the Funds may be traded on either U.S. or foreign exchanges or over-the-counter. Foreign and over-the-counter options will present greater possibility of loss because of their greater liquidity and credit risks.

YIELD CURVE OPTIONS

Each Fund may enter into options on the yield "spread" or differential between two securities. Such transactions are referred to as "yield curve" options. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.

The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, such options pres- ent a risk of loss even if the yield of one of the underlying securities remains constant, or if the spread moves in a direction or to an extent which was not anticipated.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument or currency at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A futures

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contract may be based on various securities (such as U.S. Government Securi- ties), foreign currencies, securities indices and other financial instru- ments and indices. The Funds may engage in futures transactions on both U.S. and foreign exchanges.

Each Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices or, to the extent a Fund invests in foreign securities, currency exchange rates, or to otherwise manage their term structures and durations in accordance with their investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions for bona fide hedging purposes as defined in regulations of the Commodity Futures Trading Commission or to seek to increase total return to the extent permitted by such regulations. A Fund may not purchase or sell futures contracts or purchase or sell related options to seek to increase total return, except for closing purchase or sale transactions, if immedi- ately thereafter the sum of the amount of initial margin deposits and premi- ums paid on the Fund's outstanding positions in futures and related options entered into for the purpose of seeking to increase total return would exceed 5% of the market value of the Fund's net assets. Future contracts and related options present the following risks:

.While a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.

.Because perfect correlation between a futures position and portfolio posi- tion that is intended to be protected is impossible to achieve, the desired protection may not be obtained and a Fund may be exposed to additional risk of loss.

.The loss incurred by a Fund in entering into futures contracts and in writ- ing call options on futures is potentially unlimited and may exceed the amount of the premium received.

.Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's NAV.

.As a result of the low margin deposits normally required in futures trad- ing, a relatively small price movement in a futures contract may result in substantial losses to a Fund.

.Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.

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APPENDIX A

.Foreign exchanges may not provide the same protection as U.S. exchanges.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.

When-issued securities are securities that have been authorized but not yet issued. When-issued securities are purchased in order to secure what is con- sidered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

A forward commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settle- ment period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, securities sold on a for- ward commitment basis involves the risk that the value of the securities to be sold may increase before the settlement date. Although a Fund will gener- ally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate to do so.

LENDING OF PORTFOLIO SECURITIES

Securities lending involves the lending of securities owned by a Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loans continuously with cash, cash equivalents or U.S. Government Securities in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equiva- lents. If the Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 33 1/3% of the value of the total assets of a Fund (including the loan collateral).

A Fund may lend its securities to increase its income. A Fund may, however, experience a delay in the recovery of its securities or possible loss if the institution with which it has engaged in a securities lending transaction breaches its agreement with the Fund.

REPURCHASE AGREEMENTS

Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase them at a mutually agreed upon date and price. Each Fund may enter into repurchase agreements with dealers in U.S. Government Securities and member banks of the Federal Reserve System which furnish collateral at least equal in value or market price to the amount of their repurchase obligation. Some Funds may also enter into repurchase agreements involving certain foreign government securities.

15-P

If the other party or "seller" defaults, a Fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund in connection with the repurchase agree- ment are less than the repurchase price and the cost of the Fund associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer other losses if a court determines that the Fund's interest in the collateral is not enforce- able.

BORROWINGS AND REVERSE REPURCHASE AGREEMENTS

The Funds can borrow money from banks and enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. Reverse repurchase agreements involve the sale of securities held by a Fund subject to the Fund's agree- ment to repurchase them at a mutually agreed upon date and price (including interest). These transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agree- ments may also be entered into when the Investment Adviser expects that the interest income to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Borrowings and reverse repurchase agreements involve leveraging. If the securities held by a Fund decline in value while these transactions are outstanding, the NAV of the Fund's outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the interest income earned by a Fund (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by a Fund will decline below the price the Fund is obligated to pay to repurchase the secu- rities, and that the securities may not be returned to the Fund.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS

Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments. Mortgage swaps are simi- lar to interest rate swaps in that they represent commitments to pay and receive interest. The notional principal amount, however, is tied to a ref- erence pool or pools of mortgages. Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses of an underlying security. Credit swaps give one party to a transac- tion the right to dispose of or acquire an asset (or group of assets), or the right to receive or make a payment from the other party, upon the occur- rence of specified credit events. Currency swaps involve the exchange of the parties' respective rights to make or receive payments in specified

16-P

APPENDIX A

currencies. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor enti- tles the purchaser, to the extent that a specified index falls below a pre- determined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates.

Each Fund may enter into swap transactions for hedging purposes or to seek to increase total return. The use of interest rate, mortgage, credit and currency swaps, as well as interest rate caps, floors and collars, is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transac- tions. If the Investment Adviser is incorrect in its forecasts of market value, interest rates and currency exchange rates, the investment perfor- mance of a Fund would be less favorable than it would have been if these investment techniques were not used.

INVERSE FLOATING RATE DEBT SECURITIES ("INVERSE FLOATERS")

The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund may, with respect to no more than 5% of its net assets, invest in other investment companies.

17-P

NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-investment grade fixed- income securities are considered predominantly speculative by traditional investment standards. In some cases, these obligations may be highly specu- lative and have poor prospects for reaching investment grade standing. Non- investment grade fixed-income securities and unrated securities of compara- ble credit quality (commonly known as "junk bonds") are subject to the increased risk of an issuer's inability to meet principal and interest obli- gations. These securities, also referred to as high yield securities, may be subject to greater price volatility due to such factors as specific corpo- rate developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.

Non-investment grade fixed-income securities are often issued in connection with a corporate reorganization or restructuring or as part of a merger, acquisition, takeover or similar event. They are also issued by less estab- lished companies seeking to expand. Such issuers are often highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and interest in the event of adverse developments or business conditions.

The market value of non-investment grade fixed-income securities tends to reflect individual corporate developments to a greater extent than that of higher rated securities which react primarily to fluctuations in the general level of interest rates. As a result, a Fund's ability to achieve its investment objectives may depend to a greater extent on the Investment Adviser's judgment concerning the creditworthiness of issuers than funds which invest in higher-rated securities. Issuers of non-investment grade fixed-income securities may not be able to make use of more traditional methods of financing and their ability to service debt obligations may be affected more adversely than issuers of higher-rated securities by economic downturns, specific corporate developments or the issuer's inability to meet specific projected business forecasts. Negative publicity about the junk bond market and investor perceptions regarding lower rated securities, whether or not based on fundamental analysis, may depress the prices for such securities.

A holder's risk of loss from default is significantly greater for non- investment grade fixed-income securities than is the case for holders of other debt securities because such non-investment grade securities are gen- erally unsecured and are often subordinated to the rights of other creditors of the issuers of such

1-Q

securities. Investment by a Fund in defaulted securities poses additional risk of loss should nonpayment of principal and interest continue in respect of such securities. Even if such securities are held to maturity, recovery by a Fund of its initial investment and any anticipated income or apprecia- tion is uncertain.

The secondary market for non-investment grade fixed-income securities is concentrated in relatively few market makers and is dominated by institu- tional investors, including mutual funds, insurance companies and other financial institutions. Accordingly, the secondary market for such securi- ties is not as liquid as, and is more volatile than, the secondary market for higher-rated securities. In addition, market trading volume for high yield fixed-income securities is generally lower and the secondary market for such securities could contract under adverse market or economic condi- tions, independent of any specific adverse changes in the condition of a particular issuer. These factors may have an adverse effect on the market price and a Fund's ability to dispose of particular portfolio investments. A less liquid secondary market also may make it more difficult for a Fund to obtain precise valuations of the high yield securities in its portfolio.

Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of non-investment grade securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality. Investments in non-investment grade and comparable unrated obligations will be more dependent on the Investment Adviser's credit analysis than would be the case with investments in investment-grade debt obligations.

LOAN PARTICIPATIONS

A loan participation is an interest in a loan to a U.S. or foreign company or other borrower which is administered and sold by a financial intermedi- ary. A Fund may only invest in loans to issuers in whose obligations it may otherwise invest. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an assignment of an interest in the loan by a co-lender or another participant, or a participa- tion in the seller's share of the loan. When a Fund acts as co-lender in connection with a participation interest or when it acquires certain partic- ipation interests, the Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Fund lacks direct recourse, it will look to the agent bank to enforce appropriate credit remedies against the borrower. In these cases, the Fund

2-Q

may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the Fund may be regarded as a creditor of the agent bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the agent bank may become insolvent.

PREFERRED STOCK, WARRANTS AND RIGHTS

Preferred stocks are securities that represent an ownership interest provid- ing the holder with claims on the issuer's earnings and assets before common stock owners but after bond owners. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obli- gations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default or other non-compliance by the issuer with the terms of the preferred stock.

Warrants and other rights are options to buy a stated number of shares of common stock at a specified price at any time during the life of the war- rant. The holders of warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.

3-Q

Appendix B

                                                         INCOME (LOSS) FROM
                                                       INVESTMENT OPERATIONS/A/
                                                                  NET REALIZED
                                                                 AND UNREALIZED
                                                                  GAIN (LOSS)
                                            NET ASSET            ON INVESTMENT,
                                            VALUE AT     NET       OPTION AND
                                            BEGINNING INVESTMENT    FUTURES
                                            OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                      $ 9.88     $0.53        $(0.17)
  1998 - Institutional Shares                  9.88      0.55         (0.16)
  1998 - Administration Shares                 9.88      0.53         (0.16)
  1998 - Service Shares                        9.88      0.51         (0.16)
  1997 - Class A Shares                        9.83      0.57f         0.05f
  1997 - Institutional Shares                  9.83      0.59f         0.05f
  1997 - Administration Shares                 9.83      0.57f         0.05f
  1997 - Service Shares (commenced March
   27)                                         9.84      0.33f         0.04f
  1996 - Class A Shares                        9.77      0.55f         0.08f
  1996 - Institutional Shares                  9.77      0.57f         0.08f
  1996 - Administration Shares                 9.77      0.55f         0.08f
  1995 - Class A Shares (commenced May 15)     9.79      0.27f        (0.01)f
  1995 - Institutional Shares                  9.74      0.56f         0.07f
  1995 - Administration Shares                 9.74      0.54f         0.07f
  1994 - Institutional Shares                 10.00      0.43f        (0.24)f
  1994 - Administration Shares                10.00      0.42f        (0.26)f
-------------------------------------------------------------------------------

           DISTRIBUTIONS TO SHAREHOLDERS

                             FROM NET       NET                                    NET
                          REALIZED GAIN   INCREASE                               ASSETS
               IN EXCESS  ON INVESTMENT, (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET       OPTION       IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT  AND FUTURES     ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS    VALUE     PERIOD   RETURNB   RATEE   (IN 000S)
-----------------------------------------------------------------------------------------
  $(0.53)        $(0.02)       $--         $(0.19)    $9.69    3.71%    33.64%  $ 60,782
   (0.55)         (0.02)        --          (0.18)     9.70    4.09     33.64    441,228
   (0.53)         (0.02)        --          (0.18)     9.70    3.83     33.64      5,999
   (0.51)         (0.02)        --          (0.18)     9.70    3.57     33.64        822
   (0.57)            --         --           0.05      9.88    6.43     46.58     43,393
   (0.59)            --         --           0.05      9.88    6.70     46.58    463,511
   (0.57)            --         --           0.05      9.88    6.43     46.58      2,793
   (0.33)            --         --           0.04      9.88    3.81d    46.58        346
   (0.55)         (0.02)        --           0.06      9.83    6.60     52.36     10,728
   (0.57)         (0.02)        --           0.06      9.83    6.86     52.36    613,149
   (0.55)         (0.02)        --           0.06      9.83    6.60     52.36      3,792
   (0.27)         (0.01)        --          (0.02)     9.77    2.74d    24.12     15,203
   (0.57)         (0.03)        --           0.03      9.77    6.75     24.12    657,358
   (0.55)         (0.03)        --           0.03      9.77    6.48     24.12      3,572
   (0.45)            --         --          (0.26)     9.74    1.88     37.81    942,523
   (0.42)            --         --          (0.26)     9.74    1.63     37.81      6,960
-----------------------------------------------------------------------------------------

APPENDIX B

                                                             RATIOS ASSUMING
                                                           NO VOLUNTARY WAIVER
                                                               OF FEES OR
                                                           EXPENSE LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                0.80%      5.40%      1.02%      5.18%
  1998 - Institutional Shares          0.53       5.63       0.53       5.63
  1998 - Administration Shares         0.78       5.33       0.78       5.33
  1998 - Service Shares                1.03       5.09       1.03       5.09
  1997 - Class A Shares                0.74       5.60       1.02       5.32
  1997 - Institutional Shares          0.49       5.99       0.52       5.96
  1997 - Administration Shares         0.74       5.73       0.77       5.70
  1997 - Service Shares (commenced
   March 27)                           1.05c      5.64c      1.08c      5.61c
  1996 - Class A Shares                0.70       5.59       1.01       5.28
  1996 - Institutional Shares          0.45       5.85       0.51       5.79
  1996 - Administration Shares         0.70       5.59       0.76       5.53
  1995 - Class A Shares (commenced
   May 15)                             0.69c      5.87c      1.01c      5.55c
  1995 - Institutional Shares          0.46       5.77       0.53       5.70
  1995 - Administration Shares         0.71       5.50       0.78       5.43
  1994 - Institutional Shares          0.46       4.38       0.49       4.35
  1994 - Administration Shares         0.71       4.27       0.74       4.24
-------------------------------------------------------------------------------

3-R

                                                      INCOME (LOSS) FROM
                                                    INVESTMENT OPERATIONSA
                                                              NET REALIZED
                                                             AND UNREALIZED
                                      NET ASSET              GAIN (LOSS) ON
                                      VALUE AT     NET     INVESTMENT,  OPTION
                                      BEGINNING INVESTMENT     AND FUTURES
                                      OF PERIOD   INCOME      TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  $ 9.88     $0.57          $ 0.04
  1998-Class B Shares                    9.86      0.51            0.03
  1998-Class C Shares                    9.86      0.49            0.03
  1998-Institutional Shares              9.86      0.58            0.06
  1998-Administration Shares             9.89      0.55            0.05
  1998-Service Shares                    9.86      0.55            0.04
  1997-Class A Shares (commenced May
   1)                                    9.78      0.31f           0.09f
  1997-Class B Shares (commenced May
   1)                                    9.75      0.28f           0.10f
  1997-Class C Shares (commenced May
   15)                                   9.83      0.12f           0.02f
  1997-Institutional Shares              9.83      0.64f           0.03f
  1997-Administration Shares             9.85      0.62f           0.04f
  1997-Service Shares                    9.82      0.59f           0.04f
  1996-Institutional Shares              9.82      0.63f           0.01f
  1996-Administration Sharesg            9.86      0.38f             --f
  1996-Service Shares (commenced
   April 10)                             9.72      0.31f           0.10f
  1995-Institutional Shares              9.64      0.66f           0.17f
  1995-Administration Sharesg            9.64      0.24f          (0.04)f
  1994-Institutional Shares             10.14      0.56f          (0.46)f
  1994-Administration Shares            10.14      0.53f          (0.45)f
------------------------------------------------------------------------------

4-R

APPENDIX B

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET
               IN EXCESS  ON INVESTMENT,  INCREASE   NET ASSET                   NET ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)   VALUE,           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET     END OF    TOTAL  TURNOVER    PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE  PERIOD   RETURNB   RATEE   (IN 000S)
-------------------------------------------------------------------------------------------
    $(0.58)       $--         $   --       $ 0.03      $9.91    6.36%   119.89%   $ 56,725
     (0.52)        --             --         0.02       9.88    5.62    119.89       5,025
     (0.50)        --             --         0.02       9.88    5.46    119.89       4,527
     (0.60)        --             --         0.04       9.90    6.75    119.89     145,514
     (0.58)        --             --         0.02       9.91    6.27    119.89       7,357
     (0.56)        --             --         0.03       9.89    6.12    119.89       6,232
     (0.30)        --             --         0.10       9.88    4.14d   102.58       9,491
     (0.27)        --             --         0.11       9.86    3.94d   102.58         747
     (0.11)        --             --         0.03       9.86    1.44d   102.58         190
     (0.64)        --             --         0.03       9.86    7.07    102.58     103,729
     (0.62)        --             --         0.04       9.89    6.91    102.58       1,060
     (0.59)        --             --         0.04       9.86    6.63    102.58       3,337
     (0.63)        --             --         0.01       9.83    6.75    115.45      99,944
     (0.39)        --             --        (0.01)      9.85    4.00d   115.45         252
     (0.31)        --             --         0.10       9.82    4.35d   115.45       1,822
     (0.65)        --             --         0.18       9.82    8.97    292.56     103,760
     (0.21)        --             --        (0.01)      9.63    2.10d   292.56          --
     (0.56)        --          (0.04)       (0.50)      9.64    0.99    289.79     193,095
     (0.54)        --          (0.04)       (0.50)      9.64    0.73    289.79         730
-------------------------------------------------------------------------------------------

5-R

                                             RATIOS ASSUMING NO
                                             VOLUNTARY WAIVER OF
                                                    FEES
                                           OR EXPENSE LIMITATIONS
                                           RATIO OF NET            RATIO OF NET
                              RATIO OF NET  INVESTMENT   RATIO OF   INVESTMENT
                                EXPENSES      INCOME     EXPENSES     INCOME
                               TO AVERAGE   TO AVERAGE  TO AVERAGE  TO AVERAGE
                               NET ASSETS   NET ASSETS  NET ASSETS  NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998-Class A Shares             0.81%        5.68%       1.32%       5.17%
  1998-Class B Shares             1.41         5.12        1.87        4.66
  1998-Class C Shares             1.56         4.64        1.87        4.33
  1998-Institutional Shares       0.53         6.06        0.84        5.75
  1998-Administration Shares      0.78         5.76        1.09        5.45
  1998-Service Shares             1.03         5.56        1.34        5.25
  1997-Class A Shares
   (commenced May 1)              0.70c        6.05c       1.32c       5.43c
  1997-Class B Shares
   (commenced May 1)              1.30c        5.52c       1.82c       5.00c
  1997-Class C Shares
   (commenced May 15)             1.45c        5.52c       1.82c       5.15c
  1997-Institutional Shares       0.45         6.43        0.82        6.06
  1997-Administration Shares      0.70         6.19        1.07        5.82
  1997-Service Shares             0.95         5.92        1.32        5.55
  1996-Institutional Shares       0.45         6.44        0.71        6.18
  1996-Administration
   Sharesg                        0.70c        5.97c       0.96c       5.71c
  1996-Service Shares
   (commenced April 10)           0.95c        6.05c       1.21c       5.79c
  1995-Institutional Shares       0.45         6.87        0.72        6.60
  1995-Administration
   Sharesg                        0.70c        7.91c       0.90c       7.71c
  1994-Institutional Shares       0.45         5.69        0.59        5.55
  1994-Administration Shares      0.70         5.38        0.84        5.24
-------------------------------------------------------------------------------

6-R

[This page intentionally left blank]

7-R

                                                        INCOME (LOSS) FROM
                                                      INVESTMENT OPERATIONSA
                                                                 NET REALIZED
                                                                AND UNREALIZED
                                                                 GAIN (LOSS)
                                           NET ASSET            ON INVESTMENT,
                                            VALUE,      NET       OPTION AND
                                           BEGINNING INVESTMENT    FUTURES
                                           OF PERIOD  INCOMEE   TRANSACTIONSE
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                     $10.08     $0.36        $0.13
  1998 - Class B Shares                      10.08      0.30         0.12
  1998 - Class C Shares                      10.07      0.28         0.14
  1998 - Institutional Shares                10.07      0.39         0.13
  1998 - Administration Shares               10.07      0.36         0.13
  1998 - Service Shares                      10.07      0.34         0.13
  1997 - Class A Shares (commenced May 1)     9.94      0.20         0.14
  1997 - Class B Shares (commenced May 1)     9.94      0.16         0.14
  1997 - Class C Shares (commenced August
   15)                                       10.04      0.07         0.03
  1997 - Institutional Shares                 9.96      0.42         0.11
  1997 - Administration Shares                9.96      0.39         0.11
  1997 - Service Shares                       9.97      0.37         0.10
  1996 - Institutional Shares                 9.94      0.42         0.02
  1996 - Administration Shares                9.94      0.39         0.02
  1996 - Service Shares                       9.95      0.37         0.02
  1995 - Institutional Shares                 9.79      0.42         0.15
  1995 - Administration Shares                9.79      0.40         0.15
  1995 - Service Shares                       9.79      0.37         0.16
  1994 - Institutional Shares                10.23      0.38        (0.36)
  1994 - Administration Shares               10.23      0.35        (0.36)
  1994 - Service Shares (commenced
   September 20)                              9.86      0.05        (0.07)
------------------------------------------------------------------------------

8-R

APPENDIX B

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET                                         NET
               IN EXCESS  ON INVESTMENT,  INCREASE                                     ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)    NET ASSET            PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET       VALUE,     TOTAL    TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE END OF PERIOD RETURNB    RATE    (IN 000S)
-----------------------------------------------------------------------------------------------
    $(0.38)        --         $   --        $0.11       $10.19       4.97%   140.72%   $19,881
     (0.32)        --             --         0.10        10.18       4.25    140.72        974
     (0.31)        --             --         0.11        10.18       4.19    140.72      2,256
     (0.41)        --             --         0.11        10.18       5.25    140.72     57,647
     (0.38)        --             --         0.11        10.18       4.99    140.72        525
     (0.36)        --             --         0.11        10.18       4.73    140.72      2,560
     (0.20)        --             --         0.14        10.08       3.39d   194.75      4,023
     (0.16)        --             --         0.14        10.08       3.07d   194.75        106
     (0.07)        --             --         0.03        10.07       0.97d   194.75          2
     (0.42)        --             --         0.11        10.07       5.40    194.75     28,821
     (0.39)        --             --         0.11        10.07       5.14    194.75         77
     (0.37)        --             --         0.10        10.07       4.77    194.75      2,051
     (0.42)        --             --         0.02         9.96       4.50    231.65     34,814
     (0.39)        --             --         0.02         9.96       4.24    231.65         48
     (0.37)        --             --         0.02         9.97       3.98    231.65        695
     (0.42)        --             --         0.15         9.94       5.98    259.52     58,389
     (0.40)        --             --         0.15         9.94       5.76    259.52         46
     (0.37)        --             --         0.16         9.95       5.59    259.52        454
     (0.38)        --          (0.08)       (0.44)        9.79       0.17    354.00     83,704
     (0.35)        --          (0.08)       (0.44)        9.79      (0.11)   354.00      3,866
     (0.05)        --             --        (0.07)        9.79      (0.32)d  354.00        440
-----------------------------------------------------------------------------------------------

9-R

                                                             RATIOS ASSUMING
                                                           NO VOLUNTARY WAIVER
                                                               OF FEES OR
                                                           EXPENSE LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                0.71%      3.54%      1.74%      2.51%
  1998 - Class B Shares                1.31       3.06       2.27       2.10
  1998 - Class C Shares                1.46       2.82       2.27       2.01
  1998 - Institutional Shares          0.45       3.92       1.26       3.11
  1998 - Administration Shares         0.70       3.58       1.51       2.77
  1998 - Service Shares                0.95       3.44       1.76       2.63
  1997 - Class A Shares (commenced
   May 1)                              0.70c      3.81c      1.73c      2.78c
  1997 - Class B Shares (commenced
   May 1)                              1.30c      3.31c      2.23c      2.38c
  1997 - Class C Shares (commenced
   August 15)                          1.45c      2.60c      2.23c      1.82c
  1997 - Institutional Shares          0.45       4.18       1.23       3.40
  1997 - Administration Shares         0.70       3.91       1.48       3.13
  1997 - Service Shares                0.95       3.66       1.73       2.88
  1996 - Institutional Shares          0.45       4.21       1.01       3.65
  1996 - Administration Shares         0.70       3.96       1.26       3.40
  1996 - Service Shares                0.95       3.74       1.51       3.18
  1995 - Institutional Shares          0.45       4.31       0.77       3.99
  1995 - Administration Shares         0.70       4.14       1.02       3.82
  1995 - Service Shares                0.95       3.87       1.27       3.55
  1994 - Institutional Shares          0.45       3.74       0.61       3.58
  1994 - Administration Shares         0.70       3.51       0.86       3.35
  1994 - Service Shares (commenced
   September 20)                       0.95c      4.30c      1.11c      4.14c
-------------------------------------------------------------------------------

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                                                     INCOME (LOSS) FROM
                                                   INVESTMENT OPERATIONSN
                                                              NET REALIZED
                                                             AND UNREALIZED
                                                             GAIN (LOSS) ON
                                        NET ASSET             INVESTMENT,
                                        VALUE AT     NET       OPTION AND
                                        BEGINNING INVESTMENT    FUTURES
                                        OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                  $14.59     $0.81        $0.45
  1998 - Class B Shares                   14.61      0.72         0.42
  1998 - Class C Shares                   14.60      0.74         0.40
  1998 - Institutional Shares             14.59      0.87         0.42
  1998 - Service Shares                   14.59      0.80         0.40
  1997 - Class A Shares                   14.36      0.91         0.29
  1997 - Class B Shares                   14.37      0.80         0.30
  1997 - Class C Shares (commenced
   August 15)                             14.38      0.17         0.22
  1997 - Institutional Shares
   (commenced August 15)                  14.37      0.20         0.22
  1997 - Service Shares (commenced
   August 15)                             14.37      0.20         0.21
  1996 - Class A shares                   14.47      0.92        (0.11)
  1996 - Class B shares (commenced May
   1)                                      4.11      0.41         0.26
  1995 - Class A shares                   13.47      0.94         1.00
  1994 - Class A shares                   14.90      0.85        (1.28)
-------------------------------------------------------------------------------

12-R

APPENDIX B

            DISTRIBUTIONS TO SHAREHOLDERS
                                         IN EXCESS OF
                             FROM NET    NET REALIZED
                          REALIZED  GAIN   GAIN ON        NET
               IN EXCESS  ON INVESTMENT, INVESTMENT,   INCREASE   NET ASSET
   FROM NET      OF NET     OPTION AND    OPTION AND  (DECREASE)    VALUE           PORTFOLIO
  INVESTMENT   INVESTMENT    FUTURES       FUTURES      IN NET     AT END    TOTAL  TURNOVER
    INCOME       INCOME    TRANSACTIONS  TRANSACTIONS ASSET VALUE OF PERIOD RETURNK   RATEE
---------------------------------------------------------------------------------------------
    $(0.81)     $(0.07)       $(0.06)       $  --        $0.32     $14.91     8.98%  315.43%
     (0.72)      (0.05)        (0.06)          --         0.31      14.92     8.09   315.43
     (0.74)      (0.03)        (0.06)          --         0.31      14.91     8.09   315.43
     (0.87)      (0.05)        (0.06)          --         0.31      14.90     9.19   315.43
     (0.80)      (0.05)        (0.06)          --         0.29      14.88     8.53   315.43
     (0.90)          --        (0.07)          --         0.23      14.59     8.72   395.75
     (0.79)          --        (0.07)          --         0.24      14.61     7.96   395.75
     (0.17)          --           --           --         0.22      14.60     2.72d  395.75
     (0.20)          --           --           --         0.22      14.59     2.94d  395.75
     (0.19)          --           --           --         0.22      14.59     2.85d  395.75
     (0.92)          --           --           --        (0.11)     14.36     5.80   485.09
     (0.41)          --           --           --         0.26      14.37     4.85d  485.09
     (0.94)          --           --           --         1.00      14.47    14.90   449.53
     (0.85)       (0.02)       (0.12)       (0.01)       (1.43)     13.47    (2.98)  654.90
---------------------------------------------------------------------------------------------

13-R

                                                                RATIOS ASSUMING NO
                                                             VOLUNTARY WAIVER OF FEES
                                                              OR EXPENSE LIMITATIONS
                                                   RATIO OF
                                                     NET                      RATIO OF NET
                          NET ASSETS   RATIO OF   INVESTMENT   RATIO OF        INVESTMENT
                          AT END OF  NET EXPENSES   INCOME     EXPENSES          INCOME
                            PERIOD    TO AVERAGE  TO AVERAGE  TO AVERAGE       TO AVERAGE
                          (IN 000S)   NET ASSETS  NET ASSETS  NET ASSETS       NET ASSETS
----------------------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares    $101,015      0.76%       5.53%              1.53%            4.76%
  1998 - Class B Shares      16,125      1.51        4.76               2.05             4.22
  1998 - Class C Shares       9,639      1.51        4.59               2.05             4.05
  1998 - Institutional
   Shares                     2,642      0.51        5.82               1.05             5.28
  1998 - Service Shares           2      1.01        5.48               1.55             4.94
  1997 - Class A Shares      68,859      0.50        6.38               1.82             5.06
  1997 - Class B Shares       8,041      1.25        5.59               2.32             4.52
  1997 - Class C Shares
   (commenced August 15)      1,196      1.25c       5.45c              2.32c            4.38c
  1997 - Institutional
   Shares (commenced
   August 15)                 1,894      0.25c       7.03c              1.32c            5.96c
  1997 - Service Shares
   (commenced August 15)          2      0.75c       6.49c              1.82c            5.42c
  1996 - Class A shares      30,603      0.50        6.42               1.89             5.03
  1996 - Class B shares
   (commenced May 1)            234      1.25c       5.65c              2.39c            4.51c
  1995 - Class A shares      29,503      0.47        6.67               2.34             4.80
  1994 - Class A shares      14,452      0.11        6.06               2.86             3.31
----------------------------------------------------------------------------------------------

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15-R

                                                     INCOME (LOSS) FROM
                                                   INVESTMENT OPERATIONS/N/
                                                              NET REALIZED
                                                             AND UNREALIZED
                                                             GAIN (LOSS) ON
                                        NET ASSET             INVESTMENT,
                                        VALUE AT     NET       OPTION AND
                                        BEGINNING INVESTMENT    FUTURES
                                        OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                  $14.99     $0.65        $0.50
  1998 - Class B Shares                   15.00      0.53         0.49
  1998 - Class C Shares                   14.99      0.53         0.50
  1998 - Institutional Shares             15.00      0.68         0.50
  1998 - Service Shares                   14.99      0.64         0.49
  1997 - Class A Shares                   14.37      0.67         0.62
  1997 - Class B Shares                   14.37      0.56         0.63
  1997 - Class C Shares (commenced
   August 15)                             14.85      0.12         0.14
  1997 - Institutional Shares
   (commenced August 15)                  14.84      0.15         0.16
  1997 - Service Shares (commenced
   August 15)                             14.84      0.14         0.15
  1996 - Class A shares                   14.17      0.65         0.20
  1996 - Class B shares (commenced May
   1)                                     14.03      0.27         0.34
  1995 - Class A shares                   13.08      0.67         1.09
  1994 - Class A shares                   14.64      0.73        (1.51)
-------------------------------------------------------------------------------

16-R

APPENDIX B

    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                    NET
                            GAIN ON     INCREASE                               ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB   RATE    (IN 000S)
---------------------------------------------------------------------------------------
    $(0.64)       $--       $(0.03)      $0.48     $15.47     7.79%   56.51%   $91,158
     (0.52)        --        (0.03)       0.47      15.47     6.91    56.51     6,722.
     (0.52)        --        (0.03)       0.48      15.47     6.98    56.51      2,862
     (0.68)        --        (0.03)       0.47      15.47     8.00    56.51      6,154
     (0.61)        --        (0.03)       0.49      15.48     7.68    56.51          2
     (0.67)        --            --       0.62      14.99     9.23   153.12     64,553
     (0.56)        --            --       0.63      15.00     8.48   153.12      1,750
     (0.12)        --            --       0.14      14.99     1.75d  153.12        130
     (0.15)        --            --       0.16      15.00     2.10d  153.12        351
     (0.14)        --            --       0.15      14.99     1.93d  153.12          2
     (0.65)        --            --       0.20      14.37     6.13   344.13     52,267
     (0.27)        --            --       0.34      14.37     4.40d  344.13        255
     (0.67)        --            --       1.09      14.17    13.79   335.55     53,797
     (0.73)        --         (0.05)     (1.56)     13.08    (5.51)  357.54     47,373
---------------------------------------------------------------------------------------

17-R

                                                     RATIOS ASSUMING NO
                                                  VOLUNTARY WAIVER OF FEES
                                                   OR EXPENSE LIMITATIONS
                                        RATIO OF
                                          NET                      RATIO OF NET
                            RATIO OF   INVESTMENT   RATIO OF        INVESTMENT
                          NET EXPENSES   INCOME     EXPENSES          INCOME
                           TO AVERAGE  TO AVERAGE  TO AVERAGE       TO AVERAGE
                           NET ASSETS  NET ASSETS  NET ASSETS       NET ASSETS
-----------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares       0.87%       4.25%              1.64%            3.48%
  1998 - Class B Shares       1.62        3.44               2.16             2.90
  1998 - Class C Shares       1.62        3.38               2.16             2.84
  1998 - Institutional
   Shares                     0.58        4.41               1.12             3.87
  1998 - Service Shares       1.08        4.21               1.62             3.67
  1997 - Class A Shares       0.85        4.60               1.62             3.83
  1997 - Class B Shares       1.60        3.74               2.12             3.22
  1997 - Class C Shares
   (commenced August 15)      1.60c       3.24c              2.12c            2.72c
  1997 - Institutional
   Shares (commenced
   August 15)                 0.60c       4.41c              1.12c            3.89c
  1997 - Service Shares
   (commenced August 15)      1.10c       4.24c              1.62c            3.72c
  1996 - Class A shares       0.85        4.58               1.55             3.88
  1996 - Class B shares
   (commenced May 1)          1.60c       3.55c              2.05c            3.10c
  1995 - Class A shares       0.76        4.93               1.49             4.20
  1994 - Class A shares       0.45        5.28               1.55             4.18
-----------------------------------------------------------------------------------

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19-R

                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONS/A/
                                                                NET REALIZED
                                                               AND UNREALIZED
                                                               GAIN (LOSS) ON
                                                                INVESTMENT,
                                                                  OPTION,
                                         NET ASSET              FUTURES AND-
                                         VALUE AT     NET     FOREIGN CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME     TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                     $10.06     $0.59         $0.27
  1998-Class B Shares                      10.09      0.52          0.27
  1998-Class C Shares                      10.09      0.90          0.27
  1998-Institutional Shares                10.08      1.08          0.29
  1998-Administration Shares               10.07      0.57          0.29
  1998-Service Shares                      10.09      0.99          0.27
  1997-Class A Shares (commenced May 1)     9.70      0.30          0.36
  1997-Class B Shares (commenced May 1)     9.72      0.27          0.37
  1997-Class C Shares (commenced August
   15)                                      9.93      0.11          0.16
  1997-Institutional Shares                 9.85      0.64          0.23
  1997-Administration Shares                9.84      0.62          0.23
  1997-Service Shares                       9.86      0.59          0.23
  1996-Institutional Shares                10.00      0.64         (0.07)
  1996-Administrative Shares
     (commenced February 28)                9.91      0.41         (0.07)
  1996-Service Shares (commenced March
   13)                                      9.77      0.38          0.09
  1995-Institutional Shares                 9.24      0.64          0.76
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares (commenced
   January 5)                              10.00      0.46         (0.76)
------------------------------------------------------------------------------

20-R

    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                     NET
                            GAIN ON     INCREASE                                ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                     AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,            PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL   TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB    RATEE   (IN 000S)
----------------------------------------------------------------------------------------
    $(0.59)      $(0.02)     $(0.06)     $0.19     $10.25     8.76%   271.50%   $56,267
     (0.52)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      7,209
     (0.90)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      5,587
     (1.08)       (0.03)      (0.06)      0.20      10.28     9.15    271.50    195,730
     (0.57)       (0.03)      (0.06)      0.20      10.27     8.88    271.50     12,743
     (0.99)       (0.02)      (0.06)      0.19      10.28     8.50    271.50      5,263
     (0.30)          --          --       0.36      10.06     6.94d   361.27      9,336
     (0.27)          --          --       0.37      10.09     6.63d   361.27        621
     (0.11)          --          --       0.16      10.09     2.74d   361.27        272
     (0.64)          --          --       0.23      10.08     9.19    361.27     79,230
     (0.62)          --          --       0.23      10.07     8.92    361.27      6,176
     (0.59)          --          --       0.23      10.09     8.65    361.27      1,868
     (0.64)          --       (0.08)     (0.15)      9.85     5.98    414.20     72,061
     (0.41)          --          --      (0.07)      9.84     3.56d   414.20        702
     (0.38)          --          --       0.09       9.86     4.90d   414.20        381
     (0.64)          --          --       0.76      10.00    15.72    382.26     55,502
     (0.46)          --          --      (0.76)      9.24    (3.00)d  285.25     24,508
----------------------------------------------------------------------------------------

21-R

APPENDIX B

                                                           RATIOS ASSUMING NO
                                                           VOLUNTARY WAIVER OF
                                                                  FEES
                                                               OR EXPENSE
                                                               LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  0.74%      5.58%      1.21%      5.11%
  1998-Class B Shares                  1.49       4.82       1.75       4.56
  1998-Class C Shares                  1.49       4.81       1.75       4.55
  1998-Institutional Shares            0.46       5.95       0.72       5.69
  1998-Administration Shares           0.71       5.70       0.97       5.44
  1998-Service Shares                  0.96       5.44       1.22       5.18
  1997-Class A Shares (commenced
   May 1)                              0.70c      6.13c      1.33c      5.50c
  1997-Class B Shares (commenced
   May 1)                              1.45c      5.28c      1.83c      4.90c
  1997-Class C Shares (commenced
   August 15)                          1.45c      4.84c      1.83c      4.46c
  1997-Institutional Shares            0.45       6.53       0.83       6.15
  1997-Administration Shares           0.70       6.27       1.08       5.89
  1997-Service Shares                  0.95       6.00       1.33       5.62
  1996-Institutional Shares            0.45       6.51       0.83       6.13
  1996-Administrative Shares
     (commenced February 28)           0.70c      6.41c      1.08c      6.03c
  1996-Service Shares (commenced
   March 13)                           0.95c      6.37c      1.33c      5.99c
  1995-Institutional Shares            0.45       6.56       0.96       6.05
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares
   (commenced January 5)               0.45c      6.48c      1.46c      5.47c
-------------------------------------------------------------------------------

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23-R

                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONS/A/
                                                               NET REALIZED
                                                              AND UNREALIZED
                                                              GAIN (LOSS) ON
                                                                INVESTMENT,
                                                              OPTION, FUTURES
                                         NET ASSET              AND FOREIGN
                                          VALUE,      NET        CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME    TRANSACTIONS
-----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares                     $15.10     $0.72f       $0.90f
1998 - Class B Shares                      15.08      0.63f        0.92f
1998 - Class C Shares                      15.06      0.63f        0.91f
1998 - Institutional Shares                15.09      0.82f        0.90f
1998 - Service Shares                      15.09      0.74f        0.91f
1997 - Class A shares                      14.53       0.59         0.77
1997 - Class B shares                      14.53       0.72         0.56
1997 - Class C shares (commenced August
 15)                                       14.80       0.16         0.29
1997 - Institutional Shares                14.52       0.88         0.56
1997 - Service Shares (commenced March
 12)                                       14.69       0.53         0.39
1996 - Class A shares                      14.45       0.71         0.80
1996 - Class B shares (commenced May 1)    14.03       0.34         0.52
1996 - Institutional shares                14.45       1.15         0.42
1995 - Class A shares                      13.43       0.89         1.07
1995 - Institutional shares
   (commenced August 1)                    14.09       0.22         0.40
1994 - Class A shares                      15.07       0.84        (1.49)
-----------------------------------------------------------------------------

24-R

APPENDIX B

   DISTRIBUTIONS TO SHAREHOLDERS
                           FROM
                       NET REALIZED
                         GAIN ON                 NET
            IN EXCESS  INVESTMENT,            INCREASE   NET ASSET                   NET ASSETS
 FROM NET     OF NET    OPTION AND   FROM    (DECREASE)   VALUE,           PORTFOLIO AT END OF
INVESTMENT  INVESTMENT   FUTURES    PAID IN    IN NET     END OF    TOTAL  TURNOVER    PERIOD
  INCOME      INCOME   TRANSACTIONS CAPITAL  ASSET VALUE  PERIOD   RETURNB   RATE    (IN 000S)
-----------------------------------------------------------------------------------------------
  $(1.01)      $--        $(0.06)   $   --      $0.55     $15.65    11.21%  229.91%   $217,362
   (0.94)       --         (0.06)       --       0.55      15.63    10.66   229.91       8,135
   (0.94)       --         (0.06)       --       0.54      15.60    10.65   229.91       4,090
   (1.11)       --         (0.06)       --       0.55      15.64    11.95   229.91     178,532
   (1.04)       --         (0.06)       --       0.55      15.64    11.43   229.91       1,058
   (0.79)       --            --        --       0.57      15.10     9.66   383.72     167,096
   (0.73)       --            --        --       0.55      15.08     9.04   383.72       3,465
   (0.19)       --            --        --       0.26      15.06     3.03d  383.72         496
   (0.87)       --            --        --       0.57      15.09    10.26   383.72      60,929
   (0.52)       --            --        --       0.40      15.09     6.42d  383.72         151
   (1.43)       --            --        --       0.08      14.53    11.05   232.15     198,665
   (0.36)       --            --        --       0.50      14.53     6.24d  232.15         256
   (1.50)       --            --        --       0.07      14.52    11.55   232.15      54,254
   (0.94)       --            --        --       1.02      14.45    15.08   265.86     245,835
   (0.26)       --            --        --       0.36      14.45     4.42d  265.86      31,619
   (0.22)       --         (0.16)    (0.61)     (1.64)     13.43    (4.49)  343.74     396,584
-----------------------------------------------------------------------------------------------

25-R

                                                       RATIOS ASSUMING NO
                                                    VOLUNTARY WAIVER OF FEES
                                                     OR EXPENSE LIMITATIONS
                                       RATIO OF NET                  RATIO OF NET
                            RATIO OF    INVESTMENT   RATIO OF         INVESTMENT
                          NET EXPENSES    INCOME     EXPENSES           INCOME
                           TO AVERAGE   TO AVERAGE  TO AVERAGE        TO AVERAGE
                           NET ASSETS   NET ASSETS  NET ASSETS        NET ASSETS
--------------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares       1.31%        4.71%               1.75%             4.27%
  1998 - Class B Shares       1.83         4.19                2.24              3.78
  1998 - Class C Shares       1.83         4.20                2.24              3.79
  1998 - Institutional
   Shares                     0.66         5.40                1.07              4.99
  1998 - Service Shares       1.16         4.92                1.57              4.51
  1997 - Class A shares       1.17         5.19                1.60              4.76
  1997 - Class B shares       1.71         4.76                2.10              4.37
  1997 - Class C shares
   (commenced August 15)      1.71c        4.98c               2.10c             4.59c
  1997 - Institutional
   Shares                     0.65         5.72                1.04              5.33
  1997 - Service Shares
   (commenced March 12)       1.15c        5.33c               1.54c             4.94c
  1996 - Class A shares       1.16         5.81                1.64              5.33
  1996 - Class B shares
   (commenced May 1)          1.70c        5.16c               2.14c             4.72c
  1996 - Institutional
   shares                     0.65         6.35                1.11              5.89
  1995 - Class A shares       1.29         6.23                1.58              5.94
  1995 - Institutional
     shares
     (commenced August
     1)                       0.65c        6.01c               1.08c             5.58c
  1994 - Class A shares       1.28         5.73                1.53              5.48
--------------------------------------------------------------------------------------

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                                               INCOME (LOSS) FROM INVESTMENT
                                                        OPERATIONS/A/
                                                             NET REALIZED
                                                            AND UNREALIZED
                                    NET ASSET               GAIN (LOSS) ON
                                     VALUE,      NET        INVESTMENT AND
                                    BEGINNING INVESTMENT   FOREIGN CURRENCY
                                    OF PERIOD   INCOME   RELATED TRANSACTIONS
-----------------------------------------------------------------------------
  FOR THE YEAR ENDED OCTOBER 31,
  1998 - Class A Shares              $ 9.97     $0.82           $(0.85)
  1998 - Class B Shares                9.97      0.75            (0.86)
  1998 - Class C Shares                9.97      0.75            (0.86)
  1998 - Institutional Shares          9.97      0.84            (0.83)
  1998 - Service Shares                9.97      0.80            (0.84)
  FOR THE PERIOD ENDED OCTOBER 31,
  1997 - Class A Shares (commenced
   August 1)                          10.00      0.17            (0.02)
  1997 - Class B Shares (commenced
   August 1)                          10.00      0.15            (0.02)
  1997 - Class C Shares (commenced
   August 15)                          9.97      0.14             0.01
  1997 - Institutional Shares
      (commenced August 1)            10.00      0.18            (0.02)
  1997 - Service Shares (commenced
   August 1)                          10.00      0.17            (0.02)
-----------------------------------------------------------------------------

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APPENDIX B

    DISTRIBUTIONS TO SHAREHOLDERS
                              FROM
     FROM      IN EXCESS  NET REALIZED NET INCREASE                               NET ASSETS
     NET         OF NET     GAIN ON     (DECREASE)  NET ASSET           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  INVESTMENT     IN NET    VALUE, END  TOTAL   TURNOVER    PERIOD
    INCOME       INCOME   TRANSACTIONS ASSET VALUE  OF PERIOD  RETURNB    RATE    (IN 000S)
--------------------------------------------------------------------------------------------
    $(0.78)      $   --       $--         $(0.81)     $9.16     (0.70)%  113.44%   $401,626
     (0.70)          --        --          (0.81)      9.16     (1.43)   113.44      29,256
     (0.70)          --        --          (0.81)      9.16     (1.43)   113.44       8,532
     (0.81)          --        --          (0.80)      9.17     (0.32)   113.44      97,547
     (0.76)          --        --          (0.80)      9.17     (0.79)   113.44         447
     (0.17)       (0.01)       --          (0.03)      9.97      1.50d    44.80d    325,911
     (0.15)       (0.01)       --          (0.03)      9.97      1.31d    44.80d     10,308
     (0.14)       (0.01)       --             --       9.97      1.46d    44.80d      1,791
     (0.18)       (0.01)       --          (0.03)      9.97      1.58d    44.80d          2
     (0.17)       (0.01)       --          (0.03)      9.97      1.46d    44.80d          2
--------------------------------------------------------------------------------------------

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                                                            RATIOS ASSUMING
                                                      NO VOLUNTARY WAIVER OF FEES
                                                         OR EXPENSE LIMITATIONS

                                          RATIO OF                          RATIO OF
                            RATIO OF   NET INVESTMENT   RATIO OF         NET INVESTMENT
                          NET EXPENSES     INCOME     EXPENSES TO            INCOME
                           TO AVERAGE    TO AVERAGE     AVERAGE            TO AVERAGE
                           NET ASSETS    NET ASSETS    NET ASSETS          NET ASSETS
--------------------------------------------------------------------------------------------
  FOR THE YEAR ENDED
   OCTOBER 31,
  1998 - Class A Shares       1.09%         8.25%                 1.36%                7.98%
  1998 - Class B Shares       1.84          7.61                  1.88                 7.57
  1998 - Class C Shares       1.84          7.61                  1.88                 7.57
  1998 - Institutional
   Shares                     0.84          9.47                  0.88                 9.43
  1998 - Service Shares       1.34          9.17                  1.38                 9.13
  FOR THE PERIOD ENDED
   OCTOBER 31,
  1997 - Class A Shares
   (commenced August 1)       0.95c         7.06c                 1.57c                6.44c
  1997 - Class B Shares
   (commenced August 1)       1.70c         6.28c                 2.07c                5.91c
  1997 - Class C Shares
   (commenced August 15)      1.70c         6.17c                 2.07c                5.80c
  1997 - Institutional
      Shares
      (commenced August
      1)                      0.70c         7.16c                 1.07c                6.79c
  1997 - Service Shares
   (commenced August 1)       1.20c         6.69c                 1.57c                6.32c
--------------------------------------------------------------------------------------------

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APPENDIX B

a Includes the balancing effect of calculating per share amounts. b Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of period and no sales charge. Total return would be reduced if a sales charge for Class A shares were taken into account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions. f Calculated based on the average shares outstanding methodology. g Short Duration Government Fund Administration Shares commenced activity on April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.

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Goldman Sachs Fixed Income Funds
Prospectus (Institutional Shares)

FOR MORE INFORMATION

Annual/Semiannual Report
Additional information about the Funds' investments is available in the Funds' annual and semiannual reports to shareholders. In the Funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during its last fiscal year.

Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS

The Funds will be subject to the risks associated with fixed-income securi- ties. These risks include interest rate risk, credit risk and call/extension risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that the issuer could default on its obligations and a Fund will not recover its investment. Call risk and extension risk are normally present in adjustable rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed securities. For example, homeowners have the option to prepay their mort- gages. Therefore, the duration of a security backed by home mortgages can either shorten (call risk) or lengthen (extension risk). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.

The Funds may, as described in this Prospectus, invest in (a) derivative instruments, (b) foreign securities, (c) municipal securities, (d) illiquid securities and (e) temporary cash investments. These investments will pres- ent additional risks as described further below.

In addition, the Funds are subject to certain fundamental investment restrictions that are described in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund as defined in the Additional Statement. Each Fund's investment objectives and all policies not specifi- cally designated as fundamental are non-fundamental and may be changed with- out shareholder approval. If there is a change in a Fund's investment objec- tive, shareholders should consider whether that Fund remains an appropriate investment in light of their then current financial positions and needs.

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The Investment Adviser will not consider the portfolio turnover rate a lim- iting factor in making investment decisions for a Fund. A high rate of port- folio turnover (100% or more) involves correspondingly greater expenses which must be borne by a Fund and its shareholders. See "Financial High- lights" in Appendix B for a statement of the Funds' historical portfolio turnover rates. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of a Fund's portfolio securities, excluding secu- rities having a maturity at the date of purchase of one year or less.

B. OTHER PORTFOLIO RISKS

RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options, futures, options on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities and currency trans- actions involve additional risk of loss that can result from a lack of cor- relation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in secu- rities prices, interest rates or currency prices. Each Fund may also invest in derivative investments for non-hedging purposes (that is, to seek to increase total return), which is considered a speculative practice and pre- sents even greater risk of loss.

Derivative Mortgage-Backed Securities (such as principal-only ("POs"), interest-only ("IOs") or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flow and the market value of these securi- ties. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of slower than anticipated prepayments generally adversely affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced Mortgage-Backed Securities. In addition, par- ticular derivative securities may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magni- fied.

Floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced below market rates if a desig- nated interest rate floats outside of a specified interest rate band or col- lar. Dual index or yield curve floaters are subject to lower prices in the event of an unfavorable change in the spread between two designated interest rates.

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APPENDIX A

RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securi- ties of U.S. issuers. Foreign investments may be affected by changes in cur- rency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency block- age). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the port- folio security. In addition, if the currency in which a Fund receives divi- dends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

The introduction of a single currency, the euro, on January 1, 1999 for par- ticipating nations in the European Economic and Monetary Union ("EMU") pre- sents unique uncertainties, including the legal treatment of certain out- standing financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates for currencies being converted into the euro; the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries such as the United Kingdom and Denmark into the euro and the admission of other non-EMU countries such as Poland, Latvia and Lithuania as members of the EMU may have an impact on the euro. These or other factors, including political and economic risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by the Funds.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such proce- dures have been unable to keep pace with the volume of securities transac- tions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States. Foreign securities markets

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may have substantially less volume than U.S. securities markets and securi- ties of many foreign issuers are less liquid and more volatile than securi- ties of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on divi- dend or interest payments (or, in some cases, capital gains), limitations on the removal of funds or other assets of the Funds, and political or social instability or diplomatic developments which could affect investments in those countries.

Investment in sovereign debt obligations by certain Funds involves risks not present in debt obligations of corporate issuers. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and a Fund may have limited recourse in the event of a default. Periods of economic uncertainty may result in volatility of market prices of sovereign debt, and in turn a Fund's NAV, to a greater extent than the volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's willingness or ability to repay principal and pay inter- est in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availabil- ity of sufficient foreign exchange on the date a payment is due, the rela- tive size of the debt service burden to the economy as a whole, the sover- eign debtor's policy toward international lenders and the political constraints to which a sovereign debtor may be subject.

RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of issuers located in emerging countries. The risks of foreign investment are heightened when the issuer is located in an emerging country.

Many emerging countries may be subject to a substantial degree of economic, political and social instability. Governments of some emerging countries are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other emerging countries have periodi- cally used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffec- tion, among other factors, have also led to social unrest, violence and/or labor unrest in emerging countries. Investing in emerging countries involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested.

A Fund's investment in emerging countries may also be subject to withholding or other taxes, which may be significant and may reduce the return from an investment in such country to the Fund. Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and may

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APPENDIX A

involve a Fund's delivery of securities before receipt of payment for their sale. In addition, significant delays are common in certain markets in reg- istering the transfer of securities. Settlement or registration problems may make it more difficult for a Fund to value its portfolio securities and could cause the Fund to miss attractive investment opportunities, to have a portion of its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities the Fund has delivered or the Fund's inability to complete its contractual obligations.

The small size and inexperience of the securities markets in certain emerg- ing countries and the limited volume of trading in securities in those coun- tries may make a Fund's investments in such countries less liquid and more volatile than investments in countries with more developed securities mar- kets (such as the United States, Japan and most Western European countries).

Many emerging countries have experienced currency devaluations and substan- tial (and, in some cases, extremely high) rates of inflation, which have a negative effect on the economies and securities markets of such emerging countries. Economies in emerging countries generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

A Fund's use of foreign currency management techniques in emerging countries may be limited. Due to the limited market for these instruments in emerging countries, the Investment Adviser does not currently anticipate that a sig- nificant portion of the Funds' currency exposure in emerging countries, if any, will be covered by such instruments.

RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in illiquid securities which cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include:

.Both domestic and foreign securities that are not readily marketable

.Certain municipal leases and participation interests

.Certain stripped Mortgage-Backed Securities

. Repurchase agreements and time deposits with a notice or demand period of more than seven days

.Certain over-the-counter options

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. Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted security, that a restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and, therefore, is liquid

Investing in restricted securities eligible for resale pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the extent that quali- fied institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liq- uid market exists.

C. PORTFOLIO SECURITIES AND TECHNIQUES

This section provides further information on certain types of securities and investment techniques that may be used by the Funds, including their associ- ated risks. Further information is provided in the Additional Statement, which is available upon request.

U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS

U.S. Government Securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or spon- sored enterprises. U.S. Government Securities may be supported by (a) the full faith and credit of the U.S. Treasury (such as the Government National Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as securities of the Student Loan Marketing Association), (c) the discretionary authority of the U.S. government to pur- chase certain obligations of the issuer (such as the Federal National Mort- gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government Securities also include Treasury receipts, zero coupon bonds and other stripped U.S. Government Securities, where the interest and principal compo- nents of stripped U.S. Government Securities are traded independently.

Interest in U.S. Government Securities may be purchased in the form of cus- todial receipts that evidence ownership of future interest payments, princi- pal payments or both on certain notes or bonds issued or guaranteed as to principal and interest by the U.S. government, its agencies, instrumentali- ties, political subdivisions or authorities. For certain securities law pur- poses, custodial receipts are not considered obligations of U.S. government.

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APPENDIX A

MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Mortgage-Backed Securities can be backed by either fixed rate mortgage loans or adjustable rate mortgage loans, and may be issued by either a governmental or non-governmental entity. Privately issued Mortgage- Backed Securities are normally structured with one or more types of "credit enhancement." However, these Mortgage-Backed Securities typically do not have the same credit standing as U.S. government guaranteed Mortgage-Backed Securities.

Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or participation certificates. CMOs provide an investor with a specified interest in the cash flow from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In most cases, payments of principal are applied to the CMO classes in the order of their respective stated maturi- ties, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real prop- erty and other permitted investments.

Mortgaged-Backed Securities also include stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. SMBS are usually structured with two different classes: one that receives 100% of the interest payments and the other that receives 100% of the prin- cipal payments from a pool of mortgage loans. The market value of SMBS con- sisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on SMBS that receive all or most of the interest from mortgage loans are generally higher than pre- vailing market yields on other Mortgage-Backed Securities because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped.

Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to both call risk and extension risk as previously described. Because of these risks, these securities can have significantly greater price and yield vola- tility than with traditional fixed-income securities.

The value of Mortgage-Backed Securities that are structured as pass-through mortgage securities that are collateralized by ARMs are less likely to rise during periods of declining interest rates to the same extent as fixed-rate securities. This is because interest rate declines may result in accelerated prepayments of mortgages

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with the result that proceeds from prepayments will be reinvested at lower interest rates. On the other hand, during periods of rising interest rates, the value of ARMs will lag behind changes in the market rate. ARMs are also typically subject to maximum increases and decreases in the interest rate adjustment which can be made on any one adjustment date, in any one year, or during the life of the security. In the event of dramatic increases or decreases in prevailing market interest rates, the value of a Fund's invest- ments in ARMs may fluctuate more substantially since these limits may pre- vent the security from fully adjusting its interest rate to the prevailing market rates.

ASSET-BACKED SECURITIES

Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset- backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of pre- payments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Asset-backed securities present credit risks that are not presented by Mortgage-Backed Securities. This is because asset- backed securities generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. There is the possibil- ity that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.

MUNICIPAL SECURITIES

Municipal Securities include bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of the states, territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agen- cies or instrumentalities, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from federal alterna- tive minimum tax or from state or local taxes). Because of their tax-exempt status, the yields and market values of Municipal Securities may be more adversely impacted by changes in the tax rates and policies than taxable fixed-income securities.

Municipal Securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Municipal Securities include private activity bonds, municipal

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APPENDIX A

leases, certificates of participation, pre-refunded municipal securities and auction rate securities.

The obligations of the issuer to pay the principal of and interest on a Municipal Security are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other con- ditions, the power or ability of the issuer to pay when due the principal of or interest on a Municipal Security may be materially affected. Municipal lease obligations and certificates of participation are subject to the added risk that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although these obliga- tions may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to recover fully a Fund's original investment.

Municipal Securities may be in the form of a tender option bond, which is a Municipal Security (generally held pursuant to a custodial arrangement) hav- ing a relatively long maturity and bearing interest at a fixed rate substan- tially higher than prevailing short-term, tax-exempt rates. The bond is typ- ically issued with the agreement of a third party, such as a bank, broker- dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the dif- ference between the bond's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. Certain tender option bonds may be illiquid.

In order to enhance the liquidity of Municipal Securities, a Fund may (but is not required to) acquire the right to sell a security to another party at a guaranteed price and date. This right to resell may be referred to as a "standby commitment" or liquidity put, depending on its characteristics. The aggregate price which a Fund pays for securities with standby commitments may be higher than the price which otherwise would be paid for the securi- ties. Standby commitments may not be available or may not be available on satisfactory terms.

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CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES

Corporate debt obligations include bonds, notes, debentures and other obli- gations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. A trust pre- ferred or capital security is a long dated bond (for example, 30 years) with preferred features. The preferred features are that payment of interest can be deferred for a specified period without initiating a default event. The securities are generally senior in claim to standard preferred stock but junior to other bondholders.

Convertible securities are preferred stock or debt obligations that are con- vertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar qual- ity. Convertible securities in which a Fund invests are subject to the same rating criteria as its other investments in fixed-income securities. Con- vertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible secu- rity, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

FOREIGN CURRENCY TRANSACTIONS

A Fund may, to the extent it invests in foreign securities, purchase or sell foreign currencies on a cash basis or through forward contracts. A forward contract involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract. A Fund may engage in foreign currency transactions for hedging purposes and to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, a Fund also may enter into such transactions to seek to increase total return when the Investment Adviser anticipates fluctuation in the value of the foreign currency, but securities denominated or quoted in that currency do not present attractive investment opportunities and are not held in the Fund's portfolio, which is considered a speculative practice. Some Funds may also engage in cross-hedging by using forward contracts in a cur- rency different from that in which the hedged security is denomi-

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APPENDIX A

nated or quoted if the Investment Adviser determines that there is a pattern of correlation between the two currencies. A Fund may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the Investment Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date, based on anticipated changes in the relevant exchange rate.

Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, a Fund's NAV to fluctuate (when the Fund's NAV fluctuates, the value of your shares may go up or down). Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad.

The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments offers less protection against defaults by the other party to such instruments than is available for currency instruments traded on an exchange. Such contracts are subject to the risk that the counterparty to the contract will default on its obli- gations. Since these contracts are not guaranteed by an exchange or clear- inghouse, a default on a contract would deprive a Fund of unrealized prof- its, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price.

STRUCTURED SECURITIES

Structured securities are securities whose value is determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the "Reference") or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. Structured securities may be posi- tively or negatively indexed, so that appreciation of the Reference may pro- duce an increase or decrease in the interest rate or value of the security at maturity. In addition, changes in the interest rates or the value of the security at maturity may be a multiple of changes in the value of the Refer- ence. Consequently, structured securities may entail a greater degree of market risk than other types of fixed-income securities, and may be more volatile, less liquid and more difficult to accurately price than less com- plex securities. Structured securities include, but are not limited to, inverse floating rate debt securities ("inverse floaters"). The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate var- ies by a magnitude that exceeds the magnitude

11-P

of the change in the index rate of interest. The higher the degree of lever- age of an inverse floater, the greater the volatility of its market value.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

These securities are issued at a discount from their face value because interest payments are typically postponed until maturity. Pay-in-kind secu- rities are securities that have interest payable by the delivery of addi- tional securities. The market prices of these securities generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a greater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality.

MORTGAGE DOLLAR ROLLS

A mortgage dollar roll involves the sale by a Fund of securities for deliv- ery in the current month. The Fund simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal and interest paid on the securities sold. However, the Fund benefits to the extent of any difference between (a) the price received for the securities sold and (b) the lower forward price for the future purchase and/or fee income plus the interest earned on the cash proceeds of the securities sold. Unless the ben- efits of a mortgage dollar roll exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the roll, the use of this technique will diminish the Fund's investment performance.

Successful use of mortgage dollar rolls depends upon the Investment Advis- er's ability to predict correctly interest rates and mortgage prepayments. If the Investment Adviser is incorrect in its prediction, a Fund may experi- ence a loss. For financial reporting and tax purposes, the Funds treat mort- gage dollar rolls as two separate transactions: one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing, and do not treat them as borrowings.

OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES

A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instru- ment during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obliga- tion to sell, the underlying instrument

12-P

APPENDIX A

during the option period. Each Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may also, to the extent it invests in foreign securities, purchase and sell (write) put and call options on foreign currencies.

The writing and purchase of options is a highly specialized activity which involves special investment risks. Options may be used for either hedging or cross-hedging purposes, or to seek to increase total return (which is con- sidered a speculative activity). The successful use of options depends in part on the ability of the Investment Adviser to manage future price fluctu- ations and the degree of correlation between the options and securities (or currency) markets. If the Investment Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in a Fund's investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase a Fund's brokerage transaction costs. Options written or purchased by the Funds may be traded on either U.S. or foreign exchanges or over-the-counter. Foreign and over-the-counter options will present greater possibility of loss because of their greater liquidity and credit risks.

YIELD CURVE OPTIONS

Each Fund may enter into options on the yield "spread" or differential between two securities. Such transactions are referred to as "yield curve" options. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.

The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, such options pres- ent a risk of loss even if the yield of one of the underlying securities remains constant, or if the spread moves in a direction or to an extent which was not anticipated.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument or currency at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A futures

13-P

contract may be based on various securities (such as U.S. Government Securi- ties), foreign currencies, securities indices and other financial instru- ments and indices. The Funds may engage in futures transactions on both U.S. and foreign exchanges.

Each Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices or, to the extent a Fund invests in foreign securities, currency exchange rates, or to otherwise manage their term structures and durations in accordance with their investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions for bona fide hedging purposes as defined in regulations of the Commodity Futures Trading Commission or to seek to increase total return to the extent permitted by such regulations. A Fund may not purchase or sell futures contracts or purchase or sell related options to seek to increase total return, except for closing purchase or sale transactions, if immedi- ately thereafter the sum of the amount of initial margin deposits and premi- ums paid on the Fund's outstanding positions in futures and related options entered into for the purpose of seeking to increase total return would exceed 5% of the market value of the Fund's net assets. Future contracts and related options present the following risks:

.While a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.

.Because perfect correlation between a futures position and portfolio posi- tion that is intended to be protected is impossible to achieve, the desired protection may not be obtained and a Fund may be exposed to additional risk of loss.

.The loss incurred by a Fund in entering into futures contracts and in writ- ing call options on futures is potentially unlimited and may exceed the amount of the premium received.

.Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's NAV.

.As a result of the low margin deposits normally required in futures trad- ing, a relatively small price movement in a futures contract may result in substantial losses to a Fund.

.Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.

14-P

APPENDIX A

.Foreign exchanges may not provide the same protection as U.S. exchanges.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.

When-issued securities are securities that have been authorized but not yet issued. When-issued securities are purchased in order to secure what is con- sidered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

A forward commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settle- ment period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, securities sold on a for- ward commitment basis involves the risk that the value of the securities to be sold may increase before the settlement date. Although a Fund will gener- ally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate to do so.

LENDING OF PORTFOLIO SECURITIES

Securities lending involves the lending of securities owned by a Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loans continuously with cash, cash equivalents or U.S. Government Securities in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equiva- lents. If the Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 33 1/3% of the value of the total assets of a Fund (including the loan collateral).

A Fund may lend its securities to increase its income. A Fund may, however, experience a delay in the recovery of its securities or possible loss if the institution with which it has engaged in a securities lending transaction breaches its agreement with the Fund.

REPURCHASE AGREEMENTS

Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase them at a mutually agreed upon date and price. Each Fund may enter into repurchase agreements with dealers in U.S. Government Securities and member banks of the Federal Reserve System which furnish collateral at least equal in value or market price to the amount of their repurchase obligation. Some Funds may also enter into repurchase agreements involving certain foreign government securities.

15-P

If the other party or "seller" defaults, a Fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund in connection with the repurchase agree- ment are less than the repurchase price and the cost of the Fund associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer other losses if a court determines that the Fund's interest in the collateral is not enforce- able.

BORROWINGS AND REVERSE REPURCHASE AGREEMENTS

The Funds can borrow money from banks and enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. Reverse repurchase agreements involve the sale of securities held by a Fund subject to the Fund's agree- ment to repurchase them at a mutually agreed upon date and price (including interest). These transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agree- ments may also be entered into when the Investment Adviser expects that the interest income to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Borrowings and reverse repurchase agreements involve leveraging. If the securities held by a Fund decline in value while these transactions are outstanding, the NAV of the Fund's outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the interest income earned by a Fund (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by a Fund will decline below the price the Fund is obligated to pay to repurchase the secu- rities, and that the securities may not be returned to the Fund.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS

Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments. Mortgage swaps are simi- lar to interest rate swaps in that they represent commitments to pay and receive interest. The notional principal amount, however, is tied to a ref- erence pool or pools of mortgages. Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses of an underlying security. Credit swaps give one party to a transac- tion the right to dispose of or acquire an asset (or group of assets), or the right to receive or make a payment from the other party, upon the occur- rence of specified credit events. Currency swaps involve the exchange of the parties' respective rights to make or receive payments in specified

16-P

APPENDIX A

currencies. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor enti- tles the purchaser, to the extent that a specified index falls below a pre- determined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates.

Each Fund may enter into swap transactions for hedging purposes or to seek to increase total return. The use of interest rate, mortgage, credit and currency swaps, as well as interest rate caps, floors and collars, is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transac- tions. If the Investment Adviser is incorrect in its forecasts of market value, interest rates and currency exchange rates, the investment perfor- mance of a Fund would be less favorable than it would have been if these investment techniques were not used.

INVERSE FLOATING RATE DEBT SECURITIES ("INVERSE FLOATERS")

The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund may, with respect to no more than 5% of its net assets, invest in other investment companies.

17-P

NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-investment grade fixed- income securities are considered predominantly speculative by traditional investment standards. In some cases, these obligations may be highly specu- lative and have poor prospects for reaching investment grade standing. Non- investment grade fixed-income securities and unrated securities of compara- ble credit quality (commonly known as "junk bonds") are subject to the increased risk of an issuer's inability to meet principal and interest obli- gations. These securities, also referred to as high yield securities, may be subject to greater price volatility due to such factors as specific corpo- rate developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.

Non-investment grade fixed-income securities are often issued in connection with a corporate reorganization or restructuring or as part of a merger, acquisition, takeover or similar event. They are also issued by less estab- lished companies seeking to expand. Such issuers are often highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and interest in the event of adverse developments or business conditions.

The market value of non-investment grade fixed-income securities tends to reflect individual corporate developments to a greater extent than that of higher rated securities which react primarily to fluctuations in the general level of interest rates. As a result, a Fund's ability to achieve its investment objectives may depend to a greater extent on the Investment Adviser's judgment concerning the creditworthiness of issuers than funds which invest in higher-rated securities. Issuers of non-investment grade fixed-income securities may not be able to make use of more traditional methods of financing and their ability to service debt obligations may be affected more adversely than issuers of higher-rated securities by economic downturns, specific corporate developments or the issuer's inability to meet specific projected business forecasts. Negative publicity about the junk bond market and investor perceptions regarding lower rated securities, whether or not based on fundamental analysis, may depress the prices for such securities.

A holder's risk of loss from default is significantly greater for non- investment grade fixed-income securities than is the case for holders of other debt securities because such non-investment grade securities are gen- erally unsecured and are often subordinated to the rights of other creditors of the issuers of such

1-Q

securities. Investment by a Fund in defaulted securities poses additional risk of loss should nonpayment of principal and interest continue in respect of such securities. Even if such securities are held to maturity, recovery by a Fund of its initial investment and any anticipated income or apprecia- tion is uncertain.

The secondary market for non-investment grade fixed-income securities is concentrated in relatively few market makers and is dominated by institu- tional investors, including mutual funds, insurance companies and other financial institutions. Accordingly, the secondary market for such securi- ties is not as liquid as, and is more volatile than, the secondary market for higher-rated securities. In addition, market trading volume for high yield fixed-income securities is generally lower and the secondary market for such securities could contract under adverse market or economic condi- tions, independent of any specific adverse changes in the condition of a particular issuer. These factors may have an adverse effect on the market price and a Fund's ability to dispose of particular portfolio investments. A less liquid secondary market also may make it more difficult for a Fund to obtain precise valuations of the high yield securities in its portfolio.

Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of non-investment grade securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality. Investments in non-investment grade and comparable unrated obligations will be more dependent on the Investment Adviser's credit analysis than would be the case with investments in investment-grade debt obligations.

LOAN PARTICIPATIONS

A loan participation is an interest in a loan to a U.S. or foreign company or other borrower which is administered and sold by a financial intermedi- ary. A Fund may only invest in loans to issuers in whose obligations it may otherwise invest. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an assignment of an interest in the loan by a co-lender or another participant, or a participa- tion in the seller's share of the loan. When a Fund acts as co-lender in connection with a participation interest or when it acquires certain partic- ipation interests, the Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Fund lacks direct recourse, it will look to the agent bank to enforce appropriate credit remedies against the borrower. In these cases, the Fund

2-Q

may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the Fund may be regarded as a creditor of the agent bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the agent bank may become insolvent.

PREFERRED STOCK, WARRANTS AND RIGHTS

Preferred stocks are securities that represent an ownership interest provid- ing the holder with claims on the issuer's earnings and assets before common stock owners but after bond owners. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obli- gations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default or other non-compliance by the issuer with the terms of the preferred stock.

Warrants and other rights are options to buy a stated number of shares of common stock at a specified price at any time during the life of the war- rant. The holders of warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.

3-Q

Appendix B

                                                         INCOME (LOSS) FROM
                                                       INVESTMENT OPERATIONS/A/
                                                                  NET REALIZED
                                                                 AND UNREALIZED
                                                                  GAIN (LOSS)
                                            NET ASSET            ON INVESTMENT,
                                            VALUE AT     NET       OPTION AND
                                            BEGINNING INVESTMENT    FUTURES
                                            OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                      $ 9.88     $0.53        $(0.17)
  1998 - Institutional Shares                  9.88      0.55         (0.16)
  1998 - Administration Shares                 9.88      0.53         (0.16)
  1998 - Service Shares                        9.88      0.51         (0.16)
  1997 - Class A Shares                        9.83      0.57f         0.05f
  1997 - Institutional Shares                  9.83      0.59f         0.05f
  1997 - Administration Shares                 9.83      0.57f         0.05f
  1997 - Service Shares (commenced March
   27)                                         9.84      0.33f         0.04f
  1996 - Class A Shares                        9.77      0.55f         0.08f
  1996 - Institutional Shares                  9.77      0.57f         0.08f
  1996 - Administration Shares                 9.77      0.55f         0.08f
  1995 - Class A Shares (commenced May 15)     9.79      0.27f        (0.01)f
  1995 - Institutional Shares                  9.74      0.56f         0.07f
  1995 - Administration Shares                 9.74      0.54f         0.07f
  1994 - Institutional Shares                 10.00      0.43f        (0.24)f
  1994 - Administration Shares                10.00      0.42f        (0.26)f
-------------------------------------------------------------------------------

           DISTRIBUTIONS TO SHAREHOLDERS

                             FROM NET       NET                                    NET
                          REALIZED GAIN   INCREASE                               ASSETS
               IN EXCESS  ON INVESTMENT, (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET       OPTION       IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT  AND FUTURES     ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS    VALUE     PERIOD   RETURNB   RATEE   (IN 000S)
-----------------------------------------------------------------------------------------
  $(0.53)        $(0.02)       $--         $(0.19)    $9.69    3.71%    33.64%  $ 60,782
   (0.55)         (0.02)        --          (0.18)     9.70    4.09     33.64    441,228
   (0.53)         (0.02)        --          (0.18)     9.70    3.83     33.64      5,999
   (0.51)         (0.02)        --          (0.18)     9.70    3.57     33.64        822
   (0.57)            --         --           0.05      9.88    6.43     46.58     43,393
   (0.59)            --         --           0.05      9.88    6.70     46.58    463,511
   (0.57)            --         --           0.05      9.88    6.43     46.58      2,793
   (0.33)            --         --           0.04      9.88    3.81d    46.58        346
   (0.55)         (0.02)        --           0.06      9.83    6.60     52.36     10,728
   (0.57)         (0.02)        --           0.06      9.83    6.86     52.36    613,149
   (0.55)         (0.02)        --           0.06      9.83    6.60     52.36      3,792
   (0.27)         (0.01)        --          (0.02)     9.77    2.74d    24.12     15,203
   (0.57)         (0.03)        --           0.03      9.77    6.75     24.12    657,358
   (0.55)         (0.03)        --           0.03      9.77    6.48     24.12      3,572
   (0.45)            --         --          (0.26)     9.74    1.88     37.81    942,523
   (0.42)            --         --          (0.26)     9.74    1.63     37.81      6,960
-----------------------------------------------------------------------------------------

APPENDIX B

                                                             RATIOS ASSUMING
                                                           NO VOLUNTARY WAIVER
                                                               OF FEES OR
                                                           EXPENSE LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                0.80%      5.40%      1.02%      5.18%
  1998 - Institutional Shares          0.53       5.63       0.53       5.63
  1998 - Administration Shares         0.78       5.33       0.78       5.33
  1998 - Service Shares                1.03       5.09       1.03       5.09
  1997 - Class A Shares                0.74       5.60       1.02       5.32
  1997 - Institutional Shares          0.49       5.99       0.52       5.96
  1997 - Administration Shares         0.74       5.73       0.77       5.70
  1997 - Service Shares (commenced
   March 27)                           1.05c      5.64c      1.08c      5.61c
  1996 - Class A Shares                0.70       5.59       1.01       5.28
  1996 - Institutional Shares          0.45       5.85       0.51       5.79
  1996 - Administration Shares         0.70       5.59       0.76       5.53
  1995 - Class A Shares (commenced
   May 15)                             0.69c      5.87c      1.01c      5.55c
  1995 - Institutional Shares          0.46       5.77       0.53       5.70
  1995 - Administration Shares         0.71       5.50       0.78       5.43
  1994 - Institutional Shares          0.46       4.38       0.49       4.35
  1994 - Administration Shares         0.71       4.27       0.74       4.24
-------------------------------------------------------------------------------

3-R

                                                      INCOME (LOSS) FROM
                                                    INVESTMENT OPERATIONSA
                                                              NET REALIZED
                                                             AND UNREALIZED
                                      NET ASSET              GAIN (LOSS) ON
                                      VALUE AT     NET     INVESTMENT,  OPTION
                                      BEGINNING INVESTMENT     AND FUTURES
                                      OF PERIOD   INCOME      TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  $ 9.88     $0.57          $ 0.04
  1998-Class B Shares                    9.86      0.51            0.03
  1998-Class C Shares                    9.86      0.49            0.03
  1998-Institutional Shares              9.86      0.58            0.06
  1998-Administration Shares             9.89      0.55            0.05
  1998-Service Shares                    9.86      0.55            0.04
  1997-Class A Shares (commenced May
   1)                                    9.78      0.31f           0.09f
  1997-Class B Shares (commenced May
   1)                                    9.75      0.28f           0.10f
  1997-Class C Shares (commenced May
   15)                                   9.83      0.12f           0.02f
  1997-Institutional Shares              9.83      0.64f           0.03f
  1997-Administration Shares             9.85      0.62f           0.04f
  1997-Service Shares                    9.82      0.59f           0.04f
  1996-Institutional Shares              9.82      0.63f           0.01f
  1996-Administration Sharesg            9.86      0.38f             --f
  1996-Service Shares (commenced
   April 10)                             9.72      0.31f           0.10f
  1995-Institutional Shares              9.64      0.66f           0.17f
  1995-Administration Sharesg            9.64      0.24f          (0.04)f
  1994-Institutional Shares             10.14      0.56f          (0.46)f
  1994-Administration Shares            10.14      0.53f          (0.45)f
------------------------------------------------------------------------------

4-R

APPENDIX B

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET
               IN EXCESS  ON INVESTMENT,  INCREASE   NET ASSET                   NET ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)   VALUE,           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET     END OF    TOTAL  TURNOVER    PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE  PERIOD   RETURNB   RATEE   (IN 000S)
-------------------------------------------------------------------------------------------
    $(0.58)       $--         $   --       $ 0.03      $9.91    6.36%   119.89%   $ 56,725
     (0.52)        --             --         0.02       9.88    5.62    119.89       5,025
     (0.50)        --             --         0.02       9.88    5.46    119.89       4,527
     (0.60)        --             --         0.04       9.90    6.75    119.89     145,514
     (0.58)        --             --         0.02       9.91    6.27    119.89       7,357
     (0.56)        --             --         0.03       9.89    6.12    119.89       6,232
     (0.30)        --             --         0.10       9.88    4.14d   102.58       9,491
     (0.27)        --             --         0.11       9.86    3.94d   102.58         747
     (0.11)        --             --         0.03       9.86    1.44d   102.58         190
     (0.64)        --             --         0.03       9.86    7.07    102.58     103,729
     (0.62)        --             --         0.04       9.89    6.91    102.58       1,060
     (0.59)        --             --         0.04       9.86    6.63    102.58       3,337
     (0.63)        --             --         0.01       9.83    6.75    115.45      99,944
     (0.39)        --             --        (0.01)      9.85    4.00d   115.45         252
     (0.31)        --             --         0.10       9.82    4.35d   115.45       1,822
     (0.65)        --             --         0.18       9.82    8.97    292.56     103,760
     (0.21)        --             --        (0.01)      9.63    2.10d   292.56          --
     (0.56)        --          (0.04)       (0.50)      9.64    0.99    289.79     193,095
     (0.54)        --          (0.04)       (0.50)      9.64    0.73    289.79         730
-------------------------------------------------------------------------------------------

5-R

                                             RATIOS ASSUMING NO
                                             VOLUNTARY WAIVER OF
                                                    FEES
                                           OR EXPENSE LIMITATIONS
                                           RATIO OF NET            RATIO OF NET
                              RATIO OF NET  INVESTMENT   RATIO OF   INVESTMENT
                                EXPENSES      INCOME     EXPENSES     INCOME
                               TO AVERAGE   TO AVERAGE  TO AVERAGE  TO AVERAGE
                               NET ASSETS   NET ASSETS  NET ASSETS  NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998-Class A Shares             0.81%        5.68%       1.32%       5.17%
  1998-Class B Shares             1.41         5.12        1.87        4.66
  1998-Class C Shares             1.56         4.64        1.87        4.33
  1998-Institutional Shares       0.53         6.06        0.84        5.75
  1998-Administration Shares      0.78         5.76        1.09        5.45
  1998-Service Shares             1.03         5.56        1.34        5.25
  1997-Class A Shares
   (commenced May 1)              0.70c        6.05c       1.32c       5.43c
  1997-Class B Shares
   (commenced May 1)              1.30c        5.52c       1.82c       5.00c
  1997-Class C Shares
   (commenced May 15)             1.45c        5.52c       1.82c       5.15c
  1997-Institutional Shares       0.45         6.43        0.82        6.06
  1997-Administration Shares      0.70         6.19        1.07        5.82
  1997-Service Shares             0.95         5.92        1.32        5.55
  1996-Institutional Shares       0.45         6.44        0.71        6.18
  1996-Administration
   Sharesg                        0.70c        5.97c       0.96c       5.71c
  1996-Service Shares
   (commenced April 10)           0.95c        6.05c       1.21c       5.79c
  1995-Institutional Shares       0.45         6.87        0.72        6.60
  1995-Administration
   Sharesg                        0.70c        7.91c       0.90c       7.71c
  1994-Institutional Shares       0.45         5.69        0.59        5.55
  1994-Administration Shares      0.70         5.38        0.84        5.24
-------------------------------------------------------------------------------

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7-R

                                                        INCOME (LOSS) FROM
                                                      INVESTMENT OPERATIONSA
                                                                 NET REALIZED
                                                                AND UNREALIZED
                                                                 GAIN (LOSS)
                                           NET ASSET            ON INVESTMENT,
                                            VALUE,      NET       OPTION AND
                                           BEGINNING INVESTMENT    FUTURES
                                           OF PERIOD  INCOMEE   TRANSACTIONSE
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                     $10.08     $0.36        $0.13
  1998 - Class B Shares                      10.08      0.30         0.12
  1998 - Class C Shares                      10.07      0.28         0.14
  1998 - Institutional Shares                10.07      0.39         0.13
  1998 - Administration Shares               10.07      0.36         0.13
  1998 - Service Shares                      10.07      0.34         0.13
  1997 - Class A Shares (commenced May 1)     9.94      0.20         0.14
  1997 - Class B Shares (commenced May 1)     9.94      0.16         0.14
  1997 - Class C Shares (commenced August
   15)                                       10.04      0.07         0.03
  1997 - Institutional Shares                 9.96      0.42         0.11
  1997 - Administration Shares                9.96      0.39         0.11
  1997 - Service Shares                       9.97      0.37         0.10
  1996 - Institutional Shares                 9.94      0.42         0.02
  1996 - Administration Shares                9.94      0.39         0.02
  1996 - Service Shares                       9.95      0.37         0.02
  1995 - Institutional Shares                 9.79      0.42         0.15
  1995 - Administration Shares                9.79      0.40         0.15
  1995 - Service Shares                       9.79      0.37         0.16
  1994 - Institutional Shares                10.23      0.38        (0.36)
  1994 - Administration Shares               10.23      0.35        (0.36)
  1994 - Service Shares (commenced
   September 20)                              9.86      0.05        (0.07)
------------------------------------------------------------------------------

8-R

APPENDIX B

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET                                         NET
               IN EXCESS  ON INVESTMENT,  INCREASE                                     ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)    NET ASSET            PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET       VALUE,     TOTAL    TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE END OF PERIOD RETURNB    RATE    (IN 000S)
-----------------------------------------------------------------------------------------------
    $(0.38)        --         $   --        $0.11       $10.19       4.97%   140.72%   $19,881
     (0.32)        --             --         0.10        10.18       4.25    140.72        974
     (0.31)        --             --         0.11        10.18       4.19    140.72      2,256
     (0.41)        --             --         0.11        10.18       5.25    140.72     57,647
     (0.38)        --             --         0.11        10.18       4.99    140.72        525
     (0.36)        --             --         0.11        10.18       4.73    140.72      2,560
     (0.20)        --             --         0.14        10.08       3.39d   194.75      4,023
     (0.16)        --             --         0.14        10.08       3.07d   194.75        106
     (0.07)        --             --         0.03        10.07       0.97d   194.75          2
     (0.42)        --             --         0.11        10.07       5.40    194.75     28,821
     (0.39)        --             --         0.11        10.07       5.14    194.75         77
     (0.37)        --             --         0.10        10.07       4.77    194.75      2,051
     (0.42)        --             --         0.02         9.96       4.50    231.65     34,814
     (0.39)        --             --         0.02         9.96       4.24    231.65         48
     (0.37)        --             --         0.02         9.97       3.98    231.65        695
     (0.42)        --             --         0.15         9.94       5.98    259.52     58,389
     (0.40)        --             --         0.15         9.94       5.76    259.52         46
     (0.37)        --             --         0.16         9.95       5.59    259.52        454
     (0.38)        --          (0.08)       (0.44)        9.79       0.17    354.00     83,704
     (0.35)        --          (0.08)       (0.44)        9.79      (0.11)   354.00      3,866
     (0.05)        --             --        (0.07)        9.79      (0.32)d  354.00        440
-----------------------------------------------------------------------------------------------

9-R

                                                             RATIOS ASSUMING
                                                           NO VOLUNTARY WAIVER
                                                               OF FEES OR
                                                           EXPENSE LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                0.71%      3.54%      1.74%      2.51%
  1998 - Class B Shares                1.31       3.06       2.27       2.10
  1998 - Class C Shares                1.46       2.82       2.27       2.01
  1998 - Institutional Shares          0.45       3.92       1.26       3.11
  1998 - Administration Shares         0.70       3.58       1.51       2.77
  1998 - Service Shares                0.95       3.44       1.76       2.63
  1997 - Class A Shares (commenced
   May 1)                              0.70c      3.81c      1.73c      2.78c
  1997 - Class B Shares (commenced
   May 1)                              1.30c      3.31c      2.23c      2.38c
  1997 - Class C Shares (commenced
   August 15)                          1.45c      2.60c      2.23c      1.82c
  1997 - Institutional Shares          0.45       4.18       1.23       3.40
  1997 - Administration Shares         0.70       3.91       1.48       3.13
  1997 - Service Shares                0.95       3.66       1.73       2.88
  1996 - Institutional Shares          0.45       4.21       1.01       3.65
  1996 - Administration Shares         0.70       3.96       1.26       3.40
  1996 - Service Shares                0.95       3.74       1.51       3.18
  1995 - Institutional Shares          0.45       4.31       0.77       3.99
  1995 - Administration Shares         0.70       4.14       1.02       3.82
  1995 - Service Shares                0.95       3.87       1.27       3.55
  1994 - Institutional Shares          0.45       3.74       0.61       3.58
  1994 - Administration Shares         0.70       3.51       0.86       3.35
  1994 - Service Shares (commenced
   September 20)                       0.95c      4.30c      1.11c      4.14c
-------------------------------------------------------------------------------

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11-R

                                                     INCOME (LOSS) FROM
                                                   INVESTMENT OPERATIONSN
                                                              NET REALIZED
                                                             AND UNREALIZED
                                                             GAIN (LOSS) ON
                                        NET ASSET             INVESTMENT,
                                        VALUE AT     NET       OPTION AND
                                        BEGINNING INVESTMENT    FUTURES
                                        OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                  $14.59     $0.81        $0.45
  1998 - Class B Shares                   14.61      0.72         0.42
  1998 - Class C Shares                   14.60      0.74         0.40
  1998 - Institutional Shares             14.59      0.87         0.42
  1998 - Service Shares                   14.59      0.80         0.40
  1997 - Class A Shares                   14.36      0.91         0.29
  1997 - Class B Shares                   14.37      0.80         0.30
  1997 - Class C Shares (commenced
   August 15)                             14.38      0.17         0.22
  1997 - Institutional Shares
   (commenced August 15)                  14.37      0.20         0.22
  1997 - Service Shares (commenced
   August 15)                             14.37      0.20         0.21
  1996 - Class A shares                   14.47      0.92        (0.11)
  1996 - Class B shares (commenced May
   1)                                      4.11      0.41         0.26
  1995 - Class A shares                   13.47      0.94         1.00
  1994 - Class A shares                   14.90      0.85        (1.28)
-------------------------------------------------------------------------------

12-R

APPENDIX B

            DISTRIBUTIONS TO SHAREHOLDERS
                                         IN EXCESS OF
                             FROM NET    NET REALIZED
                          REALIZED  GAIN   GAIN ON        NET
               IN EXCESS  ON INVESTMENT, INVESTMENT,   INCREASE   NET ASSET
   FROM NET      OF NET     OPTION AND    OPTION AND  (DECREASE)    VALUE           PORTFOLIO
  INVESTMENT   INVESTMENT    FUTURES       FUTURES      IN NET     AT END    TOTAL  TURNOVER
    INCOME       INCOME    TRANSACTIONS  TRANSACTIONS ASSET VALUE OF PERIOD RETURNK   RATEE
---------------------------------------------------------------------------------------------
    $(0.81)     $(0.07)       $(0.06)       $  --        $0.32     $14.91     8.98%  315.43%
     (0.72)      (0.05)        (0.06)          --         0.31      14.92     8.09   315.43
     (0.74)      (0.03)        (0.06)          --         0.31      14.91     8.09   315.43
     (0.87)      (0.05)        (0.06)          --         0.31      14.90     9.19   315.43
     (0.80)      (0.05)        (0.06)          --         0.29      14.88     8.53   315.43
     (0.90)          --        (0.07)          --         0.23      14.59     8.72   395.75
     (0.79)          --        (0.07)          --         0.24      14.61     7.96   395.75
     (0.17)          --           --           --         0.22      14.60     2.72d  395.75
     (0.20)          --           --           --         0.22      14.59     2.94d  395.75
     (0.19)          --           --           --         0.22      14.59     2.85d  395.75
     (0.92)          --           --           --        (0.11)     14.36     5.80   485.09
     (0.41)          --           --           --         0.26      14.37     4.85d  485.09
     (0.94)          --           --           --         1.00      14.47    14.90   449.53
     (0.85)       (0.02)       (0.12)       (0.01)       (1.43)     13.47    (2.98)  654.90
---------------------------------------------------------------------------------------------

13-R

                                                                RATIOS ASSUMING NO
                                                             VOLUNTARY WAIVER OF FEES
                                                              OR EXPENSE LIMITATIONS
                                                   RATIO OF
                                                     NET                      RATIO OF NET
                          NET ASSETS   RATIO OF   INVESTMENT   RATIO OF        INVESTMENT
                          AT END OF  NET EXPENSES   INCOME     EXPENSES          INCOME
                            PERIOD    TO AVERAGE  TO AVERAGE  TO AVERAGE       TO AVERAGE
                          (IN 000S)   NET ASSETS  NET ASSETS  NET ASSETS       NET ASSETS
----------------------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares    $101,015      0.76%       5.53%              1.53%            4.76%
  1998 - Class B Shares      16,125      1.51        4.76               2.05             4.22
  1998 - Class C Shares       9,639      1.51        4.59               2.05             4.05
  1998 - Institutional
   Shares                     2,642      0.51        5.82               1.05             5.28
  1998 - Service Shares           2      1.01        5.48               1.55             4.94
  1997 - Class A Shares      68,859      0.50        6.38               1.82             5.06
  1997 - Class B Shares       8,041      1.25        5.59               2.32             4.52
  1997 - Class C Shares
   (commenced August 15)      1,196      1.25c       5.45c              2.32c            4.38c
  1997 - Institutional
   Shares (commenced
   August 15)                 1,894      0.25c       7.03c              1.32c            5.96c
  1997 - Service Shares
   (commenced August 15)          2      0.75c       6.49c              1.82c            5.42c
  1996 - Class A shares      30,603      0.50        6.42               1.89             5.03
  1996 - Class B shares
   (commenced May 1)            234      1.25c       5.65c              2.39c            4.51c
  1995 - Class A shares      29,503      0.47        6.67               2.34             4.80
  1994 - Class A shares      14,452      0.11        6.06               2.86             3.31
----------------------------------------------------------------------------------------------

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15-R

                                                     INCOME (LOSS) FROM
                                                   INVESTMENT OPERATIONS/N/
                                                              NET REALIZED
                                                             AND UNREALIZED
                                                             GAIN (LOSS) ON
                                        NET ASSET             INVESTMENT,
                                        VALUE AT     NET       OPTION AND
                                        BEGINNING INVESTMENT    FUTURES
                                        OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                  $14.99     $0.65        $0.50
  1998 - Class B Shares                   15.00      0.53         0.49
  1998 - Class C Shares                   14.99      0.53         0.50
  1998 - Institutional Shares             15.00      0.68         0.50
  1998 - Service Shares                   14.99      0.64         0.49
  1997 - Class A Shares                   14.37      0.67         0.62
  1997 - Class B Shares                   14.37      0.56         0.63
  1997 - Class C Shares (commenced
   August 15)                             14.85      0.12         0.14
  1997 - Institutional Shares
   (commenced August 15)                  14.84      0.15         0.16
  1997 - Service Shares (commenced
   August 15)                             14.84      0.14         0.15
  1996 - Class A shares                   14.17      0.65         0.20
  1996 - Class B shares (commenced May
   1)                                     14.03      0.27         0.34
  1995 - Class A shares                   13.08      0.67         1.09
  1994 - Class A shares                   14.64      0.73        (1.51)
-------------------------------------------------------------------------------

16-R

APPENDIX B

    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                    NET
                            GAIN ON     INCREASE                               ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB   RATE    (IN 000S)
---------------------------------------------------------------------------------------
    $(0.64)       $--       $(0.03)      $0.48     $15.47     7.79%   56.51%   $91,158
     (0.52)        --        (0.03)       0.47      15.47     6.91    56.51     6,722.
     (0.52)        --        (0.03)       0.48      15.47     6.98    56.51      2,862
     (0.68)        --        (0.03)       0.47      15.47     8.00    56.51      6,154
     (0.61)        --        (0.03)       0.49      15.48     7.68    56.51          2
     (0.67)        --            --       0.62      14.99     9.23   153.12     64,553
     (0.56)        --            --       0.63      15.00     8.48   153.12      1,750
     (0.12)        --            --       0.14      14.99     1.75d  153.12        130
     (0.15)        --            --       0.16      15.00     2.10d  153.12        351
     (0.14)        --            --       0.15      14.99     1.93d  153.12          2
     (0.65)        --            --       0.20      14.37     6.13   344.13     52,267
     (0.27)        --            --       0.34      14.37     4.40d  344.13        255
     (0.67)        --            --       1.09      14.17    13.79   335.55     53,797
     (0.73)        --         (0.05)     (1.56)     13.08    (5.51)  357.54     47,373
---------------------------------------------------------------------------------------

17-R

                                                     RATIOS ASSUMING NO
                                                  VOLUNTARY WAIVER OF FEES
                                                   OR EXPENSE LIMITATIONS
                                        RATIO OF
                                          NET                      RATIO OF NET
                            RATIO OF   INVESTMENT   RATIO OF        INVESTMENT
                          NET EXPENSES   INCOME     EXPENSES          INCOME
                           TO AVERAGE  TO AVERAGE  TO AVERAGE       TO AVERAGE
                           NET ASSETS  NET ASSETS  NET ASSETS       NET ASSETS
-----------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares       0.87%       4.25%              1.64%            3.48%
  1998 - Class B Shares       1.62        3.44               2.16             2.90
  1998 - Class C Shares       1.62        3.38               2.16             2.84
  1998 - Institutional
   Shares                     0.58        4.41               1.12             3.87
  1998 - Service Shares       1.08        4.21               1.62             3.67
  1997 - Class A Shares       0.85        4.60               1.62             3.83
  1997 - Class B Shares       1.60        3.74               2.12             3.22
  1997 - Class C Shares
   (commenced August 15)      1.60c       3.24c              2.12c            2.72c
  1997 - Institutional
   Shares (commenced
   August 15)                 0.60c       4.41c              1.12c            3.89c
  1997 - Service Shares
   (commenced August 15)      1.10c       4.24c              1.62c            3.72c
  1996 - Class A shares       0.85        4.58               1.55             3.88
  1996 - Class B shares
   (commenced May 1)          1.60c       3.55c              2.05c            3.10c
  1995 - Class A shares       0.76        4.93               1.49             4.20
  1994 - Class A shares       0.45        5.28               1.55             4.18
-----------------------------------------------------------------------------------

18-R

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19-R

                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONS/A/
                                                                NET REALIZED
                                                               AND UNREALIZED
                                                               GAIN (LOSS) ON
                                                                INVESTMENT,
                                                                  OPTION,
                                         NET ASSET              FUTURES AND-
                                         VALUE AT     NET     FOREIGN CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME     TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                     $10.06     $0.59         $0.27
  1998-Class B Shares                      10.09      0.52          0.27
  1998-Class C Shares                      10.09      0.90          0.27
  1998-Institutional Shares                10.08      1.08          0.29
  1998-Administration Shares               10.07      0.57          0.29
  1998-Service Shares                      10.09      0.99          0.27
  1997-Class A Shares (commenced May 1)     9.70      0.30          0.36
  1997-Class B Shares (commenced May 1)     9.72      0.27          0.37
  1997-Class C Shares (commenced August
   15)                                      9.93      0.11          0.16
  1997-Institutional Shares                 9.85      0.64          0.23
  1997-Administration Shares                9.84      0.62          0.23
  1997-Service Shares                       9.86      0.59          0.23
  1996-Institutional Shares                10.00      0.64         (0.07)
  1996-Administrative Shares
     (commenced February 28)                9.91      0.41         (0.07)
  1996-Service Shares (commenced March
   13)                                      9.77      0.38          0.09
  1995-Institutional Shares                 9.24      0.64          0.76
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares (commenced
   January 5)                              10.00      0.46         (0.76)
------------------------------------------------------------------------------

20-R

    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                     NET
                            GAIN ON     INCREASE                                ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                     AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,            PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL   TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB    RATEE   (IN 000S)
----------------------------------------------------------------------------------------
    $(0.59)      $(0.02)     $(0.06)     $0.19     $10.25     8.76%   271.50%   $56,267
     (0.52)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      7,209
     (0.90)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      5,587
     (1.08)       (0.03)      (0.06)      0.20      10.28     9.15    271.50    195,730
     (0.57)       (0.03)      (0.06)      0.20      10.27     8.88    271.50     12,743
     (0.99)       (0.02)      (0.06)      0.19      10.28     8.50    271.50      5,263
     (0.30)          --          --       0.36      10.06     6.94d   361.27      9,336
     (0.27)          --          --       0.37      10.09     6.63d   361.27        621
     (0.11)          --          --       0.16      10.09     2.74d   361.27        272
     (0.64)          --          --       0.23      10.08     9.19    361.27     79,230
     (0.62)          --          --       0.23      10.07     8.92    361.27      6,176
     (0.59)          --          --       0.23      10.09     8.65    361.27      1,868
     (0.64)          --       (0.08)     (0.15)      9.85     5.98    414.20     72,061
     (0.41)          --          --      (0.07)      9.84     3.56d   414.20        702
     (0.38)          --          --       0.09       9.86     4.90d   414.20        381
     (0.64)          --          --       0.76      10.00    15.72    382.26     55,502
     (0.46)          --          --      (0.76)      9.24    (3.00)d  285.25     24,508
----------------------------------------------------------------------------------------

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APPENDIX B

                                                           RATIOS ASSUMING NO
                                                           VOLUNTARY WAIVER OF
                                                                  FEES
                                                               OR EXPENSE
                                                               LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  0.74%      5.58%      1.21%      5.11%
  1998-Class B Shares                  1.49       4.82       1.75       4.56
  1998-Class C Shares                  1.49       4.81       1.75       4.55
  1998-Institutional Shares            0.46       5.95       0.72       5.69
  1998-Administration Shares           0.71       5.70       0.97       5.44
  1998-Service Shares                  0.96       5.44       1.22       5.18
  1997-Class A Shares (commenced
   May 1)                              0.70c      6.13c      1.33c      5.50c
  1997-Class B Shares (commenced
   May 1)                              1.45c      5.28c      1.83c      4.90c
  1997-Class C Shares (commenced
   August 15)                          1.45c      4.84c      1.83c      4.46c
  1997-Institutional Shares            0.45       6.53       0.83       6.15
  1997-Administration Shares           0.70       6.27       1.08       5.89
  1997-Service Shares                  0.95       6.00       1.33       5.62
  1996-Institutional Shares            0.45       6.51       0.83       6.13
  1996-Administrative Shares
     (commenced February 28)           0.70c      6.41c      1.08c      6.03c
  1996-Service Shares (commenced
   March 13)                           0.95c      6.37c      1.33c      5.99c
  1995-Institutional Shares            0.45       6.56       0.96       6.05
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares
   (commenced January 5)               0.45c      6.48c      1.46c      5.47c
-------------------------------------------------------------------------------

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                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONS/A/
                                                               NET REALIZED
                                                              AND UNREALIZED
                                                              GAIN (LOSS) ON
                                                                INVESTMENT,
                                                              OPTION, FUTURES
                                         NET ASSET              AND FOREIGN
                                          VALUE,      NET        CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME    TRANSACTIONS
-----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares                     $15.10     $0.72f       $0.90f
1998 - Class B Shares                      15.08      0.63f        0.92f
1998 - Class C Shares                      15.06      0.63f        0.91f
1998 - Institutional Shares                15.09      0.82f        0.90f
1998 - Service Shares                      15.09      0.74f        0.91f
1997 - Class A shares                      14.53       0.59         0.77
1997 - Class B shares                      14.53       0.72         0.56
1997 - Class C shares (commenced August
 15)                                       14.80       0.16         0.29
1997 - Institutional Shares                14.52       0.88         0.56
1997 - Service Shares (commenced March
 12)                                       14.69       0.53         0.39
1996 - Class A shares                      14.45       0.71         0.80
1996 - Class B shares (commenced May 1)    14.03       0.34         0.52
1996 - Institutional shares                14.45       1.15         0.42
1995 - Class A shares                      13.43       0.89         1.07
1995 - Institutional shares
   (commenced August 1)                    14.09       0.22         0.40
1994 - Class A shares                      15.07       0.84        (1.49)
-----------------------------------------------------------------------------

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APPENDIX B

   DISTRIBUTIONS TO SHAREHOLDERS
                           FROM
                       NET REALIZED
                         GAIN ON                 NET
            IN EXCESS  INVESTMENT,            INCREASE   NET ASSET                   NET ASSETS
 FROM NET     OF NET    OPTION AND   FROM    (DECREASE)   VALUE,           PORTFOLIO AT END OF
INVESTMENT  INVESTMENT   FUTURES    PAID IN    IN NET     END OF    TOTAL  TURNOVER    PERIOD
  INCOME      INCOME   TRANSACTIONS CAPITAL  ASSET VALUE  PERIOD   RETURNB   RATE    (IN 000S)
-----------------------------------------------------------------------------------------------
  $(1.01)      $--        $(0.06)   $   --      $0.55     $15.65    11.21%  229.91%   $217,362
   (0.94)       --         (0.06)       --       0.55      15.63    10.66   229.91       8,135
   (0.94)       --         (0.06)       --       0.54      15.60    10.65   229.91       4,090
   (1.11)       --         (0.06)       --       0.55      15.64    11.95   229.91     178,532
   (1.04)       --         (0.06)       --       0.55      15.64    11.43   229.91       1,058
   (0.79)       --            --        --       0.57      15.10     9.66   383.72     167,096
   (0.73)       --            --        --       0.55      15.08     9.04   383.72       3,465
   (0.19)       --            --        --       0.26      15.06     3.03d  383.72         496
   (0.87)       --            --        --       0.57      15.09    10.26   383.72      60,929
   (0.52)       --            --        --       0.40      15.09     6.42d  383.72         151
   (1.43)       --            --        --       0.08      14.53    11.05   232.15     198,665
   (0.36)       --            --        --       0.50      14.53     6.24d  232.15         256
   (1.50)       --            --        --       0.07      14.52    11.55   232.15      54,254
   (0.94)       --            --        --       1.02      14.45    15.08   265.86     245,835
   (0.26)       --            --        --       0.36      14.45     4.42d  265.86      31,619
   (0.22)       --         (0.16)    (0.61)     (1.64)     13.43    (4.49)  343.74     396,584
-----------------------------------------------------------------------------------------------

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                                                       RATIOS ASSUMING NO
                                                    VOLUNTARY WAIVER OF FEES
                                                     OR EXPENSE LIMITATIONS
                                       RATIO OF NET                  RATIO OF NET
                            RATIO OF    INVESTMENT   RATIO OF         INVESTMENT
                          NET EXPENSES    INCOME     EXPENSES           INCOME
                           TO AVERAGE   TO AVERAGE  TO AVERAGE        TO AVERAGE
                           NET ASSETS   NET ASSETS  NET ASSETS        NET ASSETS
--------------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares       1.31%        4.71%               1.75%             4.27%
  1998 - Class B Shares       1.83         4.19                2.24              3.78
  1998 - Class C Shares       1.83         4.20                2.24              3.79
  1998 - Institutional
   Shares                     0.66         5.40                1.07              4.99
  1998 - Service Shares       1.16         4.92                1.57              4.51
  1997 - Class A shares       1.17         5.19                1.60              4.76
  1997 - Class B shares       1.71         4.76                2.10              4.37
  1997 - Class C shares
   (commenced August 15)      1.71c        4.98c               2.10c             4.59c
  1997 - Institutional
   Shares                     0.65         5.72                1.04              5.33
  1997 - Service Shares
   (commenced March 12)       1.15c        5.33c               1.54c             4.94c
  1996 - Class A shares       1.16         5.81                1.64              5.33
  1996 - Class B shares
   (commenced May 1)          1.70c        5.16c               2.14c             4.72c
  1996 - Institutional
   shares                     0.65         6.35                1.11              5.89
  1995 - Class A shares       1.29         6.23                1.58              5.94
  1995 - Institutional
     shares
     (commenced August
     1)                       0.65c        6.01c               1.08c             5.58c
  1994 - Class A shares       1.28         5.73                1.53              5.48
--------------------------------------------------------------------------------------

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                                               INCOME (LOSS) FROM INVESTMENT
                                                        OPERATIONS/A/
                                                             NET REALIZED
                                                            AND UNREALIZED
                                    NET ASSET               GAIN (LOSS) ON
                                     VALUE,      NET        INVESTMENT AND
                                    BEGINNING INVESTMENT   FOREIGN CURRENCY
                                    OF PERIOD   INCOME   RELATED TRANSACTIONS
-----------------------------------------------------------------------------
  FOR THE YEAR ENDED OCTOBER 31,
  1998 - Class A Shares              $ 9.97     $0.82           $(0.85)
  1998 - Class B Shares                9.97      0.75            (0.86)
  1998 - Class C Shares                9.97      0.75            (0.86)
  1998 - Institutional Shares          9.97      0.84            (0.83)
  1998 - Service Shares                9.97      0.80            (0.84)
  FOR THE PERIOD ENDED OCTOBER 31,
  1997 - Class A Shares (commenced
   August 1)                          10.00      0.17            (0.02)
  1997 - Class B Shares (commenced
   August 1)                          10.00      0.15            (0.02)
  1997 - Class C Shares (commenced
   August 15)                          9.97      0.14             0.01
  1997 - Institutional Shares
      (commenced August 1)            10.00      0.18            (0.02)
  1997 - Service Shares (commenced
   August 1)                          10.00      0.17            (0.02)
-----------------------------------------------------------------------------

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APPENDIX B

    DISTRIBUTIONS TO SHAREHOLDERS
                              FROM
     FROM      IN EXCESS  NET REALIZED NET INCREASE                               NET ASSETS
     NET         OF NET     GAIN ON     (DECREASE)  NET ASSET           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  INVESTMENT     IN NET    VALUE, END  TOTAL   TURNOVER    PERIOD
    INCOME       INCOME   TRANSACTIONS ASSET VALUE  OF PERIOD  RETURNB    RATE    (IN 000S)
--------------------------------------------------------------------------------------------
    $(0.78)      $   --       $--         $(0.81)     $9.16     (0.70)%  113.44%   $401,626
     (0.70)          --        --          (0.81)      9.16     (1.43)   113.44      29,256
     (0.70)          --        --          (0.81)      9.16     (1.43)   113.44       8,532
     (0.81)          --        --          (0.80)      9.17     (0.32)   113.44      97,547
     (0.76)          --        --          (0.80)      9.17     (0.79)   113.44         447
     (0.17)       (0.01)       --          (0.03)      9.97      1.50d    44.80d    325,911
     (0.15)       (0.01)       --          (0.03)      9.97      1.31d    44.80d     10,308
     (0.14)       (0.01)       --             --       9.97      1.46d    44.80d      1,791
     (0.18)       (0.01)       --          (0.03)      9.97      1.58d    44.80d          2
     (0.17)       (0.01)       --          (0.03)      9.97      1.46d    44.80d          2
--------------------------------------------------------------------------------------------

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                                                            RATIOS ASSUMING
                                                      NO VOLUNTARY WAIVER OF FEES
                                                         OR EXPENSE LIMITATIONS

                                          RATIO OF                          RATIO OF
                            RATIO OF   NET INVESTMENT   RATIO OF         NET INVESTMENT
                          NET EXPENSES     INCOME     EXPENSES TO            INCOME
                           TO AVERAGE    TO AVERAGE     AVERAGE            TO AVERAGE
                           NET ASSETS    NET ASSETS    NET ASSETS          NET ASSETS
--------------------------------------------------------------------------------------------
  FOR THE YEAR ENDED
   OCTOBER 31,
  1998 - Class A Shares       1.09%         8.25%                 1.36%                7.98%
  1998 - Class B Shares       1.84          7.61                  1.88                 7.57
  1998 - Class C Shares       1.84          7.61                  1.88                 7.57
  1998 - Institutional
   Shares                     0.84          9.47                  0.88                 9.43
  1998 - Service Shares       1.34          9.17                  1.38                 9.13
  FOR THE PERIOD ENDED
   OCTOBER 31,
  1997 - Class A Shares
   (commenced August 1)       0.95c         7.06c                 1.57c                6.44c
  1997 - Class B Shares
   (commenced August 1)       1.70c         6.28c                 2.07c                5.91c
  1997 - Class C Shares
   (commenced August 15)      1.70c         6.17c                 2.07c                5.80c
  1997 - Institutional
      Shares
      (commenced August
      1)                      0.70c         7.16c                 1.07c                6.79c
  1997 - Service Shares
   (commenced August 1)       1.20c         6.69c                 1.57c                6.32c
--------------------------------------------------------------------------------------------

30-R

APPENDIX B

a Includes the balancing effect of calculating per share amounts. b Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of period and no sales charge. Total return would be reduced if a sales charge for Class A shares were taken into account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions. f Calculated based on the average shares outstanding methodology. g Short Duration Government Fund Administration Shares commenced activity on April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.

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Fixed Income Funds
Prospectus (Service Shares)

FOR MORE INFORMATION

Annual/Semiannual Report
Additional information about the Funds' investments is available in the Funds' annual and semiannual reports to shareholders. In the Funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during its last fiscal year.

Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS

The Funds will be subject to the risks associated with fixed-income securi- ties. These risks include interest rate risk, credit risk and call/extension risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that the issuer could default on its obligations and a Fund will not recover its investment. Call risk and extension risk are normally present in adjustable rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed securities. For example, homeowners have the option to prepay their mort- gages. Therefore, the duration of a security backed by home mortgages can either shorten (call risk) or lengthen (extension risk). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.

The Funds may, as described in this Prospectus, invest in (a) derivative instruments, (b) foreign securities, (c) municipal securities, (d) illiquid securities and (e) temporary cash investments. These investments will pres- ent additional risks as described further below.

In addition, the Funds are subject to certain fundamental investment restrictions that are described in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund as defined in the Additional Statement. Each Fund's investment objectives and all policies not specifi- cally designated as fundamental are non-fundamental and may be changed with- out shareholder approval. If there is a change in a Fund's investment objec- tive, shareholders should consider whether that Fund remains an appropriate investment in light of their then current financial positions and needs.

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The Investment Adviser will not consider the portfolio turnover rate a lim- iting factor in making investment decisions for a Fund. A high rate of port- folio turnover (100% or more) involves correspondingly greater expenses which must be borne by a Fund and its shareholders. See "Financial High- lights" in Appendix B for a statement of the Funds' historical portfolio turnover rates. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of a Fund's portfolio securities, excluding secu- rities having a maturity at the date of purchase of one year or less.

B. OTHER PORTFOLIO RISKS

RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options, futures, options on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities and currency trans- actions involve additional risk of loss that can result from a lack of cor- relation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in secu- rities prices, interest rates or currency prices. Each Fund may also invest in derivative investments for non-hedging purposes (that is, to seek to increase total return), which is considered a speculative practice and pre- sents even greater risk of loss.

Derivative Mortgage-Backed Securities (such as principal-only ("POs"), interest-only ("IOs") or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flow and the market value of these securi- ties. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of slower than anticipated prepayments generally adversely affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced Mortgage-Backed Securities. In addition, par- ticular derivative securities may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magni- fied.

Floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced below market rates if a desig- nated interest rate floats outside of a specified interest rate band or col- lar. Dual index or yield curve floaters are subject to lower prices in the event of an unfavorable change in the spread between two designated interest rates.

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APPENDIX A

RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securi- ties of U.S. issuers. Foreign investments may be affected by changes in cur- rency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency block- age). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the port- folio security. In addition, if the currency in which a Fund receives divi- dends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

The introduction of a single currency, the euro, on January 1, 1999 for par- ticipating nations in the European Economic and Monetary Union ("EMU") pre- sents unique uncertainties, including the legal treatment of certain out- standing financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates for currencies being converted into the euro; the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries such as the United Kingdom and Denmark into the euro and the admission of other non-EMU countries such as Poland, Latvia and Lithuania as members of the EMU may have an impact on the euro. These or other factors, including political and economic risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by the Funds.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such proce- dures have been unable to keep pace with the volume of securities transac- tions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States. Foreign securities markets

3-P

may have substantially less volume than U.S. securities markets and securi- ties of many foreign issuers are less liquid and more volatile than securi- ties of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on divi- dend or interest payments (or, in some cases, capital gains), limitations on the removal of funds or other assets of the Funds, and political or social instability or diplomatic developments which could affect investments in those countries.

Investment in sovereign debt obligations by certain Funds involves risks not present in debt obligations of corporate issuers. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and a Fund may have limited recourse in the event of a default. Periods of economic uncertainty may result in volatility of market prices of sovereign debt, and in turn a Fund's NAV, to a greater extent than the volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's willingness or ability to repay principal and pay inter- est in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availabil- ity of sufficient foreign exchange on the date a payment is due, the rela- tive size of the debt service burden to the economy as a whole, the sover- eign debtor's policy toward international lenders and the political constraints to which a sovereign debtor may be subject.

RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of issuers located in emerging countries. The risks of foreign investment are heightened when the issuer is located in an emerging country.

Many emerging countries may be subject to a substantial degree of economic, political and social instability. Governments of some emerging countries are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other emerging countries have periodi- cally used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffec- tion, among other factors, have also led to social unrest, violence and/or labor unrest in emerging countries. Investing in emerging countries involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested.

A Fund's investment in emerging countries may also be subject to withholding or other taxes, which may be significant and may reduce the return from an investment in such country to the Fund. Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and may

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APPENDIX A

involve a Fund's delivery of securities before receipt of payment for their sale. In addition, significant delays are common in certain markets in reg- istering the transfer of securities. Settlement or registration problems may make it more difficult for a Fund to value its portfolio securities and could cause the Fund to miss attractive investment opportunities, to have a portion of its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities the Fund has delivered or the Fund's inability to complete its contractual obligations.

The small size and inexperience of the securities markets in certain emerg- ing countries and the limited volume of trading in securities in those coun- tries may make a Fund's investments in such countries less liquid and more volatile than investments in countries with more developed securities mar- kets (such as the United States, Japan and most Western European countries).

Many emerging countries have experienced currency devaluations and substan- tial (and, in some cases, extremely high) rates of inflation, which have a negative effect on the economies and securities markets of such emerging countries. Economies in emerging countries generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

A Fund's use of foreign currency management techniques in emerging countries may be limited. Due to the limited market for these instruments in emerging countries, the Investment Adviser does not currently anticipate that a sig- nificant portion of the Funds' currency exposure in emerging countries, if any, will be covered by such instruments.

RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in illiquid securities which cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include:

.Both domestic and foreign securities that are not readily marketable

.Certain municipal leases and participation interests

.Certain stripped Mortgage-Backed Securities

. Repurchase agreements and time deposits with a notice or demand period of more than seven days

.Certain over-the-counter options

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. Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted security, that a restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and, therefore, is liquid

Investing in restricted securities eligible for resale pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the extent that quali- fied institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liq- uid market exists.

C. PORTFOLIO SECURITIES AND TECHNIQUES

This section provides further information on certain types of securities and investment techniques that may be used by the Funds, including their associ- ated risks. Further information is provided in the Additional Statement, which is available upon request.

U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS

U.S. Government Securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or spon- sored enterprises. U.S. Government Securities may be supported by (a) the full faith and credit of the U.S. Treasury (such as the Government National Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as securities of the Student Loan Marketing Association), (c) the discretionary authority of the U.S. government to pur- chase certain obligations of the issuer (such as the Federal National Mort- gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government Securities also include Treasury receipts, zero coupon bonds and other stripped U.S. Government Securities, where the interest and principal compo- nents of stripped U.S. Government Securities are traded independently.

Interest in U.S. Government Securities may be purchased in the form of cus- todial receipts that evidence ownership of future interest payments, princi- pal payments or both on certain notes or bonds issued or guaranteed as to principal and interest by the U.S. government, its agencies, instrumentali- ties, political subdivisions or authorities. For certain securities law pur- poses, custodial receipts are not considered obligations of U.S. government.

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APPENDIX A

MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Mortgage-Backed Securities can be backed by either fixed rate mortgage loans or adjustable rate mortgage loans, and may be issued by either a governmental or non-governmental entity. Privately issued Mortgage- Backed Securities are normally structured with one or more types of "credit enhancement." However, these Mortgage-Backed Securities typically do not have the same credit standing as U.S. government guaranteed Mortgage-Backed Securities.

Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or participation certificates. CMOs provide an investor with a specified interest in the cash flow from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In most cases, payments of principal are applied to the CMO classes in the order of their respective stated maturi- ties, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real prop- erty and other permitted investments.

Mortgaged-Backed Securities also include stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. SMBS are usually structured with two different classes: one that receives 100% of the interest payments and the other that receives 100% of the prin- cipal payments from a pool of mortgage loans. The market value of SMBS con- sisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on SMBS that receive all or most of the interest from mortgage loans are generally higher than pre- vailing market yields on other Mortgage-Backed Securities because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped.

Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to both call risk and extension risk as previously described. Because of these risks, these securities can have significantly greater price and yield vola- tility than with traditional fixed-income securities.

The value of Mortgage-Backed Securities that are structured as pass-through mortgage securities that are collateralized by ARMs are less likely to rise during periods of declining interest rates to the same extent as fixed-rate securities. This is because interest rate declines may result in accelerated prepayments of mortgages

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with the result that proceeds from prepayments will be reinvested at lower interest rates. On the other hand, during periods of rising interest rates, the value of ARMs will lag behind changes in the market rate. ARMs are also typically subject to maximum increases and decreases in the interest rate adjustment which can be made on any one adjustment date, in any one year, or during the life of the security. In the event of dramatic increases or decreases in prevailing market interest rates, the value of a Fund's invest- ments in ARMs may fluctuate more substantially since these limits may pre- vent the security from fully adjusting its interest rate to the prevailing market rates.

ASSET-BACKED SECURITIES

Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset- backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of pre- payments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Asset-backed securities present credit risks that are not presented by Mortgage-Backed Securities. This is because asset- backed securities generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. There is the possibil- ity that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.

MUNICIPAL SECURITIES

Municipal Securities include bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of the states, territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agen- cies or instrumentalities, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from federal alterna- tive minimum tax or from state or local taxes). Because of their tax-exempt status, the yields and market values of Municipal Securities may be more adversely impacted by changes in the tax rates and policies than taxable fixed-income securities.

Municipal Securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Municipal Securities include private activity bonds, municipal

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APPENDIX A

leases, certificates of participation, pre-refunded municipal securities and auction rate securities.

The obligations of the issuer to pay the principal of and interest on a Municipal Security are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other con- ditions, the power or ability of the issuer to pay when due the principal of or interest on a Municipal Security may be materially affected. Municipal lease obligations and certificates of participation are subject to the added risk that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although these obliga- tions may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to recover fully a Fund's original investment.

Municipal Securities may be in the form of a tender option bond, which is a Municipal Security (generally held pursuant to a custodial arrangement) hav- ing a relatively long maturity and bearing interest at a fixed rate substan- tially higher than prevailing short-term, tax-exempt rates. The bond is typ- ically issued with the agreement of a third party, such as a bank, broker- dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the dif- ference between the bond's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. Certain tender option bonds may be illiquid.

In order to enhance the liquidity of Municipal Securities, a Fund may (but is not required to) acquire the right to sell a security to another party at a guaranteed price and date. This right to resell may be referred to as a "standby commitment" or liquidity put, depending on its characteristics. The aggregate price which a Fund pays for securities with standby commitments may be higher than the price which otherwise would be paid for the securi- ties. Standby commitments may not be available or may not be available on satisfactory terms.

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CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES

Corporate debt obligations include bonds, notes, debentures and other obli- gations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. A trust pre- ferred or capital security is a long dated bond (for example, 30 years) with preferred features. The preferred features are that payment of interest can be deferred for a specified period without initiating a default event. The securities are generally senior in claim to standard preferred stock but junior to other bondholders.

Convertible securities are preferred stock or debt obligations that are con- vertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar qual- ity. Convertible securities in which a Fund invests are subject to the same rating criteria as its other investments in fixed-income securities. Con- vertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible secu- rity, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

FOREIGN CURRENCY TRANSACTIONS

A Fund may, to the extent it invests in foreign securities, purchase or sell foreign currencies on a cash basis or through forward contracts. A forward contract involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract. A Fund may engage in foreign currency transactions for hedging purposes and to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, a Fund also may enter into such transactions to seek to increase total return when the Investment Adviser anticipates fluctuation in the value of the foreign currency, but securities denominated or quoted in that currency do not present attractive investment opportunities and are not held in the Fund's portfolio, which is considered a speculative practice. Some Funds may also engage in cross-hedging by using forward contracts in a cur- rency different from that in which the hedged security is denomi-

10-P

APPENDIX A

nated or quoted if the Investment Adviser determines that there is a pattern of correlation between the two currencies. A Fund may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the Investment Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date, based on anticipated changes in the relevant exchange rate.

Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, a Fund's NAV to fluctuate (when the Fund's NAV fluctuates, the value of your shares may go up or down). Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad.

The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments offers less protection against defaults by the other party to such instruments than is available for currency instruments traded on an exchange. Such contracts are subject to the risk that the counterparty to the contract will default on its obli- gations. Since these contracts are not guaranteed by an exchange or clear- inghouse, a default on a contract would deprive a Fund of unrealized prof- its, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price.

STRUCTURED SECURITIES

Structured securities are securities whose value is determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the "Reference") or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. Structured securities may be posi- tively or negatively indexed, so that appreciation of the Reference may pro- duce an increase or decrease in the interest rate or value of the security at maturity. In addition, changes in the interest rates or the value of the security at maturity may be a multiple of changes in the value of the Refer- ence. Consequently, structured securities may entail a greater degree of market risk than other types of fixed-income securities, and may be more volatile, less liquid and more difficult to accurately price than less com- plex securities. Structured securities include, but are not limited to, inverse floating rate debt securities ("inverse floaters"). The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate var- ies by a magnitude that exceeds the magnitude

11-P

of the change in the index rate of interest. The higher the degree of lever- age of an inverse floater, the greater the volatility of its market value.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

These securities are issued at a discount from their face value because interest payments are typically postponed until maturity. Pay-in-kind secu- rities are securities that have interest payable by the delivery of addi- tional securities. The market prices of these securities generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a greater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality.

MORTGAGE DOLLAR ROLLS

A mortgage dollar roll involves the sale by a Fund of securities for deliv- ery in the current month. The Fund simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal and interest paid on the securities sold. However, the Fund benefits to the extent of any difference between (a) the price received for the securities sold and (b) the lower forward price for the future purchase and/or fee income plus the interest earned on the cash proceeds of the securities sold. Unless the ben- efits of a mortgage dollar roll exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the roll, the use of this technique will diminish the Fund's investment performance.

Successful use of mortgage dollar rolls depends upon the Investment Advis- er's ability to predict correctly interest rates and mortgage prepayments. If the Investment Adviser is incorrect in its prediction, a Fund may experi- ence a loss. For financial reporting and tax purposes, the Funds treat mort- gage dollar rolls as two separate transactions: one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing, and do not treat them as borrowings.

OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES

A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instru- ment during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obliga- tion to sell, the underlying instrument

12-P

APPENDIX A

during the option period. Each Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may also, to the extent it invests in foreign securities, purchase and sell (write) put and call options on foreign currencies.

The writing and purchase of options is a highly specialized activity which involves special investment risks. Options may be used for either hedging or cross-hedging purposes, or to seek to increase total return (which is con- sidered a speculative activity). The successful use of options depends in part on the ability of the Investment Adviser to manage future price fluctu- ations and the degree of correlation between the options and securities (or currency) markets. If the Investment Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in a Fund's investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase a Fund's brokerage transaction costs. Options written or purchased by the Funds may be traded on either U.S. or foreign exchanges or over-the-counter. Foreign and over-the-counter options will present greater possibility of loss because of their greater liquidity and credit risks.

YIELD CURVE OPTIONS

Each Fund may enter into options on the yield "spread" or differential between two securities. Such transactions are referred to as "yield curve" options. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.

The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, such options pres- ent a risk of loss even if the yield of one of the underlying securities remains constant, or if the spread moves in a direction or to an extent which was not anticipated.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument or currency at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A futures

13-P

contract may be based on various securities (such as U.S. Government Securi- ties), foreign currencies, securities indices and other financial instru- ments and indices. The Funds may engage in futures transactions on both U.S. and foreign exchanges.

Each Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices or, to the extent a Fund invests in foreign securities, currency exchange rates, or to otherwise manage their term structures and durations in accordance with their investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions for bona fide hedging purposes as defined in regulations of the Commodity Futures Trading Commission or to seek to increase total return to the extent permitted by such regulations. A Fund may not purchase or sell futures contracts or purchase or sell related options to seek to increase total return, except for closing purchase or sale transactions, if immedi- ately thereafter the sum of the amount of initial margin deposits and premi- ums paid on the Fund's outstanding positions in futures and related options entered into for the purpose of seeking to increase total return would exceed 5% of the market value of the Fund's net assets. Future contracts and related options present the following risks:

.While a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.

.Because perfect correlation between a futures position and portfolio posi- tion that is intended to be protected is impossible to achieve, the desired protection may not be obtained and a Fund may be exposed to additional risk of loss.

.The loss incurred by a Fund in entering into futures contracts and in writ- ing call options on futures is potentially unlimited and may exceed the amount of the premium received.

.Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's NAV.

.As a result of the low margin deposits normally required in futures trad- ing, a relatively small price movement in a futures contract may result in substantial losses to a Fund.

.Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.

14-P

APPENDIX A

.Foreign exchanges may not provide the same protection as U.S. exchanges.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.

When-issued securities are securities that have been authorized but not yet issued. When-issued securities are purchased in order to secure what is con- sidered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

A forward commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settle- ment period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, securities sold on a for- ward commitment basis involves the risk that the value of the securities to be sold may increase before the settlement date. Although a Fund will gener- ally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate to do so.

LENDING OF PORTFOLIO SECURITIES

Securities lending involves the lending of securities owned by a Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loans continuously with cash, cash equivalents or U.S. Government Securities in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equiva- lents. If the Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 33 1/3% of the value of the total assets of a Fund (including the loan collateral).

A Fund may lend its securities to increase its income. A Fund may, however, experience a delay in the recovery of its securities or possible loss if the institution with which it has engaged in a securities lending transaction breaches its agreement with the Fund.

REPURCHASE AGREEMENTS

Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase them at a mutually agreed upon date and price. Each Fund may enter into repurchase agreements with dealers in U.S. Government Securities and member banks of the Federal Reserve System which furnish collateral at least equal in value or market price to the amount of their repurchase obligation. Some Funds may also enter into repurchase agreements involving certain foreign government securities.

15-P

If the other party or "seller" defaults, a Fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund in connection with the repurchase agree- ment are less than the repurchase price and the cost of the Fund associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer other losses if a court determines that the Fund's interest in the collateral is not enforce- able.

BORROWINGS AND REVERSE REPURCHASE AGREEMENTS

The Funds can borrow money from banks and enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. Reverse repurchase agreements involve the sale of securities held by a Fund subject to the Fund's agree- ment to repurchase them at a mutually agreed upon date and price (including interest). These transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agree- ments may also be entered into when the Investment Adviser expects that the interest income to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Borrowings and reverse repurchase agreements involve leveraging. If the securities held by a Fund decline in value while these transactions are outstanding, the NAV of the Fund's outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the interest income earned by a Fund (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by a Fund will decline below the price the Fund is obligated to pay to repurchase the secu- rities, and that the securities may not be returned to the Fund.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS

Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments. Mortgage swaps are simi- lar to interest rate swaps in that they represent commitments to pay and receive interest. The notional principal amount, however, is tied to a ref- erence pool or pools of mortgages. Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses of an underlying security. Credit swaps give one party to a transac- tion the right to dispose of or acquire an asset (or group of assets), or the right to receive or make a payment from the other party, upon the occur- rence of specified credit events. Currency swaps involve the exchange of the parties' respective rights to make or receive payments in specified

16-P

APPENDIX A

currencies. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor enti- tles the purchaser, to the extent that a specified index falls below a pre- determined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates.

Each Fund may enter into swap transactions for hedging purposes or to seek to increase total return. The use of interest rate, mortgage, credit and currency swaps, as well as interest rate caps, floors and collars, is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transac- tions. If the Investment Adviser is incorrect in its forecasts of market value, interest rates and currency exchange rates, the investment perfor- mance of a Fund would be less favorable than it would have been if these investment techniques were not used.

INVERSE FLOATING RATE DEBT SECURITIES ("INVERSE FLOATERS")

The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund may, with respect to no more than 5% of its net assets, invest in other investment companies.

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                                                         INCOME (LOSS) FROM
                                                       INVESTMENT OPERATIONS/A/
                                                                  NET REALIZED
                                                                 AND UNREALIZED
                                                                  GAIN (LOSS)
                                            NET ASSET            ON INVESTMENT,
                                            VALUE AT     NET       OPTION AND
                                            BEGINNING INVESTMENT    FUTURES
                                            OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                        $ 9.88     $0.53        $(0.17)
  1998-Institutional Shares                    9.88      0.55         (0.16)
  1998-Administration Shares                   9.88      0.53         (0.16)
  1998-Service Shares                          9.88      0.51         (0.16)
  1997-Class A Shares                          9.83      0.57f         0.05f
  1997-Institutional Shares                    9.83      0.59f         0.05f
  1997-Administration Shares                   9.83      0.57f         0.05f
  1997-Service Shares (commenced March 27)     9.84      0.33f         0.04f
  1996-Class A Shares                          9.77      0.55f         0.08f
  1996-Institutional Shares                    9.77      0.57f         0.08f
  1996-Administration Shares                   9.77      0.55f         0.08f
  1995-Class A Shares (commenced May 15)       9.79      0.27f        (0.01)f
  1995-Institutional Shares                    9.74      0.56f         0.07f
  1995-Administration Shares                   9.74      0.54f         0.07f
  1994-Institutional Shares                   10.00      0.43f        (0.24)f
  1994-Administration Shares                  10.00      0.42f        (0.26)f
-------------------------------------------------------------------------------

                  DISTRIBUTIONS TO SHAREHOLDERS

                             FROM NET       NET                                    NET
                          REALIZED GAIN   INCREASE                               ASSETS
               IN EXCESS  ON INVESTMENT, (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET       OPTION       IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT  AND FUTURES     ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS    VALUE     PERIOD   RETURNB   RATEE   (IN 000S)
-----------------------------------------------------------------------------------------
    $(0.53)      $(0.02)       $--         $(0.19)    $9.69    3.71%    33.64%  $ 60,782
     (0.55)       (0.02)        --          (0.18)     9.70    4.09     33.64    441,228
     (0.53)       (0.02)        --          (0.18)     9.70    3.83     33.64      5,999
     (0.51)       (0.02)        --          (0.18)     9.70    3.57     33.64        822
     (0.57)          --         --           0.05      9.88    6.43     46.58     43,393
     (0.59)          --         --           0.05      9.88    6.70     46.58    463,511
     (0.57)          --         --           0.05      9.88    6.43     46.58      2,793
     (0.33)          --         --           0.04      9.88    3.81d    46.58        346
     (0.55)       (0.02)        --           0.06      9.83    6.60     52.36     10,728
     (0.57)       (0.02)        --           0.06      9.83    6.86     52.36    613,149
     (0.55)       (0.02)        --           0.06      9.83    6.60     52.36      3,792
     (0.27)       (0.01)        --          (0.02)     9.77    2.74d    24.12     15,203
     (0.57)       (0.03)        --           0.03      9.77    6.75     24.12    657,358
     (0.55)       (0.03)        --           0.03      9.77    6.48     24.12      3,572
     (0.45)          --         --          (0.26)     9.74    1.88     37.81    942,523
     (0.42)          --         --          (0.26)     9.74    1.63     37.81      6,960
-----------------------------------------------------------------------------------------

                                                            RATIOS ASSUMING
                                                          NO VOLUNTARY WAIVER
                                                              OF FEES OR
                                                          EXPENSE LIMITATIONS

                                               RATIO OF              RATIO OF
                                    RATIO OF     NET                   NET
                                      NET     INVESTMENT  RATIO OF  INVESTMENT
                                    EXPENSES    INCOME    EXPENSES    INCOME
                                   TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                   NET ASSETS NET ASSETS NET ASSETS NET ASSETS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                 0.80%      5.40%      1.02%      5.18%
  1998-Institutional Shares           0.53       5.63       0.53       5.63
  1998-Administration Shares          0.78       5.33       0.78       5.33
  1998-Service Shares                 1.03       5.09       1.03       5.09
  1997-Class A Shares                 0.74       5.60       1.02       5.32
  1997-Institutional Shares           0.49       5.99       0.52       5.96
  1997-Administration Shares          0.74       5.73       0.77       5.70
  1997-Service Shares (commenced
   March 27)                          1.05c      5.64c      1.08c      5.61c
  1996-Class A Shares                 0.70       5.59       1.01       5.28
  1996-Institutional Shares           0.45       5.85       0.51       5.79
  1996-Administration Shares          0.70       5.59       0.76       5.53
  1995-Class A Shares (commenced
   May 15)                            0.69c      5.87c      1.01c      5.55c
  1995-Institutional Shares           0.46       5.77       0.53       5.70
  1995-Administration Shares          0.71       5.50       0.78       5.43
  1994-Institutional Shares           0.46       4.38       0.49       4.35
  1994-Administration Shares          0.71       4.27       0.74       4.24
------------------------------------------------------------------------------

                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONSA
                                                               NET REALIZED
                                                              AND UNREALIZED
                                       NET ASSET              GAIN (LOSS) ON
                                       VALUE AT     NET     INVESTMENT,  OPTION
                                       BEGINNING INVESTMENT     AND FUTURES
                                       OF PERIOD   INCOME      TRANSACTIONS
-------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1998-Class A Shares                     $ 9.88     $0.57          $ 0.04
1998-Class B Shares                       9.86      0.51            0.03
1998-Class C Shares                       9.86      0.49            0.03
1998-Institutional Shares                 9.86      0.58            0.06
1998-Administration Shares                9.89      0.55            0.05
1998-Service Shares                       9.86      0.55            0.04
1997-Class A Shares (commenced May 1)     9.78      0.31f           0.09f
1997-Class B Shares (commenced May 1)     9.75      0.28f          0.10f
1997-Class C Shares (commenced August
 15)                                      9.83      0.12f           0.02f
1997-Institutional Shares                 9.83      0.64f           0.03f
1997-Administration Shares                9.85      0.62f           0.04f
1997-Service Shares                       9.82      0.59f           0.04f
1996-Institutional Shares                 9.82      0.63f           0.01f
1996-Administration Sharesg               9.86      0.38f             --f
1996-Service Shares (commenced April
 10)                                      9.72      0.31f           0.10f
1995-Institutional Shares                 9.64      0.66f           0.17f
1995-Administration Sharesg               9.64      0.24f          (0.04)f
1994-Institutional Shares                10.14      0.56f          (0.46)f
1994-Administration Shares               10.14      0.53f          (0.45)f
-------------------------------------------------------------------------------

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET
               IN EXCESS  ON INVESTMENT,  INCREASE   NET ASSET                   NET ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)   VALUE,           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET     END OF    TOTAL  TURNOVER    PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE  PERIOD   RETURNB   RATEE   (IN 000S)
-------------------------------------------------------------------------------------------
    $(0.58)       $--         $   --       $ 0.03      $9.91    6.36%   119.89%   $ 56,725
     (0.52)        --             --         0.02       9.88    5.62    119.89       5,025
     (0.50)        --             --         0.02       9.88    5.46    119.89       4,527
     (0.60)        --             --         0.04       9.90    6.75    119.89     145,514
     (0.58)        --             --         0.02       9.91    6.27    119.89       7,357
     (0.56)        --             --         0.03       9.89    6.12    119.89       6,232
     (0.30)        --             --         0.10       9.88    4.14d   102.58       9,491
     (0.27)        --             --         0.11       9.86    3.94d   102.58         747
     (0.11)        --             --         0.03       9.86    1.44d   102.58         190
     (0.64)        --             --         0.03       9.86    7.07    102.58     103,729
     (0.62)        --             --         0.04       9.89    6.91    102.58       1,060
     (0.59)        --             --         0.04       9.86    6.63    102.58       3,337
     (0.63)        --             --         0.01       9.83    6.75    115.45      99,944
     (0.39)        --             --        (0.01)      9.85    4.00d   115.45         252
     (0.31)        --             --         0.10       9.82    4.35d   115.45       1,822
     (0.65)        --             --         0.18       9.82    8.97    292.56     103,760
     (0.21)        --             --        (0.01)      9.63    2.10d   292.56          --
     (0.56)        --          (0.04)       (0.50)      9.64    0.99    289.79     193,095
     (0.54)        --          (0.04)       (0.50)      9.64    0.73    289.79         730
-------------------------------------------------------------------------------------------

                                                          RATIOS ASSUMING NO
                                                          VOLUNTARY WAIVER OF
                                                            FEES OR EXPENSE
                                                              LIMITATIONS
                                           RATIO OF NET            RATIO OF NET
                              RATIO OF NET  INVESTMENT   RATIO OF   INVESTMENT
                                EXPENSES      INCOME     EXPENSES     INCOME
                               TO AVERAGE   TO AVERAGE  TO AVERAGE  TO AVERAGE
                               NET ASSETS   NET ASSETS  NET ASSETS  NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998-Class A Shares             0.81%        5.68%       1.32%       5.17%
  1998-Class B Shares             1.41         5.12        1.87        4.66
  1998-Class C Shares             1.56         4.64        1.87        4.33
  1998-Institutional Shares       0.53         6.06        0.84        5.75
  1998-Administration Shares      0.78         5.76        1.09        5.45
  1998-Service Shares             1.03         5.56        1.34        5.25
  1997-Class A Shares
   (commenced May 1)              0.70c        6.05c       1.32c       5.43c
  1997-Class B Shares
   (commenced May 1)              1.30c        5.52c       1.82c       5.00c
  1997-Class C Shares
   (commenced May 15)             1.45c        5.52c       1.82c       5.15c
  1997-Institutional Shares       0.45         6.43        0.82        6.06
  1997-Administration Shares      0.70         6.19        1.07        5.82
  1997-Service Shares             0.95         5.92        1.32        5.55
  1996-Institutional Shares       0.45         6.44        0.71        6.18
  1996-Administration
   Sharesg                        0.70c        5.97c       0.96c       5.71c
  1996-Service Shares
   (commenced April 10)           0.95c        6.05c       1.21c       5.79c
  1995-Institutional Shares       0.45         6.87        0.72        6.60
  1995-Administration
   Sharesg                        0.70c        7.91c       0.90c       7.71c
  1994-Institutional Shares       0.45         5.69        0.59        5.55
  1994-Administration Shares      0.70         5.38        0.84        5.24
-------------------------------------------------------------------------------

                                                    INCOME (LOSS) FROM
                                                  INVESTMENT OPERATIONSN
                                                         NET REALIZED
                                                        AND UNREALIZED
                                                        GAIN (LOSS) ON
                                   NET ASSET             INVESTMENT,
                                    VALUE,      NET       OPTION AND
                                   BEGINNING INVESTMENT    FUTURES
                                   OF PERIOD  INCOMEE   TRANSACTIONSE
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares               $10.08     $0.36        $0.13
  1998-Class B Shares                10.08      0.30         0.12
  1998-Class C Shares                10.07      0.28         0.14
  1998-Institutional Shares          10.07      0.39         0.13
  1998-Administration Shares         10.07      0.36         0.13
  1998-Service Shares                10.07      0.34         0.13
  1997-Class A Shares (commenced
   May 1)                             9.94      0.20         0.14
  1997-Class B Shares (commenced
   May 1)                             9.94      0.16         0.14
  1997-Class C Shares (commenced
   August 15)                        10.04      0.07         0.03
  1997-Institutional Shares           9.96      0.42         0.11
  1997-Administration Shares          9.96      0.39         0.11
  1997-Service Shares                 9.97      0.37         0.10
  1996-Institutional Shares           9.94      0.42         0.02
  1996-Administration Shares          9.94      0.39         0.02
  1996-Service Shares                 9.95      0.37         0.02
  1995-Institutional Shares           9.79      0.42         0.15
  1995-Administration Shares          9.79      0.40         0.15
  1995-Service Shares                 9.79      0.37         0.16
  1994-Institutional Shares          10.23      0.38        (0.36)
  1994-Administration Shares         10.23      0.35        (0.36)
  1994-Service Shares (commenced
   September 20)                      9.86      0.05        (0.07)
------------------------------------------------------------------------------

     DISTRIBUTIONS TO SHAREHOLDERS

                            FROM NET
                          REALIZED GAIN     NET                                     NET
               IN EXCESS  ON INVESTMENT  INCREASE   NET ASSET                     ASSETS
   FROM NET      OF NET      OPTION     (DECREASE)   VALUE,            PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES    IN NET     AT END    TOTAL   TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS  ASSET VALUE OF PERIOD RETURNB    RATE    (IN 000S)
------------------------------------------------------------------------------------------
    $(0.38)        --        $   --       $ 0.11     $10.19    4.97%    140.72%   $19.881
     (0.32)        --            --         0.10      10.18     4.25    140.72        974
     (0.31)        --            --         0.11      10.18     4.19    140.72      2,256
     (0.41)        --            --         0.11      10.18     5.25    140.72     57,647
     (0.38)        --            --         0.11      10.18     4.99    140.72        525
     (0.36)        --            --         0.11      10.18     4.73    140.72      2,560
     (0.20)        --            --         0.14      10.08     3.39d   194.75      4,023
     (0.16)        --            --         0.14      10.08     3.07d   194.75        106
     (0.07)        --            --         0.03      10.07     0.97d   194.75          2
     (0.42)        --            --         0.11      10.07     5.40    194.75     28,821
     (0.39)        --            --         0.11      10.07     5.14    194.75         77
     (0.37)        --            --         0.10      10.07     4.77    194.75      2,051
     (0.42)        --            --         0.02       9.96     4.50    231.65     34,814
     (0.39)        --            --         0.02       9.96     4.24    231.65         48
     (0.37)        --            --         0.02       9.97     3.98    231.65        695
     (0.42)        --            --         0.15       9.94     5.98    259.52     53,389
     (0.40)        --            --         0.15       9.94     5.76    259.52         46
     (0.37)        --            --         0.16       9.95     5.59    259.52        454
     (0.38)        --         (0.08)       (0.44)      9.79     0.17    354.00     83,704
     (0.35)        --         (0.08)       (0.44)      9.79    (0.11)   354.00      3,866
     (0.05)        --            --        (0.07)      9.79    (0.32)d  354.00        440
------------------------------------------------------------------------------------------

                                                          RATIOS ASSUMING NO
                                                         VOLUNTARY WAIVER OF
                                                           FEES OR EXPENSE
                                                             LIMITATIONS
                               RATIO OF   RATIO OF NET             RATIO OF NET
                                  NET      INVESTMENT   RATIO OF    INVESTMENT
                              EXPENSES TO  INCOME TO   EXPENSES TO  INCOME TO
                                AVERAGE     AVERAGE      AVERAGE     AVERAGE
                              NET ASSETS   NET ASSETS  NET ASSETS   NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998-Class A Shares            0.71%        3.54%       1.74%        2.51%
  1998-Class B Shares            1.31         3.06        2.27         2.10
  1998-Class C Shares            1.46         2.82        2.27         2.01
  1998-Institutional Shares      0.45         3.92        1.26         3.11
  1998-Administration Shares     0.70         3.58        1.51         2.77
  1998-Service Shares            0.95         3.44        1.76         2.63
  1997-Class A Shares
   (commenced May 1)             0.70c        3.81c       1.73c        2.78c
  1997-Class B Shares
   (commenced May 1)             1.30c        3.31c       2.23c        2.38c
  1997-Class C Shares
   (commenced August 15)         1.45c        2.60c       2.23c        1.82c
  1997-Institutional Shares      0.45         4.18        1.23         3.40
  1997-Administration Shares     0.70         3.91        1.48         3.13
  1997-Service Shares            0.95         3.66        1.73         2.88
  1996-Institutional Shares      0.45         4.21        1.01         3.65
  1996-Administration Shares     0.70         3.96        1.26         3.40
  1996-Service Shares            0.95         3.74        1.51         3.18
  1995-Institutional Shares      0.45         4.31        0.77         3.99
  1995-Administration Shares     0.70         4.14        1.02         3.82
  1995-Service Shares            0.95         3.87        1.27         3.55
  1994-Institutional Shares      0.45         3.74        0.61         3.58
  1994-Administration Shares     0.70         3.51        0.86         3.35
  1994-Service Shares
   (commenced September 20)      0.95c        4.30c       1.11c        4.14c
-------------------------------------------------------------------------------

                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONSA
                                                                NET REALIZED
                                                               AND UNREALIZED
                                                               GAIN (LOSS) ON
                                                                INVESTMENT,
                                                                  OPTION,
                                         NET ASSET              FUTURES AND
                                         VALUE AT     NET     FOREIGN CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME     TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                     $10.06     $0.59         $ 0.27
  1998-Class B Shares                      10.09      0.52           0.27
  1998-Class C Shares                      10.09      0.90           0.27
  1998-Institutional Shares                10.08      1.08           0.29
  1998-Administration Shares               10.07      0.57           0.29
  1998-Service Shares                      10.09      0.99           0.27
  1997-Class A Shares (commenced May 1)     9.70      0.30           0.36
  1997-Class B Shares (commenced May 1)     9.72      0.27           0.37
  1997-Class C Shares (commenced August
   15)                                      9.93      0.11           0.16
  1997-Institutional Shares                 9.85      0.64           0.23
  1997-Administration Shares                9.84      0.62           0.23
  1997-Service Shares                       9.86      0.59           0.23
  1996-Institutional Shares                10.00      0.64          (0.07)
  1996-Administrative Shares (commenced
   February 28)                             9.91      0.41          (0.07)
  1996-Service Shares (commenced March
   13)                                      9.77      0.38           0.09
  1995-Institutional Shares                 9.24      0.64           0.76
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares (commenced
   January 5)                              10.00      0.46          (0.76)
------------------------------------------------------------------------------

    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                     NET
                            GAIN ON     INCREASE                                ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                     AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,            PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL   TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB    RATEE   (IN 000S)
----------------------------------------------------------------------------------------
    $(0.59)      $(0.02)     $(0.06)     $0.19     $10.25     8.76%   271.50%   $56,267
     (0.52)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      7,209
     (0.90)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      5,587
     (1.08)       (0.03)      (0.06)      0.20      10.28     9.15    271.50    195,730
     (0.57)       (0.03)      (0.06)      0.20      10.27     8.88    271.50     12,743
     (0.99)       (0.02)      (0.06)      0.19      10.28     8.50    271.50      5,263
     (0.30)          --          --       0.36      10.06     6.94d   361.27      9,336
     (0.27)          --          --       0.37      10.09     6.63d   361.27        621
     (0.11)          --          --       0.16      10.09     2.74d   361.27        272
     (0.64)          --          --       0.23      10.08     9.19    361.27     79,230
     (0.62)          --          --       0.23      10.07     8.92    361.27      6,176
     (0.59)          --          --       0.23      10.09     8.65    361.27      1,868
     (0.64)          --       (0.08)     (0.15)      9.85     5.98    414.20     72,061
     (0.41)          --          --      (0.07)      9.84     3.56d   414.20        702
     (0.38)          --          --       0.09       9.86     4.90d   414.20        381
     (0.64)          --          --       0.76      10.00    15.72    382.26     55,502
     (0.46)          --          --      (0.76)      9.24    (3.00)d  285.25     24,508
----------------------------------------------------------------------------------------

                                                           RATIOS ASSUMING NO
                                                           VOLUNTARY WAIVER OF
                                                                  FEES
                                                               OR EXPENSE
                                                               LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  0.74%      5.58%      1.31%      5.11%
  1998-Class B Shares                  1.49       4.82       1.75       4.56
  1998-Class C Shares                  1.49       4.81       1.75       4.55
  1998-Institutional Shares            0.46       5.95       0.72       5.69
  1998-Administration Shares           0.71       5.70       0.97       5.44
  1998-Service Shares                  0.96       5.44       1.22       5.18
  1997-Class A Shares (commenced
   May 1)                              0.70c      6.13c      1.33c      5.50c
  1997-Class B Shares (commenced
   May 1)                              1.45c      5.28c      1.83c      4.90c
  1997-Class C Shares (commenced
   August 15)                          1.45c      4.84c      1.83c      4.46c
  1997-Institutional Shares            0.45       6.53       0.83       6.15
  1997-Administration Shares           0.70       6.27       1.08       5.89
  1997-Service Shares                  0.95       6.00       1.33       5.62
  1996-Institutional Shares            0.45       6.51       0.83       6.13
  1996-Administrative Shares
   (commenced February 28)             0.70c      6.41c      1.08c      6.03c
  1996-Service Shares (commenced
   March 13)                           0.95c      6.37c      1.33c      5.99c
  1995-Institutional Shares            0.45       6.56       0.96       6.05
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares
   (commenced January 5)               0.45c      6.48c      1.46c      5.47c
-------------------------------------------------------------------------------

Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. GENERAL PORTFOLIO RISKS

The Funds will be subject to the risks associated with fixed-income securi- ties. These risks include interest rate risk, credit risk and call/extension risk. In general, interest rate risk involves the risk that when interest rates decline, the market value of fixed-income securities tends to increase. Conversely, when interest rates increase, the market value of fixed-income securities tends to decline. Credit risk involves the risk that the issuer could default on its obligations and a Fund will not recover its investment. Call risk and extension risk are normally present in adjustable rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed securities. For example, homeowners have the option to prepay their mort- gages. Therefore, the duration of a security backed by home mortgages can either shorten (call risk) or lengthen (extension risk). In general, if interest rates on new mortgage loans fall sufficiently below the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to increase. Conversely, if mortgage loan interest rates rise above the interest rates on existing outstanding mortgage loans, the rate of prepayment would be expected to decrease. In either case, a change in the prepayment rate can result in losses to investors.

The Funds may, as described in this Prospectus, invest in (a) derivative instruments, (b) foreign securities, (c) municipal securities, (d) illiquid securities and (e) temporary cash investments. These investments will pres- ent additional risks as described further below.

In addition, the Funds are subject to certain fundamental investment restrictions that are described in the Additional Statement. Fundamental investment restrictions of a Fund cannot be changed without approval of a majority of the outstanding shares of that Fund as defined in the Additional Statement. Each Fund's investment objectives and all policies not specifi- cally designated as fundamental are non-fundamental and may be changed with- out shareholder approval. If there is a change in a Fund's investment objec- tive, shareholders should consider whether that Fund remains an appropriate investment in light of their then current financial positions and needs.

1-P

The Investment Adviser will not consider the portfolio turnover rate a lim- iting factor in making investment decisions for a Fund. A high rate of port- folio turnover (100% or more) involves correspondingly greater expenses which must be borne by a Fund and its shareholders. See "Financial High- lights" in Appendix B for a statement of the Funds' historical portfolio turnover rates. The portfolio turnover rate is calculated by dividing the lesser of the dollar amount of sales or purchases of portfolio securities by the average monthly value of a Fund's portfolio securities, excluding secu- rities having a maturity at the date of purchase of one year or less.

B. OTHER PORTFOLIO RISKS

RISKS OF DERIVATIVE INVESTMENTS. A Fund's transactions, if any, in options, futures, options on futures, swaps, interest rate caps, floors and collars, structured securities, inverse floating-rate securities and currency trans- actions involve additional risk of loss that can result from a lack of cor- relation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, or the risks arising from margin requirements and related leverage factors associated with such transactions. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in secu- rities prices, interest rates or currency prices. Each Fund may also invest in derivative investments for non-hedging purposes (that is, to seek to increase total return), which is considered a speculative practice and pre- sents even greater risk of loss.

Derivative Mortgage-Backed Securities (such as principal-only ("POs"), interest-only ("IOs") or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flow and the market value of these securi- ties. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of slower than anticipated prepayments generally adversely affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced Mortgage-Backed Securities. In addition, par- ticular derivative securities may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magni- fied.

Floating-rate derivative debt securities can present more complex types of derivative and interest rate risks. For example, range floaters are subject to the risk that the coupon will be reduced below market rates if a desig- nated interest rate floats outside of a specified interest rate band or col- lar. Dual index or yield curve floaters are subject to lower prices in the event of an unfavorable change in the spread between two designated interest rates.

2-P

APPENDIX A

RISKS OF FOREIGN INVESTMENTS. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securi- ties of U.S. issuers. Foreign investments may be affected by changes in cur- rency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and in exchange control regulations (e.g., currency block- age). A decline in the exchange rate of the currency (i.e., weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the port- folio security. In addition, if the currency in which a Fund receives divi- dends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Fund may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

The introduction of a single currency, the euro, on January 1, 1999 for par- ticipating nations in the European Economic and Monetary Union ("EMU") pre- sents unique uncertainties, including the legal treatment of certain out- standing financial contracts after January 1, 1999 that refer to existing currencies rather than the euro; the establishment and maintenance of exchange rates for currencies being converted into the euro; the fluctuation of the euro relative to non-euro currencies during the transition period from January 1, 1999 to December 31, 2000 and beyond; whether the interest rate, tax and labor regimes of European countries participating in the euro will converge over time; and whether the conversion of the currencies of other countries such as the United Kingdom and Denmark into the euro and the admission of other non-EMU countries such as Poland, Latvia and Lithuania as members of the EMU may have an impact on the euro. These or other factors, including political and economic risks, could cause market disruptions before or after the introduction of the euro, and could adversely affect the value of securities held by the Funds.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such proce- dures have been unable to keep pace with the volume of securities transac- tions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States. Foreign securities markets

3-P

may have substantially less volume than U.S. securities markets and securi- ties of many foreign issuers are less liquid and more volatile than securi- ties of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on divi- dend or interest payments (or, in some cases, capital gains), limitations on the removal of funds or other assets of the Funds, and political or social instability or diplomatic developments which could affect investments in those countries.

Investment in sovereign debt obligations by certain Funds involves risks not present in debt obligations of corporate issuers. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and a Fund may have limited recourse in the event of a default. Periods of economic uncertainty may result in volatility of market prices of sovereign debt, and in turn a Fund's NAV, to a greater extent than the volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's willingness or ability to repay principal and pay inter- est in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availabil- ity of sufficient foreign exchange on the date a payment is due, the rela- tive size of the debt service burden to the economy as a whole, the sover- eign debtor's policy toward international lenders and the political constraints to which a sovereign debtor may be subject.

RISKS OF EMERGING COUNTRIES. Certain Funds may invest in securities of issuers located in emerging countries. The risks of foreign investment are heightened when the issuer is located in an emerging country.

Many emerging countries may be subject to a substantial degree of economic, political and social instability. Governments of some emerging countries are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other emerging countries have periodi- cally used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffec- tion, among other factors, have also led to social unrest, violence and/or labor unrest in emerging countries. Investing in emerging countries involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested.

A Fund's investment in emerging countries may also be subject to withholding or other taxes, which may be significant and may reduce the return from an investment in such country to the Fund. Settlement procedures in emerging countries are frequently less developed and reliable than those in the United States and may

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APPENDIX A

involve a Fund's delivery of securities before receipt of payment for their sale. In addition, significant delays are common in certain markets in reg- istering the transfer of securities. Settlement or registration problems may make it more difficult for a Fund to value its portfolio securities and could cause the Fund to miss attractive investment opportunities, to have a portion of its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities the Fund has delivered or the Fund's inability to complete its contractual obligations.

The small size and inexperience of the securities markets in certain emerg- ing countries and the limited volume of trading in securities in those coun- tries may make a Fund's investments in such countries less liquid and more volatile than investments in countries with more developed securities mar- kets (such as the United States, Japan and most Western European countries).

Many emerging countries have experienced currency devaluations and substan- tial (and, in some cases, extremely high) rates of inflation, which have a negative effect on the economies and securities markets of such emerging countries. Economies in emerging countries generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

A Fund's use of foreign currency management techniques in emerging countries may be limited. Due to the limited market for these instruments in emerging countries, the Investment Adviser does not currently anticipate that a sig- nificant portion of the Funds' currency exposure in emerging countries, if any, will be covered by such instruments.

RISK OF ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in illiquid securities which cannot be disposed of in seven days in the ordinary course of business at fair value. Illiquid securities include:

.Both domestic and foreign securities that are not readily marketable

.Certain municipal leases and participation interests

.Certain stripped Mortgage-Backed Securities

. Repurchase agreements and time deposits with a notice or demand period of more than seven days

.Certain over-the-counter options

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. Certain restricted securities, unless it is determined, based upon a review of the trading markets for a specific restricted security, that a restricted security is eligible for resale pursuant to Rule 144A under the Securities Act of 1933 and, therefore, is liquid

Investing in restricted securities eligible for resale pursuant to Rule 144A may decrease the liquidity of a Fund's portfolio to the extent that quali- fied institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liq- uid market exists.

C. PORTFOLIO SECURITIES AND TECHNIQUES

This section provides further information on certain types of securities and investment techniques that may be used by the Funds, including their associ- ated risks. Further information is provided in the Additional Statement, which is available upon request.

U.S. GOVERNMENT SECURITIES AND RELATED CUSTODIAL RECEIPTS

U.S. Government Securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or spon- sored enterprises. U.S. Government Securities may be supported by (a) the full faith and credit of the U.S. Treasury (such as the Government National Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as securities of the Student Loan Marketing Association), (c) the discretionary authority of the U.S. government to pur- chase certain obligations of the issuer (such as the Federal National Mort- gage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the issuer. U.S. Government Securities also include Treasury receipts, zero coupon bonds and other stripped U.S. Government Securities, where the interest and principal compo- nents of stripped U.S. Government Securities are traded independently.

Interest in U.S. Government Securities may be purchased in the form of cus- todial receipts that evidence ownership of future interest payments, princi- pal payments or both on certain notes or bonds issued or guaranteed as to principal and interest by the U.S. government, its agencies, instrumentali- ties, political subdivisions or authorities. For certain securities law pur- poses, custodial receipts are not considered obligations of U.S. government.

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APPENDIX A

MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Mortgage-Backed Securities can be backed by either fixed rate mortgage loans or adjustable rate mortgage loans, and may be issued by either a governmental or non-governmental entity. Privately issued Mortgage- Backed Securities are normally structured with one or more types of "credit enhancement." However, these Mortgage-Backed Securities typically do not have the same credit standing as U.S. government guaranteed Mortgage-Backed Securities.

Mortgage-Backed Securities may include multiple class securities, including collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or participation certificates. CMOs provide an investor with a specified interest in the cash flow from a pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In most cases, payments of principal are applied to the CMO classes in the order of their respective stated maturi- ties, so that no principal payments will be made on a CMO class until all other classes having an earlier stated maturity date are paid in full. A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real prop- erty and other permitted investments.

Mortgaged-Backed Securities also include stripped mortgage-backed securities ("SMBS"), which are derivative multiple class Mortgage-Backed Securities. SMBS are usually structured with two different classes: one that receives 100% of the interest payments and the other that receives 100% of the prin- cipal payments from a pool of mortgage loans. The market value of SMBS con- sisting entirely of principal payments generally is unusually volatile in response to changes in interest rates. The yields on SMBS that receive all or most of the interest from mortgage loans are generally higher than pre- vailing market yields on other Mortgage-Backed Securities because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped.

Mortgage-Backed Securities (including CMOs, REMICs and SMBS) are subject to both call risk and extension risk as previously described. Because of these risks, these securities can have significantly greater price and yield vola- tility than with traditional fixed-income securities.

The value of Mortgage-Backed Securities that are structured as pass-through mortgage securities that are collateralized by ARMs are less likely to rise during periods of declining interest rates to the same extent as fixed-rate securities. This is because interest rate declines may result in accelerated prepayments of mortgages

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with the result that proceeds from prepayments will be reinvested at lower interest rates. On the other hand, during periods of rising interest rates, the value of ARMs will lag behind changes in the market rate. ARMs are also typically subject to maximum increases and decreases in the interest rate adjustment which can be made on any one adjustment date, in any one year, or during the life of the security. In the event of dramatic increases or decreases in prevailing market interest rates, the value of a Fund's invest- ments in ARMs may fluctuate more substantially since these limits may pre- vent the security from fully adjusting its interest rate to the prevailing market rates.

ASSET-BACKED SECURITIES

Asset-backed securities are securities whose principal and interest payments are collateralized by pools of assets such as auto loans, credit card receivables, leases, installment contracts and personal property. Asset- backed securities are often subject to more rapid repayment than their stated maturity date would indicate as a result of the pass-through of pre- payments of principal on the underlying loans. During periods of declining interest rates, prepayment of loans underlying asset-backed securities can be expected to accelerate. Asset-backed securities present credit risks that are not presented by Mortgage-Backed Securities. This is because asset- backed securities generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. There is the possibil- ity that, in some cases, recoveries on repossessed collateral may not be available to support payments on these securities.

MUNICIPAL SECURITIES

Municipal Securities include bonds, notes, commercial paper and other instruments (including participation interests in such securities) issued by or on behalf of the states, territories and possessions of the United States (including the District of Columbia) and their political subdivisions, agen- cies or instrumentalities, the interest on which, in the opinion of bond counsel for the issuers or counsel selected by the Investment Adviser, is exempt from regular federal income tax (i.e., excluded from gross income for federal income tax purposes but not necessarily exempt from federal alterna- tive minimum tax or from state or local taxes). Because of their tax-exempt status, the yields and market values of Municipal Securities may be more adversely impacted by changes in the tax rates and policies than taxable fixed-income securities.

Municipal Securities are often issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Municipal Securities include private activity bonds, municipal

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APPENDIX A

leases, certificates of participation, pre-refunded municipal securities and auction rate securities.

The obligations of the issuer to pay the principal of and interest on a Municipal Security are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or state legislatures extending the time for payment of principal or interest or imposing other constraints upon the enforcement of such obligations. There is also the possibility that, as a result of litigation or other con- ditions, the power or ability of the issuer to pay when due the principal of or interest on a Municipal Security may be materially affected. Municipal lease obligations and certificates of participation are subject to the added risk that the governmental lessee will fail to appropriate funds to enable it to meet its payment obligations under the lease. Although these obliga- tions may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and result in a delay in recovering or the failure to recover fully a Fund's original investment.

Municipal Securities may be in the form of a tender option bond, which is a Municipal Security (generally held pursuant to a custodial arrangement) hav- ing a relatively long maturity and bearing interest at a fixed rate substan- tially higher than prevailing short-term, tax-exempt rates. The bond is typ- ically issued with the agreement of a third party, such as a bank, broker- dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the dif- ference between the bond's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. Certain tender option bonds may be illiquid.

In order to enhance the liquidity of Municipal Securities, a Fund may (but is not required to) acquire the right to sell a security to another party at a guaranteed price and date. This right to resell may be referred to as a "standby commitment" or liquidity put, depending on its characteristics. The aggregate price which a Fund pays for securities with standby commitments may be higher than the price which otherwise would be paid for the securi- ties. Standby commitments may not be available or may not be available on satisfactory terms.

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CORPORATE DEBT OBLIGATIONS; TRUST PREFERRED SECURITIES; CONVERTIBLE
SECURITIES

Corporate debt obligations include bonds, notes, debentures and other obli- gations of corporations to pay interest and repay principal, and include securities issued by banks and other financial institutions. A trust pre- ferred or capital security is a long dated bond (for example, 30 years) with preferred features. The preferred features are that payment of interest can be deferred for a specified period without initiating a default event. The securities are generally senior in claim to standard preferred stock but junior to other bondholders.

Convertible securities are preferred stock or debt obligations that are con- vertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar qual- ity. Convertible securities in which a Fund invests are subject to the same rating criteria as its other investments in fixed-income securities. Con- vertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible secu- rity, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

FOREIGN CURRENCY TRANSACTIONS

A Fund may, to the extent it invests in foreign securities, purchase or sell foreign currencies on a cash basis or through forward contracts. A forward contract involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract. A Fund may engage in foreign currency transactions for hedging purposes and to seek to protect against anticipated changes in future foreign currency exchange rates. In addition, a Fund also may enter into such transactions to seek to increase total return when the Investment Adviser anticipates fluctuation in the value of the foreign currency, but securities denominated or quoted in that currency do not present attractive investment opportunities and are not held in the Fund's portfolio, which is considered a speculative practice. Some Funds may also engage in cross-hedging by using forward contracts in a cur- rency different from that in which the hedged security is denomi-

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APPENDIX A

nated or quoted if the Investment Adviser determines that there is a pattern of correlation between the two currencies. A Fund may hold foreign currency received in connection with investments in foreign securities when, in the judgment of the Investment Adviser, it would be beneficial to convert such currency into U.S. dollars at a later date, based on anticipated changes in the relevant exchange rate.

Currency exchange rates may fluctuate significantly over short periods of time, causing, along with other factors, a Fund's NAV to fluctuate (when the Fund's NAV fluctuates, the value of your shares may go up or down). Currency exchange rates also can be affected unpredictably by the intervention of U.S. or foreign governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States or abroad.

The market in forward foreign currency exchange contracts, currency swaps and other privately negotiated currency instruments offers less protection against defaults by the other party to such instruments than is available for currency instruments traded on an exchange. Such contracts are subject to the risk that the counterparty to the contract will default on its obli- gations. Since these contracts are not guaranteed by an exchange or clear- inghouse, a default on a contract would deprive a Fund of unrealized prof- its, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the current market price.

STRUCTURED SECURITIES

Structured securities are securities whose value is determined by reference to changes in the value of specific currencies, interest rates, commodities, indices or other financial indicators (the "Reference") or the relative change in two or more References. The interest rate or the principal amount payable upon maturity or redemption may be increased or decreased depending upon changes in the applicable Reference. Structured securities may be posi- tively or negatively indexed, so that appreciation of the Reference may pro- duce an increase or decrease in the interest rate or value of the security at maturity. In addition, changes in the interest rates or the value of the security at maturity may be a multiple of changes in the value of the Refer- ence. Consequently, structured securities may entail a greater degree of market risk than other types of fixed-income securities, and may be more volatile, less liquid and more difficult to accurately price than less com- plex securities. Structured securities include, but are not limited to, inverse floating rate debt securities ("inverse floaters"). The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate var- ies by a magnitude that exceeds the magnitude

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of the change in the index rate of interest. The higher the degree of lever- age of an inverse floater, the greater the volatility of its market value.

ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS

These securities are issued at a discount from their face value because interest payments are typically postponed until maturity. Pay-in-kind secu- rities are securities that have interest payable by the delivery of addi- tional securities. The market prices of these securities generally are more volatile than the market prices of interest-bearing securities and are likely to respond to a greater degree to changes in interest rates than interest-bearing securities having similar maturities and credit quality.

MORTGAGE DOLLAR ROLLS

A mortgage dollar roll involves the sale by a Fund of securities for deliv- ery in the current month. The Fund simultaneously contracts with the same counterparty to repurchase substantially similar (same type, coupon and maturity) but not identical securities on a specified future date. During the roll period, the Fund loses the right to receive principal and interest paid on the securities sold. However, the Fund benefits to the extent of any difference between (a) the price received for the securities sold and (b) the lower forward price for the future purchase and/or fee income plus the interest earned on the cash proceeds of the securities sold. Unless the ben- efits of a mortgage dollar roll exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the roll, the use of this technique will diminish the Fund's investment performance.

Successful use of mortgage dollar rolls depends upon the Investment Advis- er's ability to predict correctly interest rates and mortgage prepayments. If the Investment Adviser is incorrect in its prediction, a Fund may experi- ence a loss. For financial reporting and tax purposes, the Funds treat mort- gage dollar rolls as two separate transactions: one involving the purchase of a security and a separate transaction involving a sale. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a financing, and do not treat them as borrowings.

OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN CURRENCIES

A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instru- ment during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obliga- tion to sell, the underlying instrument

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APPENDIX A

during the option period. Each Fund may write (sell) covered call and put options and purchase put and call options on any securities in which it may invest or on any securities index composed of securities in which it may invest. A Fund may also, to the extent it invests in foreign securities, purchase and sell (write) put and call options on foreign currencies.

The writing and purchase of options is a highly specialized activity which involves special investment risks. Options may be used for either hedging or cross-hedging purposes, or to seek to increase total return (which is con- sidered a speculative activity). The successful use of options depends in part on the ability of the Investment Adviser to manage future price fluctu- ations and the degree of correlation between the options and securities (or currency) markets. If the Investment Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in a Fund's investment portfolio, the Fund may incur losses that it would not otherwise incur. The use of options can also increase a Fund's brokerage transaction costs. Options written or purchased by the Funds may be traded on either U.S. or foreign exchanges or over-the-counter. Foreign and over-the-counter options will present greater possibility of loss because of their greater liquidity and credit risks.

YIELD CURVE OPTIONS

Each Fund may enter into options on the yield "spread" or differential between two securities. Such transactions are referred to as "yield curve" options. In contrast to other types of options, a yield curve option is based on the difference between the yields of designated securities, rather than the prices of the individual securities, and is settled through cash payments. Accordingly, a yield curve option is profitable to the holder if this differential widens (in the case of a call) or narrows (in the case of a put), regardless of whether the yields of the underlying securities increase or decrease.

The trading of yield curve options is subject to all of the risks associated with the trading of other types of options. In addition, such options pres- ent a risk of loss even if the yield of one of the underlying securities remains constant, or if the spread moves in a direction or to an extent which was not anticipated.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument or currency at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A futures

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contract may be based on various securities (such as U.S. Government Securi- ties), foreign currencies, securities indices and other financial instru- ments and indices. The Funds may engage in futures transactions on both U.S. and foreign exchanges.

Each Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices or, to the extent a Fund invests in foreign securities, currency exchange rates, or to otherwise manage their term structures and durations in accordance with their investment objectives and policies. Each Fund may also enter into closing purchase and sale transactions with respect to such contracts and options. A Fund will engage in futures and related options transactions for bona fide hedging purposes as defined in regulations of the Commodity Futures Trading Commission or to seek to increase total return to the extent permitted by such regulations. A Fund may not purchase or sell futures contracts or purchase or sell related options to seek to increase total return, except for closing purchase or sale transactions, if immedi- ately thereafter the sum of the amount of initial margin deposits and premi- ums paid on the Fund's outstanding positions in futures and related options entered into for the purpose of seeking to increase total return would exceed 5% of the market value of the Fund's net assets. Future contracts and related options present the following risks:

.While a Fund may benefit from the use of futures and options on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in poorer overall performance than if the Fund had not entered into any futures contracts or options transactions.

.Because perfect correlation between a futures position and portfolio posi- tion that is intended to be protected is impossible to achieve, the desired protection may not be obtained and a Fund may be exposed to additional risk of loss.

.The loss incurred by a Fund in entering into futures contracts and in writ- ing call options on futures is potentially unlimited and may exceed the amount of the premium received.

.Futures markets are highly volatile and the use of futures may increase the volatility of a Fund's NAV.

.As a result of the low margin deposits normally required in futures trad- ing, a relatively small price movement in a futures contract may result in substantial losses to a Fund.

.Futures contracts and options on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.

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APPENDIX A

.Foreign exchanges may not provide the same protection as U.S. exchanges.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS.

When-issued securities are securities that have been authorized but not yet issued. When-issued securities are purchased in order to secure what is con- sidered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

A forward commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settle- ment period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, securities sold on a for- ward commitment basis involves the risk that the value of the securities to be sold may increase before the settlement date. Although a Fund will gener- ally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, a Fund may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate to do so.

LENDING OF PORTFOLIO SECURITIES

Securities lending involves the lending of securities owned by a Fund to financial institutions such as certain broker-dealers. The borrowers are required to secure their loans continuously with cash, cash equivalents or U.S. Government Securities in an amount at least equal to the market value of the securities loaned. Cash collateral may be invested in cash equiva- lents. If the Investment Adviser determines to make securities loans, the value of the securities loaned may not exceed 33 1/3% of the value of the total assets of a Fund (including the loan collateral).

A Fund may lend its securities to increase its income. A Fund may, however, experience a delay in the recovery of its securities or possible loss if the institution with which it has engaged in a securities lending transaction breaches its agreement with the Fund.

REPURCHASE AGREEMENTS

Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase them at a mutually agreed upon date and price. Each Fund may enter into repurchase agreements with dealers in U.S. Government Securities and member banks of the Federal Reserve System which furnish collateral at least equal in value or market price to the amount of their repurchase obligation. Some Funds may also enter into repurchase agreements involving certain foreign government securities.

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If the other party or "seller" defaults, a Fund might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Fund in connection with the repurchase agree- ment are less than the repurchase price and the cost of the Fund associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, a Fund could suffer other losses if a court determines that the Fund's interest in the collateral is not enforce- able.

BORROWINGS AND REVERSE REPURCHASE AGREEMENTS

The Funds can borrow money from banks and enter into reverse repurchase agreements with banks and other financial institutions in amounts not exceeding one-third of its total assets. Reverse repurchase agreements involve the sale of securities held by a Fund subject to the Fund's agree- ment to repurchase them at a mutually agreed upon date and price (including interest). These transactions may be entered into as a temporary measure for emergency purposes or to meet redemption requests. Reverse repurchase agree- ments may also be entered into when the Investment Adviser expects that the interest income to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Borrowings and reverse repurchase agreements involve leveraging. If the securities held by a Fund decline in value while these transactions are outstanding, the NAV of the Fund's outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the interest income earned by a Fund (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by a Fund will decline below the price the Fund is obligated to pay to repurchase the secu- rities, and that the securities may not be returned to the Fund.

INTEREST RATE SWAPS, MORTGAGE SWAPS, CREDIT SWAPS, CURRENCY SWAPS AND
INTEREST RATE CAPS, FLOORS AND COLLARS

Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments. Mortgage swaps are simi- lar to interest rate swaps in that they represent commitments to pay and receive interest. The notional principal amount, however, is tied to a ref- erence pool or pools of mortgages. Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses of an underlying security. Credit swaps give one party to a transac- tion the right to dispose of or acquire an asset (or group of assets), or the right to receive or make a payment from the other party, upon the occur- rence of specified credit events. Currency swaps involve the exchange of the parties' respective rights to make or receive payments in specified

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APPENDIX A

currencies. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor enti- tles the purchaser, to the extent that a specified index falls below a pre- determined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates.

Each Fund may enter into swap transactions for hedging purposes or to seek to increase total return. The use of interest rate, mortgage, credit and currency swaps, as well as interest rate caps, floors and collars, is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transac- tions. If the Investment Adviser is incorrect in its forecasts of market value, interest rates and currency exchange rates, the investment perfor- mance of a Fund would be less favorable than it would have been if these investment techniques were not used.

INVERSE FLOATING RATE DEBT SECURITIES ("INVERSE FLOATERS")

The interest rate on inverse floaters resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floater may be considered to be leveraged to the extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher the degree of leverage of an inverse floater, the greater the volatility of its market value.

MISCELLANEOUS TECHNIQUES

In addition to the techniques and investments described above, each Fund may, with respect to no more than 5% of its net assets, invest in other investment companies.

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NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-investment grade fixed- income securities are considered predominantly speculative by traditional investment standards. In some cases, these obligations may be highly specu- lative and have poor prospects for reaching investment grade standing. Non- investment grade fixed-income securities and unrated securities of compara- ble credit quality (commonly known as "junk bonds") are subject to the increased risk of an issuer's inability to meet principal and interest obli- gations. These securities, also referred to as high yield securities, may be subject to greater price volatility due to such factors as specific corpo- rate developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.

Non-investment grade fixed-income securities are often issued in connection with a corporate reorganization or restructuring or as part of a merger, acquisition, takeover or similar event. They are also issued by less estab- lished companies seeking to expand. Such issuers are often highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and interest in the event of adverse developments or business conditions.

The market value of non-investment grade fixed-income securities tends to reflect individual corporate developments to a greater extent than that of higher rated securities which react primarily to fluctuations in the general level of interest rates. As a result, a Fund's ability to achieve its investment objectives may depend to a greater extent on the Investment Adviser's judgment concerning the creditworthiness of issuers than funds which invest in higher-rated securities. Issuers of non-investment grade fixed-income securities may not be able to make use of more traditional methods of financing and their ability to service debt obligations may be affected more adversely than issuers of higher-rated securities by economic downturns, specific corporate developments or the issuer's inability to meet specific projected business forecasts. Negative publicity about the junk bond market and investor perceptions regarding lower rated securities, whether or not based on fundamental analysis, may depress the prices for such securities.

A holder's risk of loss from default is significantly greater for non- investment grade fixed-income securities than is the case for holders of other debt securities because such non-investment grade securities are gen- erally unsecured and are often subordinated to the rights of other creditors of the issuers of such

1-Q

securities. Investment by a Fund in defaulted securities poses additional risk of loss should nonpayment of principal and interest continue in respect of such securities. Even if such securities are held to maturity, recovery by a Fund of its initial investment and any anticipated income or apprecia- tion is uncertain.

The secondary market for non-investment grade fixed-income securities is concentrated in relatively few market makers and is dominated by institu- tional investors, including mutual funds, insurance companies and other financial institutions. Accordingly, the secondary market for such securi- ties is not as liquid as, and is more volatile than, the secondary market for higher-rated securities. In addition, market trading volume for high yield fixed-income securities is generally lower and the secondary market for such securities could contract under adverse market or economic condi- tions, independent of any specific adverse changes in the condition of a particular issuer. These factors may have an adverse effect on the market price and a Fund's ability to dispose of particular portfolio investments. A less liquid secondary market also may make it more difficult for a Fund to obtain precise valuations of the high yield securities in its portfolio.

Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of non-investment grade securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality. Investments in non-investment grade and comparable unrated obligations will be more dependent on the Investment Adviser's credit analysis than would be the case with investments in investment-grade debt obligations.

LOAN PARTICIPATIONS

A loan participation is an interest in a loan to a U.S. or foreign company or other borrower which is administered and sold by a financial intermedi- ary. A Fund may only invest in loans to issuers in whose obligations it may otherwise invest. Loan participation interests may take the form of a direct or co-lending relationship with the corporate borrower, an assignment of an interest in the loan by a co-lender or another participant, or a participa- tion in the seller's share of the loan. When a Fund acts as co-lender in connection with a participation interest or when it acquires certain partic- ipation interests, the Fund will have direct recourse against the borrower if the borrower fails to pay scheduled principal and interest. In cases where the Fund lacks direct recourse, it will look to the agent bank to enforce appropriate credit remedies against the borrower. In these cases, the Fund

2-Q

may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the Fund may be regarded as a creditor of the agent bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the agent bank may become insolvent.

PREFERRED STOCK, WARRANTS AND RIGHTS

Preferred stocks are securities that represent an ownership interest provid- ing the holder with claims on the issuer's earnings and assets before common stock owners but after bond owners. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obli- gations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default or other non-compliance by the issuer with the terms of the preferred stock.

Warrants and other rights are options to buy a stated number of shares of common stock at a specified price at any time during the life of the war- rant. The holders of warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.

3-Q

Appendix B

                                                         INCOME (LOSS) FROM
                                                       INVESTMENT OPERATIONS/A/
                                                                  NET REALIZED
                                                                 AND UNREALIZED
                                                                  GAIN (LOSS)
                                            NET ASSET            ON INVESTMENT,
                                            VALUE AT     NET       OPTION AND
                                            BEGINNING INVESTMENT    FUTURES
                                            OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                      $ 9.88     $0.53        $(0.17)
  1998 - Institutional Shares                  9.88      0.55         (0.16)
  1998 - Administration Shares                 9.88      0.53         (0.16)
  1998 - Service Shares                        9.88      0.51         (0.16)
  1997 - Class A Shares                        9.83      0.57f         0.05f
  1997 - Institutional Shares                  9.83      0.59f         0.05f
  1997 - Administration Shares                 9.83      0.57f         0.05f
  1997 - Service Shares (commenced March
   27)                                         9.84      0.33f         0.04f
  1996 - Class A Shares                        9.77      0.55f         0.08f
  1996 - Institutional Shares                  9.77      0.57f         0.08f
  1996 - Administration Shares                 9.77      0.55f         0.08f
  1995 - Class A Shares (commenced May 15)     9.79      0.27f        (0.01)f
  1995 - Institutional Shares                  9.74      0.56f         0.07f
  1995 - Administration Shares                 9.74      0.54f         0.07f
  1994 - Institutional Shares                 10.00      0.43f        (0.24)f
  1994 - Administration Shares                10.00      0.42f        (0.26)f
-------------------------------------------------------------------------------

           DISTRIBUTIONS TO SHAREHOLDERS

                             FROM NET       NET                                    NET
                          REALIZED GAIN   INCREASE                               ASSETS
               IN EXCESS  ON INVESTMENT, (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET       OPTION       IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT  AND FUTURES     ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS    VALUE     PERIOD   RETURNB   RATEE   (IN 000S)
-----------------------------------------------------------------------------------------
  $(0.53)        $(0.02)       $--         $(0.19)    $9.69    3.71%    33.64%  $ 60,782
   (0.55)         (0.02)        --          (0.18)     9.70    4.09     33.64    441,228
   (0.53)         (0.02)        --          (0.18)     9.70    3.83     33.64      5,999
   (0.51)         (0.02)        --          (0.18)     9.70    3.57     33.64        822
   (0.57)            --         --           0.05      9.88    6.43     46.58     43,393
   (0.59)            --         --           0.05      9.88    6.70     46.58    463,511
   (0.57)            --         --           0.05      9.88    6.43     46.58      2,793
   (0.33)            --         --           0.04      9.88    3.81d    46.58        346
   (0.55)         (0.02)        --           0.06      9.83    6.60     52.36     10,728
   (0.57)         (0.02)        --           0.06      9.83    6.86     52.36    613,149
   (0.55)         (0.02)        --           0.06      9.83    6.60     52.36      3,792
   (0.27)         (0.01)        --          (0.02)     9.77    2.74d    24.12     15,203
   (0.57)         (0.03)        --           0.03      9.77    6.75     24.12    657,358
   (0.55)         (0.03)        --           0.03      9.77    6.48     24.12      3,572
   (0.45)            --         --          (0.26)     9.74    1.88     37.81    942,523
   (0.42)            --         --          (0.26)     9.74    1.63     37.81      6,960
-----------------------------------------------------------------------------------------

APPENDIX B

                                                             RATIOS ASSUMING
                                                           NO VOLUNTARY WAIVER
                                                               OF FEES OR
                                                           EXPENSE LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                0.80%      5.40%      1.02%      5.18%
  1998 - Institutional Shares          0.53       5.63       0.53       5.63
  1998 - Administration Shares         0.78       5.33       0.78       5.33
  1998 - Service Shares                1.03       5.09       1.03       5.09
  1997 - Class A Shares                0.74       5.60       1.02       5.32
  1997 - Institutional Shares          0.49       5.99       0.52       5.96
  1997 - Administration Shares         0.74       5.73       0.77       5.70
  1997 - Service Shares (commenced
   March 27)                           1.05c      5.64c      1.08c      5.61c
  1996 - Class A Shares                0.70       5.59       1.01       5.28
  1996 - Institutional Shares          0.45       5.85       0.51       5.79
  1996 - Administration Shares         0.70       5.59       0.76       5.53
  1995 - Class A Shares (commenced
   May 15)                             0.69c      5.87c      1.01c      5.55c
  1995 - Institutional Shares          0.46       5.77       0.53       5.70
  1995 - Administration Shares         0.71       5.50       0.78       5.43
  1994 - Institutional Shares          0.46       4.38       0.49       4.35
  1994 - Administration Shares         0.71       4.27       0.74       4.24
-------------------------------------------------------------------------------

3-R

                                                      INCOME (LOSS) FROM
                                                    INVESTMENT OPERATIONSA
                                                              NET REALIZED
                                                             AND UNREALIZED
                                      NET ASSET              GAIN (LOSS) ON
                                      VALUE AT     NET     INVESTMENT,  OPTION
                                      BEGINNING INVESTMENT     AND FUTURES
                                      OF PERIOD   INCOME      TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  $ 9.88     $0.57          $ 0.04
  1998-Class B Shares                    9.86      0.51            0.03
  1998-Class C Shares                    9.86      0.49            0.03
  1998-Institutional Shares              9.86      0.58            0.06
  1998-Administration Shares             9.89      0.55            0.05
  1998-Service Shares                    9.86      0.55            0.04
  1997-Class A Shares (commenced May
   1)                                    9.78      0.31f           0.09f
  1997-Class B Shares (commenced May
   1)                                    9.75      0.28f           0.10f
  1997-Class C Shares (commenced May
   15)                                   9.83      0.12f           0.02f
  1997-Institutional Shares              9.83      0.64f           0.03f
  1997-Administration Shares             9.85      0.62f           0.04f
  1997-Service Shares                    9.82      0.59f           0.04f
  1996-Institutional Shares              9.82      0.63f           0.01f
  1996-Administration Sharesg            9.86      0.38f             --f
  1996-Service Shares (commenced
   April 10)                             9.72      0.31f           0.10f
  1995-Institutional Shares              9.64      0.66f           0.17f
  1995-Administration Sharesg            9.64      0.24f          (0.04)f
  1994-Institutional Shares             10.14      0.56f          (0.46)f
  1994-Administration Shares            10.14      0.53f          (0.45)f
------------------------------------------------------------------------------

4-R

APPENDIX B

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET
               IN EXCESS  ON INVESTMENT,  INCREASE   NET ASSET                   NET ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)   VALUE,           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET     END OF    TOTAL  TURNOVER    PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE  PERIOD   RETURNB   RATEE   (IN 000S)
-------------------------------------------------------------------------------------------
    $(0.58)       $--         $   --       $ 0.03      $9.91    6.36%   119.89%   $ 56,725
     (0.52)        --             --         0.02       9.88    5.62    119.89       5,025
     (0.50)        --             --         0.02       9.88    5.46    119.89       4,527
     (0.60)        --             --         0.04       9.90    6.75    119.89     145,514
     (0.58)        --             --         0.02       9.91    6.27    119.89       7,357
     (0.56)        --             --         0.03       9.89    6.12    119.89       6,232
     (0.30)        --             --         0.10       9.88    4.14d   102.58       9,491
     (0.27)        --             --         0.11       9.86    3.94d   102.58         747
     (0.11)        --             --         0.03       9.86    1.44d   102.58         190
     (0.64)        --             --         0.03       9.86    7.07    102.58     103,729
     (0.62)        --             --         0.04       9.89    6.91    102.58       1,060
     (0.59)        --             --         0.04       9.86    6.63    102.58       3,337
     (0.63)        --             --         0.01       9.83    6.75    115.45      99,944
     (0.39)        --             --        (0.01)      9.85    4.00d   115.45         252
     (0.31)        --             --         0.10       9.82    4.35d   115.45       1,822
     (0.65)        --             --         0.18       9.82    8.97    292.56     103,760
     (0.21)        --             --        (0.01)      9.63    2.10d   292.56          --
     (0.56)        --          (0.04)       (0.50)      9.64    0.99    289.79     193,095
     (0.54)        --          (0.04)       (0.50)      9.64    0.73    289.79         730
-------------------------------------------------------------------------------------------

5-R

                                             RATIOS ASSUMING NO
                                             VOLUNTARY WAIVER OF
                                                    FEES
                                           OR EXPENSE LIMITATIONS
                                           RATIO OF NET            RATIO OF NET
                              RATIO OF NET  INVESTMENT   RATIO OF   INVESTMENT
                                EXPENSES      INCOME     EXPENSES     INCOME
                               TO AVERAGE   TO AVERAGE  TO AVERAGE  TO AVERAGE
                               NET ASSETS   NET ASSETS  NET ASSETS  NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998-Class A Shares             0.81%        5.68%       1.32%       5.17%
  1998-Class B Shares             1.41         5.12        1.87        4.66
  1998-Class C Shares             1.56         4.64        1.87        4.33
  1998-Institutional Shares       0.53         6.06        0.84        5.75
  1998-Administration Shares      0.78         5.76        1.09        5.45
  1998-Service Shares             1.03         5.56        1.34        5.25
  1997-Class A Shares
   (commenced May 1)              0.70c        6.05c       1.32c       5.43c
  1997-Class B Shares
   (commenced May 1)              1.30c        5.52c       1.82c       5.00c
  1997-Class C Shares
   (commenced May 15)             1.45c        5.52c       1.82c       5.15c
  1997-Institutional Shares       0.45         6.43        0.82        6.06
  1997-Administration Shares      0.70         6.19        1.07        5.82
  1997-Service Shares             0.95         5.92        1.32        5.55
  1996-Institutional Shares       0.45         6.44        0.71        6.18
  1996-Administration
   Sharesg                        0.70c        5.97c       0.96c       5.71c
  1996-Service Shares
   (commenced April 10)           0.95c        6.05c       1.21c       5.79c
  1995-Institutional Shares       0.45         6.87        0.72        6.60
  1995-Administration
   Sharesg                        0.70c        7.91c       0.90c       7.71c
  1994-Institutional Shares       0.45         5.69        0.59        5.55
  1994-Administration Shares      0.70         5.38        0.84        5.24
-------------------------------------------------------------------------------

6-R

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7-R

                                                        INCOME (LOSS) FROM
                                                      INVESTMENT OPERATIONSA
                                                                 NET REALIZED
                                                                AND UNREALIZED
                                                                 GAIN (LOSS)
                                           NET ASSET            ON INVESTMENT,
                                            VALUE,      NET       OPTION AND
                                           BEGINNING INVESTMENT    FUTURES
                                           OF PERIOD  INCOMEE   TRANSACTIONSE
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                     $10.08     $0.36        $0.13
  1998 - Class B Shares                      10.08      0.30         0.12
  1998 - Class C Shares                      10.07      0.28         0.14
  1998 - Institutional Shares                10.07      0.39         0.13
  1998 - Administration Shares               10.07      0.36         0.13
  1998 - Service Shares                      10.07      0.34         0.13
  1997 - Class A Shares (commenced May 1)     9.94      0.20         0.14
  1997 - Class B Shares (commenced May 1)     9.94      0.16         0.14
  1997 - Class C Shares (commenced August
   15)                                       10.04      0.07         0.03
  1997 - Institutional Shares                 9.96      0.42         0.11
  1997 - Administration Shares                9.96      0.39         0.11
  1997 - Service Shares                       9.97      0.37         0.10
  1996 - Institutional Shares                 9.94      0.42         0.02
  1996 - Administration Shares                9.94      0.39         0.02
  1996 - Service Shares                       9.95      0.37         0.02
  1995 - Institutional Shares                 9.79      0.42         0.15
  1995 - Administration Shares                9.79      0.40         0.15
  1995 - Service Shares                       9.79      0.37         0.16
  1994 - Institutional Shares                10.23      0.38        (0.36)
  1994 - Administration Shares               10.23      0.35        (0.36)
  1994 - Service Shares (commenced
   September 20)                              9.86      0.05        (0.07)
------------------------------------------------------------------------------

8-R

APPENDIX B

     DISTRIBUTIONS TO SHAREHOLDERS
                             FROM NET
                          REALIZED GAIN      NET                                         NET
               IN EXCESS  ON INVESTMENT,  INCREASE                                     ASSETS
   FROM NET      OF NET       OPTION     (DECREASE)    NET ASSET            PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  AND FUTURES     IN NET       VALUE,     TOTAL    TURNOVER   PERIOD
    INCOME       INCOME    TRANSACTIONS  ASSET VALUE END OF PERIOD RETURNB    RATE    (IN 000S)
-----------------------------------------------------------------------------------------------
    $(0.38)        --         $   --        $0.11       $10.19       4.97%   140.72%   $19,881
     (0.32)        --             --         0.10        10.18       4.25    140.72        974
     (0.31)        --             --         0.11        10.18       4.19    140.72      2,256
     (0.41)        --             --         0.11        10.18       5.25    140.72     57,647
     (0.38)        --             --         0.11        10.18       4.99    140.72        525
     (0.36)        --             --         0.11        10.18       4.73    140.72      2,560
     (0.20)        --             --         0.14        10.08       3.39d   194.75      4,023
     (0.16)        --             --         0.14        10.08       3.07d   194.75        106
     (0.07)        --             --         0.03        10.07       0.97d   194.75          2
     (0.42)        --             --         0.11        10.07       5.40    194.75     28,821
     (0.39)        --             --         0.11        10.07       5.14    194.75         77
     (0.37)        --             --         0.10        10.07       4.77    194.75      2,051
     (0.42)        --             --         0.02         9.96       4.50    231.65     34,814
     (0.39)        --             --         0.02         9.96       4.24    231.65         48
     (0.37)        --             --         0.02         9.97       3.98    231.65        695
     (0.42)        --             --         0.15         9.94       5.98    259.52     58,389
     (0.40)        --             --         0.15         9.94       5.76    259.52         46
     (0.37)        --             --         0.16         9.95       5.59    259.52        454
     (0.38)        --          (0.08)       (0.44)        9.79       0.17    354.00     83,704
     (0.35)        --          (0.08)       (0.44)        9.79      (0.11)   354.00      3,866
     (0.05)        --             --        (0.07)        9.79      (0.32)d  354.00        440
-----------------------------------------------------------------------------------------------

9-R

                                                             RATIOS ASSUMING
                                                           NO VOLUNTARY WAIVER
                                                               OF FEES OR
                                                           EXPENSE LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                0.71%      3.54%      1.74%      2.51%
  1998 - Class B Shares                1.31       3.06       2.27       2.10
  1998 - Class C Shares                1.46       2.82       2.27       2.01
  1998 - Institutional Shares          0.45       3.92       1.26       3.11
  1998 - Administration Shares         0.70       3.58       1.51       2.77
  1998 - Service Shares                0.95       3.44       1.76       2.63
  1997 - Class A Shares (commenced
   May 1)                              0.70c      3.81c      1.73c      2.78c
  1997 - Class B Shares (commenced
   May 1)                              1.30c      3.31c      2.23c      2.38c
  1997 - Class C Shares (commenced
   August 15)                          1.45c      2.60c      2.23c      1.82c
  1997 - Institutional Shares          0.45       4.18       1.23       3.40
  1997 - Administration Shares         0.70       3.91       1.48       3.13
  1997 - Service Shares                0.95       3.66       1.73       2.88
  1996 - Institutional Shares          0.45       4.21       1.01       3.65
  1996 - Administration Shares         0.70       3.96       1.26       3.40
  1996 - Service Shares                0.95       3.74       1.51       3.18
  1995 - Institutional Shares          0.45       4.31       0.77       3.99
  1995 - Administration Shares         0.70       4.14       1.02       3.82
  1995 - Service Shares                0.95       3.87       1.27       3.55
  1994 - Institutional Shares          0.45       3.74       0.61       3.58
  1994 - Administration Shares         0.70       3.51       0.86       3.35
  1994 - Service Shares (commenced
   September 20)                       0.95c      4.30c      1.11c      4.14c
-------------------------------------------------------------------------------

10-R

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11-R

                                                     INCOME (LOSS) FROM
                                                   INVESTMENT OPERATIONSN
                                                              NET REALIZED
                                                             AND UNREALIZED
                                                             GAIN (LOSS) ON
                                        NET ASSET             INVESTMENT,
                                        VALUE AT     NET       OPTION AND
                                        BEGINNING INVESTMENT    FUTURES
                                        OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                  $14.59     $0.81        $0.45
  1998 - Class B Shares                   14.61      0.72         0.42
  1998 - Class C Shares                   14.60      0.74         0.40
  1998 - Institutional Shares             14.59      0.87         0.42
  1998 - Service Shares                   14.59      0.80         0.40
  1997 - Class A Shares                   14.36      0.91         0.29
  1997 - Class B Shares                   14.37      0.80         0.30
  1997 - Class C Shares (commenced
   August 15)                             14.38      0.17         0.22
  1997 - Institutional Shares
   (commenced August 15)                  14.37      0.20         0.22
  1997 - Service Shares (commenced
   August 15)                             14.37      0.20         0.21
  1996 - Class A shares                   14.47      0.92        (0.11)
  1996 - Class B shares (commenced May
   1)                                      4.11      0.41         0.26
  1995 - Class A shares                   13.47      0.94         1.00
  1994 - Class A shares                   14.90      0.85        (1.28)
-------------------------------------------------------------------------------

12-R

APPENDIX B

            DISTRIBUTIONS TO SHAREHOLDERS
                                         IN EXCESS OF
                             FROM NET    NET REALIZED
                          REALIZED  GAIN   GAIN ON        NET
               IN EXCESS  ON INVESTMENT, INVESTMENT,   INCREASE   NET ASSET
   FROM NET      OF NET     OPTION AND    OPTION AND  (DECREASE)    VALUE           PORTFOLIO
  INVESTMENT   INVESTMENT    FUTURES       FUTURES      IN NET     AT END    TOTAL  TURNOVER
    INCOME       INCOME    TRANSACTIONS  TRANSACTIONS ASSET VALUE OF PERIOD RETURNK   RATEE
---------------------------------------------------------------------------------------------
    $(0.81)     $(0.07)       $(0.06)       $  --        $0.32     $14.91     8.98%  315.43%
     (0.72)      (0.05)        (0.06)          --         0.31      14.92     8.09   315.43
     (0.74)      (0.03)        (0.06)          --         0.31      14.91     8.09   315.43
     (0.87)      (0.05)        (0.06)          --         0.31      14.90     9.19   315.43
     (0.80)      (0.05)        (0.06)          --         0.29      14.88     8.53   315.43
     (0.90)          --        (0.07)          --         0.23      14.59     8.72   395.75
     (0.79)          --        (0.07)          --         0.24      14.61     7.96   395.75
     (0.17)          --           --           --         0.22      14.60     2.72d  395.75
     (0.20)          --           --           --         0.22      14.59     2.94d  395.75
     (0.19)          --           --           --         0.22      14.59     2.85d  395.75
     (0.92)          --           --           --        (0.11)     14.36     5.80   485.09
     (0.41)          --           --           --         0.26      14.37     4.85d  485.09
     (0.94)          --           --           --         1.00      14.47    14.90   449.53
     (0.85)       (0.02)       (0.12)       (0.01)       (1.43)     13.47    (2.98)  654.90
---------------------------------------------------------------------------------------------

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                                                                RATIOS ASSUMING NO
                                                             VOLUNTARY WAIVER OF FEES
                                                              OR EXPENSE LIMITATIONS
                                                   RATIO OF
                                                     NET                      RATIO OF NET
                          NET ASSETS   RATIO OF   INVESTMENT   RATIO OF        INVESTMENT
                          AT END OF  NET EXPENSES   INCOME     EXPENSES          INCOME
                            PERIOD    TO AVERAGE  TO AVERAGE  TO AVERAGE       TO AVERAGE
                          (IN 000S)   NET ASSETS  NET ASSETS  NET ASSETS       NET ASSETS
----------------------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares    $101,015      0.76%       5.53%              1.53%            4.76%
  1998 - Class B Shares      16,125      1.51        4.76               2.05             4.22
  1998 - Class C Shares       9,639      1.51        4.59               2.05             4.05
  1998 - Institutional
   Shares                     2,642      0.51        5.82               1.05             5.28
  1998 - Service Shares           2      1.01        5.48               1.55             4.94
  1997 - Class A Shares      68,859      0.50        6.38               1.82             5.06
  1997 - Class B Shares       8,041      1.25        5.59               2.32             4.52
  1997 - Class C Shares
   (commenced August 15)      1,196      1.25c       5.45c              2.32c            4.38c
  1997 - Institutional
   Shares (commenced
   August 15)                 1,894      0.25c       7.03c              1.32c            5.96c
  1997 - Service Shares
   (commenced August 15)          2      0.75c       6.49c              1.82c            5.42c
  1996 - Class A shares      30,603      0.50        6.42               1.89             5.03
  1996 - Class B shares
   (commenced May 1)            234      1.25c       5.65c              2.39c            4.51c
  1995 - Class A shares      29,503      0.47        6.67               2.34             4.80
  1994 - Class A shares      14,452      0.11        6.06               2.86             3.31
----------------------------------------------------------------------------------------------

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                                                     INCOME (LOSS) FROM
                                                   INVESTMENT OPERATIONS/N/
                                                              NET REALIZED
                                                             AND UNREALIZED
                                                             GAIN (LOSS) ON
                                        NET ASSET             INVESTMENT,
                                        VALUE AT     NET       OPTION AND
                                        BEGINNING INVESTMENT    FUTURES
                                        OF PERIOD   INCOME    TRANSACTIONS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998 - Class A Shares                  $14.99     $0.65        $0.50
  1998 - Class B Shares                   15.00      0.53         0.49
  1998 - Class C Shares                   14.99      0.53         0.50
  1998 - Institutional Shares             15.00      0.68         0.50
  1998 - Service Shares                   14.99      0.64         0.49
  1997 - Class A Shares                   14.37      0.67         0.62
  1997 - Class B Shares                   14.37      0.56         0.63
  1997 - Class C Shares (commenced
   August 15)                             14.85      0.12         0.14
  1997 - Institutional Shares
   (commenced August 15)                  14.84      0.15         0.16
  1997 - Service Shares (commenced
   August 15)                             14.84      0.14         0.15
  1996 - Class A shares                   14.17      0.65         0.20
  1996 - Class B shares (commenced May
   1)                                     14.03      0.27         0.34
  1995 - Class A shares                   13.08      0.67         1.09
  1994 - Class A shares                   14.64      0.73        (1.51)
-------------------------------------------------------------------------------

16-R

APPENDIX B

    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                    NET
                            GAIN ON     INCREASE                               ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                    AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,           PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL  TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB   RATE    (IN 000S)
---------------------------------------------------------------------------------------
    $(0.64)       $--       $(0.03)      $0.48     $15.47     7.79%   56.51%   $91,158
     (0.52)        --        (0.03)       0.47      15.47     6.91    56.51     6,722.
     (0.52)        --        (0.03)       0.48      15.47     6.98    56.51      2,862
     (0.68)        --        (0.03)       0.47      15.47     8.00    56.51      6,154
     (0.61)        --        (0.03)       0.49      15.48     7.68    56.51          2
     (0.67)        --            --       0.62      14.99     9.23   153.12     64,553
     (0.56)        --            --       0.63      15.00     8.48   153.12      1,750
     (0.12)        --            --       0.14      14.99     1.75d  153.12        130
     (0.15)        --            --       0.16      15.00     2.10d  153.12        351
     (0.14)        --            --       0.15      14.99     1.93d  153.12          2
     (0.65)        --            --       0.20      14.37     6.13   344.13     52,267
     (0.27)        --            --       0.34      14.37     4.40d  344.13        255
     (0.67)        --            --       1.09      14.17    13.79   335.55     53,797
     (0.73)        --         (0.05)     (1.56)     13.08    (5.51)  357.54     47,373
---------------------------------------------------------------------------------------

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                                                     RATIOS ASSUMING NO
                                                  VOLUNTARY WAIVER OF FEES
                                                   OR EXPENSE LIMITATIONS
                                        RATIO OF
                                          NET                      RATIO OF NET
                            RATIO OF   INVESTMENT   RATIO OF        INVESTMENT
                          NET EXPENSES   INCOME     EXPENSES          INCOME
                           TO AVERAGE  TO AVERAGE  TO AVERAGE       TO AVERAGE
                           NET ASSETS  NET ASSETS  NET ASSETS       NET ASSETS
-----------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares       0.87%       4.25%              1.64%            3.48%
  1998 - Class B Shares       1.62        3.44               2.16             2.90
  1998 - Class C Shares       1.62        3.38               2.16             2.84
  1998 - Institutional
   Shares                     0.58        4.41               1.12             3.87
  1998 - Service Shares       1.08        4.21               1.62             3.67
  1997 - Class A Shares       0.85        4.60               1.62             3.83
  1997 - Class B Shares       1.60        3.74               2.12             3.22
  1997 - Class C Shares
   (commenced August 15)      1.60c       3.24c              2.12c            2.72c
  1997 - Institutional
   Shares (commenced
   August 15)                 0.60c       4.41c              1.12c            3.89c
  1997 - Service Shares
   (commenced August 15)      1.10c       4.24c              1.62c            3.72c
  1996 - Class A shares       0.85        4.58               1.55             3.88
  1996 - Class B shares
   (commenced May 1)          1.60c       3.55c              2.05c            3.10c
  1995 - Class A shares       0.76        4.93               1.49             4.20
  1994 - Class A shares       0.45        5.28               1.55             4.18
-----------------------------------------------------------------------------------

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                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONS/A/
                                                                NET REALIZED
                                                               AND UNREALIZED
                                                               GAIN (LOSS) ON
                                                                INVESTMENT,
                                                                  OPTION,
                                         NET ASSET              FUTURES AND-
                                         VALUE AT     NET     FOREIGN CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME     TRANSACTIONS
------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                     $10.06     $0.59         $0.27
  1998-Class B Shares                      10.09      0.52          0.27
  1998-Class C Shares                      10.09      0.90          0.27
  1998-Institutional Shares                10.08      1.08          0.29
  1998-Administration Shares               10.07      0.57          0.29
  1998-Service Shares                      10.09      0.99          0.27
  1997-Class A Shares (commenced May 1)     9.70      0.30          0.36
  1997-Class B Shares (commenced May 1)     9.72      0.27          0.37
  1997-Class C Shares (commenced August
   15)                                      9.93      0.11          0.16
  1997-Institutional Shares                 9.85      0.64          0.23
  1997-Administration Shares                9.84      0.62          0.23
  1997-Service Shares                       9.86      0.59          0.23
  1996-Institutional Shares                10.00      0.64         (0.07)
  1996-Administrative Shares
     (commenced February 28)                9.91      0.41         (0.07)
  1996-Service Shares (commenced March
   13)                                      9.77      0.38          0.09
  1995-Institutional Shares                 9.24      0.64          0.76
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares (commenced
   January 5)                              10.00      0.46         (0.76)
------------------------------------------------------------------------------

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    DISTRIBUTIONS TO SHAREHOLDERS
                            FROM NET
                            REALIZED      NET                                     NET
                            GAIN ON     INCREASE                                ASSETS
               IN EXCESS  INVESTMENT,  (DECREASE) NET ASSET                     AT END
   FROM NET      OF NET    OPTION AND    IN NET    VALUE,            PORTFOLIO    OF
  INVESTMENT   INVESTMENT   FUTURES      ASSET     END OF    TOTAL   TURNOVER   PERIOD
    INCOME       INCOME   TRANSACTIONS   VALUE     PERIOD   RETURNB    RATEE   (IN 000S)
----------------------------------------------------------------------------------------
    $(0.59)      $(0.02)     $(0.06)     $0.19     $10.25     8.76%   271.50%   $56,267
     (0.52)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      7,209
     (0.90)       (0.02)      (0.06)      0.19      10.28     7.94    271.50      5,587
     (1.08)       (0.03)      (0.06)      0.20      10.28     9.15    271.50    195,730
     (0.57)       (0.03)      (0.06)      0.20      10.27     8.88    271.50     12,743
     (0.99)       (0.02)      (0.06)      0.19      10.28     8.50    271.50      5,263
     (0.30)          --          --       0.36      10.06     6.94d   361.27      9,336
     (0.27)          --          --       0.37      10.09     6.63d   361.27        621
     (0.11)          --          --       0.16      10.09     2.74d   361.27        272
     (0.64)          --          --       0.23      10.08     9.19    361.27     79,230
     (0.62)          --          --       0.23      10.07     8.92    361.27      6,176
     (0.59)          --          --       0.23      10.09     8.65    361.27      1,868
     (0.64)          --       (0.08)     (0.15)      9.85     5.98    414.20     72,061
     (0.41)          --          --      (0.07)      9.84     3.56d   414.20        702
     (0.38)          --          --       0.09       9.86     4.90d   414.20        381
     (0.64)          --          --       0.76      10.00    15.72    382.26     55,502
     (0.46)          --          --      (0.76)      9.24    (3.00)d  285.25     24,508
----------------------------------------------------------------------------------------

21-R

APPENDIX B

                                                           RATIOS ASSUMING NO
                                                           VOLUNTARY WAIVER OF
                                                                  FEES
                                                               OR EXPENSE
                                                               LIMITATIONS
                                                RATIO OF              RATIO OF
                                     RATIO OF     NET                   NET
                                       NET     INVESTMENT  RATIO OF  INVESTMENT
                                     EXPENSES    INCOME    EXPENSES    INCOME
                                    TO AVERAGE TO AVERAGE TO AVERAGE TO AVERAGE
                                    NET ASSETS NET ASSETS NET ASSETS NET ASSETS
-------------------------------------------------------------------------------
  FOR THE YEARS ENDED OCTOBER 31,
  1998-Class A Shares                  0.74%      5.58%      1.21%      5.11%
  1998-Class B Shares                  1.49       4.82       1.75       4.56
  1998-Class C Shares                  1.49       4.81       1.75       4.55
  1998-Institutional Shares            0.46       5.95       0.72       5.69
  1998-Administration Shares           0.71       5.70       0.97       5.44
  1998-Service Shares                  0.96       5.44       1.22       5.18
  1997-Class A Shares (commenced
   May 1)                              0.70c      6.13c      1.33c      5.50c
  1997-Class B Shares (commenced
   May 1)                              1.45c      5.28c      1.83c      4.90c
  1997-Class C Shares (commenced
   August 15)                          1.45c      4.84c      1.83c      4.46c
  1997-Institutional Shares            0.45       6.53       0.83       6.15
  1997-Administration Shares           0.70       6.27       1.08       5.89
  1997-Service Shares                  0.95       6.00       1.33       5.62
  1996-Institutional Shares            0.45       6.51       0.83       6.13
  1996-Administrative Shares
     (commenced February 28)           0.70c      6.41c      1.08c      6.03c
  1996-Service Shares (commenced
   March 13)                           0.95c      6.37c      1.33c      5.99c
  1995-Institutional Shares            0.45       6.56       0.96       6.05
  FOR THE PERIOD ENDED OCTOBER 31,
  1994-Institutional Shares
   (commenced January 5)               0.45c      6.48c      1.46c      5.47c
-------------------------------------------------------------------------------

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                                                       INCOME (LOSS) FROM
                                                     INVESTMENT OPERATIONS/A/
                                                               NET REALIZED
                                                              AND UNREALIZED
                                                              GAIN (LOSS) ON
                                                                INVESTMENT,
                                                              OPTION, FUTURES
                                         NET ASSET              AND FOREIGN
                                          VALUE,      NET        CURRENCY
                                         BEGINNING INVESTMENT     RELATED
                                         OF PERIOD   INCOME    TRANSACTIONS
-----------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
1998 - Class A Shares                     $15.10     $0.72f       $0.90f
1998 - Class B Shares                      15.08      0.63f        0.92f
1998 - Class C Shares                      15.06      0.63f        0.91f
1998 - Institutional Shares                15.09      0.82f        0.90f
1998 - Service Shares                      15.09      0.74f        0.91f
1997 - Class A shares                      14.53       0.59         0.77
1997 - Class B shares                      14.53       0.72         0.56
1997 - Class C shares (commenced August
 15)                                       14.80       0.16         0.29
1997 - Institutional Shares                14.52       0.88         0.56
1997 - Service Shares (commenced March
 12)                                       14.69       0.53         0.39
1996 - Class A shares                      14.45       0.71         0.80
1996 - Class B shares (commenced May 1)    14.03       0.34         0.52
1996 - Institutional shares                14.45       1.15         0.42
1995 - Class A shares                      13.43       0.89         1.07
1995 - Institutional shares
   (commenced August 1)                    14.09       0.22         0.40
1994 - Class A shares                      15.07       0.84        (1.49)
-----------------------------------------------------------------------------

24-R

APPENDIX B

   DISTRIBUTIONS TO SHAREHOLDERS
                           FROM
                       NET REALIZED
                         GAIN ON                 NET
            IN EXCESS  INVESTMENT,            INCREASE   NET ASSET                   NET ASSETS
 FROM NET     OF NET    OPTION AND   FROM    (DECREASE)   VALUE,           PORTFOLIO AT END OF
INVESTMENT  INVESTMENT   FUTURES    PAID IN    IN NET     END OF    TOTAL  TURNOVER    PERIOD
  INCOME      INCOME   TRANSACTIONS CAPITAL  ASSET VALUE  PERIOD   RETURNB   RATE    (IN 000S)
-----------------------------------------------------------------------------------------------
  $(1.01)      $--        $(0.06)   $   --      $0.55     $15.65    11.21%  229.91%   $217,362
   (0.94)       --         (0.06)       --       0.55      15.63    10.66   229.91       8,135
   (0.94)       --         (0.06)       --       0.54      15.60    10.65   229.91       4,090
   (1.11)       --         (0.06)       --       0.55      15.64    11.95   229.91     178,532
   (1.04)       --         (0.06)       --       0.55      15.64    11.43   229.91       1,058
   (0.79)       --            --        --       0.57      15.10     9.66   383.72     167,096
   (0.73)       --            --        --       0.55      15.08     9.04   383.72       3,465
   (0.19)       --            --        --       0.26      15.06     3.03d  383.72         496
   (0.87)       --            --        --       0.57      15.09    10.26   383.72      60,929
   (0.52)       --            --        --       0.40      15.09     6.42d  383.72         151
   (1.43)       --            --        --       0.08      14.53    11.05   232.15     198,665
   (0.36)       --            --        --       0.50      14.53     6.24d  232.15         256
   (1.50)       --            --        --       0.07      14.52    11.55   232.15      54,254
   (0.94)       --            --        --       1.02      14.45    15.08   265.86     245,835
   (0.26)       --            --        --       0.36      14.45     4.42d  265.86      31,619
   (0.22)       --         (0.16)    (0.61)     (1.64)     13.43    (4.49)  343.74     396,584
-----------------------------------------------------------------------------------------------

25-R

                                                       RATIOS ASSUMING NO
                                                    VOLUNTARY WAIVER OF FEES
                                                     OR EXPENSE LIMITATIONS
                                       RATIO OF NET                  RATIO OF NET
                            RATIO OF    INVESTMENT   RATIO OF         INVESTMENT
                          NET EXPENSES    INCOME     EXPENSES           INCOME
                           TO AVERAGE   TO AVERAGE  TO AVERAGE        TO AVERAGE
                           NET ASSETS   NET ASSETS  NET ASSETS        NET ASSETS
--------------------------------------------------------------------------------------
  FOR THE YEARS ENDED
   OCTOBER 31,
  1998 - Class A Shares       1.31%        4.71%               1.75%             4.27%
  1998 - Class B Shares       1.83         4.19                2.24              3.78
  1998 - Class C Shares       1.83         4.20                2.24              3.79
  1998 - Institutional
   Shares                     0.66         5.40                1.07              4.99
  1998 - Service Shares       1.16         4.92                1.57              4.51
  1997 - Class A shares       1.17         5.19                1.60              4.76
  1997 - Class B shares       1.71         4.76                2.10              4.37
  1997 - Class C shares
   (commenced August 15)      1.71c        4.98c               2.10c             4.59c
  1997 - Institutional
   Shares                     0.65         5.72                1.04              5.33
  1997 - Service Shares
   (commenced March 12)       1.15c        5.33c               1.54c             4.94c
  1996 - Class A shares       1.16         5.81                1.64              5.33
  1996 - Class B shares
   (commenced May 1)          1.70c        5.16c               2.14c             4.72c
  1996 - Institutional
   shares                     0.65         6.35                1.11              5.89
  1995 - Class A shares       1.29         6.23                1.58              5.94
  1995 - Institutional
     shares
     (commenced August
     1)                       0.65c        6.01c               1.08c             5.58c
  1994 - Class A shares       1.28         5.73                1.53              5.48
--------------------------------------------------------------------------------------

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                                               INCOME (LOSS) FROM INVESTMENT
                                                        OPERATIONS/A/
                                                             NET REALIZED
                                                            AND UNREALIZED
                                    NET ASSET               GAIN (LOSS) ON
                                     VALUE,      NET        INVESTMENT AND
                                    BEGINNING INVESTMENT   FOREIGN CURRENCY
                                    OF PERIOD   INCOME   RELATED TRANSACTIONS
-----------------------------------------------------------------------------
  FOR THE YEAR ENDED OCTOBER 31,
  1998 - Class A Shares              $ 9.97     $0.82           $(0.85)
  1998 - Class B Shares                9.97      0.75            (0.86)
  1998 - Class C Shares                9.97      0.75            (0.86)
  1998 - Institutional Shares          9.97      0.84            (0.83)
  1998 - Service Shares                9.97      0.80            (0.84)
  FOR THE PERIOD ENDED OCTOBER 31,
  1997 - Class A Shares (commenced
   August 1)                          10.00      0.17            (0.02)
  1997 - Class B Shares (commenced
   August 1)                          10.00      0.15            (0.02)
  1997 - Class C Shares (commenced
   August 15)                          9.97      0.14             0.01
  1997 - Institutional Shares
      (commenced August 1)            10.00      0.18            (0.02)
  1997 - Service Shares (commenced
   August 1)                          10.00      0.17            (0.02)
-----------------------------------------------------------------------------

28-R

APPENDIX B

    DISTRIBUTIONS TO SHAREHOLDERS
                              FROM
     FROM      IN EXCESS  NET REALIZED NET INCREASE                               NET ASSETS
     NET         OF NET     GAIN ON     (DECREASE)  NET ASSET           PORTFOLIO AT END OF
  INVESTMENT   INVESTMENT  INVESTMENT     IN NET    VALUE, END  TOTAL   TURNOVER    PERIOD
    INCOME       INCOME   TRANSACTIONS ASSET VALUE  OF PERIOD  RETURNB    RATE    (IN 000S)
--------------------------------------------------------------------------------------------
    $(0.78)      $   --       $--         $(0.81)     $9.16     (0.70)%  113.44%   $401,626
     (0.70)          --        --          (0.81)      9.16     (1.43)   113.44      29,256
     (0.70)          --        --          (0.81)      9.16     (1.43)   113.44       8,532
     (0.81)          --        --          (0.80)      9.17     (0.32)   113.44      97,547
     (0.76)          --        --          (0.80)      9.17     (0.79)   113.44         447
     (0.17)       (0.01)       --          (0.03)      9.97      1.50d    44.80d    325,911
     (0.15)       (0.01)       --          (0.03)      9.97      1.31d    44.80d     10,308
     (0.14)       (0.01)       --             --       9.97      1.46d    44.80d      1,791
     (0.18)       (0.01)       --          (0.03)      9.97      1.58d    44.80d          2
     (0.17)       (0.01)       --          (0.03)      9.97      1.46d    44.80d          2
--------------------------------------------------------------------------------------------

29-R

                                                            RATIOS ASSUMING
                                                      NO VOLUNTARY WAIVER OF FEES
                                                         OR EXPENSE LIMITATIONS

                                          RATIO OF                          RATIO OF
                            RATIO OF   NET INVESTMENT   RATIO OF         NET INVESTMENT
                          NET EXPENSES     INCOME     EXPENSES TO            INCOME
                           TO AVERAGE    TO AVERAGE     AVERAGE            TO AVERAGE
                           NET ASSETS    NET ASSETS    NET ASSETS          NET ASSETS
--------------------------------------------------------------------------------------------
  FOR THE YEAR ENDED
   OCTOBER 31,
  1998 - Class A Shares       1.09%         8.25%                 1.36%                7.98%
  1998 - Class B Shares       1.84          7.61                  1.88                 7.57
  1998 - Class C Shares       1.84          7.61                  1.88                 7.57
  1998 - Institutional
   Shares                     0.84          9.47                  0.88                 9.43
  1998 - Service Shares       1.34          9.17                  1.38                 9.13
  FOR THE PERIOD ENDED
   OCTOBER 31,
  1997 - Class A Shares
   (commenced August 1)       0.95c         7.06c                 1.57c                6.44c
  1997 - Class B Shares
   (commenced August 1)       1.70c         6.28c                 2.07c                5.91c
  1997 - Class C Shares
   (commenced August 15)      1.70c         6.17c                 2.07c                5.80c
  1997 - Institutional
      Shares
      (commenced August
      1)                      0.70c         7.16c                 1.07c                6.79c
  1997 - Service Shares
   (commenced August 1)       1.20c         6.69c                 1.57c                6.32c
--------------------------------------------------------------------------------------------

30-R

APPENDIX B

a Includes the balancing effect of calculating per share amounts. b Assumes investment at the net asset value at the beginning of the period, reinvestment of all distributions, a complete redemption of the investment at the net asset value at the end of period and no sales charge. Total return would be reduced if a sales charge for Class A shares were taken into account.
c Annualized.
d Not annualized.
e Includes the effect of mortgage dollar roll transactions. f Calculated based on the average shares outstanding methodology. g Short Duration Government Fund Administration Shares commenced activity on April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.

31-R

Fixed Income Funds
Prospectus (Class A, B and C Shares)

FOR MORE INFORMATION

Annual/Semiannual Report
Additional information about the Funds' investments is available in the Funds' annual and semi-annual reports to shareholders. In the Funds' annual reports, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during its last fiscal year.

APPENDIX A..................................................................

APPENDIX B..................................................................

GOLDMAN SACHS ASSET MANAGEMENT          GOLDMAN SACHS ASSET
INVESTMENT ADVISER TO GOLDMAN SACHS     MANAGEMENT INTERNATIONAL
SHORT DURATION TAX-FREE FUND,           INVESTMENT ADVISER TO GOLDMAN SACHS
GOLDMAN SACHS GOVERNMENT                GLOBAL INCOME FUND
INCOME FUND, GOLDMAN SACHS              133 PETERBOROUGH COURT
MUNICIPAL INCOME FUND,                  LONDON EC4A 2BB, ENGLAND
Goldman Sachs Core Fixed
INCOME FUND AND GOLDMAN
Sachs High Yield Fund                   GOLDMAN, SACHS & CO.
ONE NEW YORK PLAZA                      DISTRIBUTOR
NEW YORK, NEW YORK 10004                85 BROAD STREET
                                        NEW YORK, NY 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
INVESTMENT ADVISER TO GOLDMAN SACHS     GOLDMAN, SACHS & CO.
ADJUSTABLE RATE GOVERNMENT FUND         TRANSFER AGENT
AND GOLDMAN SACHS SHORT DURATION        4900 SEARS TOWER
GOVERNMENT FUND                         CHICAGO, ILLINOIS 60606
One New York Plaza
NEW YORK, NEW YORK 10004

TOLL FREE (IN U.S.) .......800-621-2550

INTRODUCTION

Goldman Sachs Trust (the "Trust") is an open-end management investment company. The Trust is a successor to a Massachusetts business trust that was merged with the Trust on April 30, 1997. The Trustees of the Trust have authority under the Declaration of Trust to create and classify shares into separate series and to classify and reclassify any series of shares into one or more classes without further action by shareholders. Pursuant thereto, the Trustees have created the following series, among others: Goldman Sachs Adjustable Rate Government Fund ("Adjustable Rate Government Fund"), Goldman Sachs Short Duration Government Fund ("Short Duration Government Fund"), Goldman Sachs Short Duration Tax-Free Fund ("Short Duration Tax-Free Fund"), Goldman Sachs Government Income Fund ("Government Income Fund"), Goldman Sachs Municipal Income Fund ("Municipal Income Fund"), Goldman Sachs Core Fixed Income Fund ("Core Fixed Income Fund"), Goldman Sachs Global Income Fund ("Global Income Fund") and Goldman Sachs High Yield Fund ("High Yield Fund") (each referred to herein as a "Fund" and collectively as the "Funds"). Each Fund other than the Global Income Fund is a diversified, open-end management investment company. The Global Income Fund is a non-diversified open-end management investment company. Short Duration Government Fund, Short Duration Tax-Free Fund and Core Fixed Income are each authorized to issue six classes of shares: Class A Shares, Class B Shares, Class C Shares, Service Shares, Institutional Shares and Administration Shares. Government Income Fund, Municipal Income Fund, Global Income Fund and High Yield Fund are authorized to issue five classes of shares:
Class A Shares, Class B Shares, Class C Shares, Service Shares and Institutional Shares. Adjustable Rate Government Fund is authorized to issue four classes of shares: Class A Shares, Service Shares, Institutional Shares and Administration Shares. Additional series may be added in the future from time to time.

Goldman Sachs Asset Management ("GSAM"), a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Investment Adviser to Short Duration Tax-Free Fund, Government Income Fund, Municipal Income Fund, Core Fixed Income Fund and High Yield Fund. Goldman Sachs Asset Management International ("GSAMI"), an affiliate of Goldman Sachs, serves as Investment Adviser to the Global Income Fund. Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman Sachs, serves as the Investment Adviser to Adjustable Rate Government Fund and Short Duration Government Fund. GSAM, GSAMI and GSFM are each sometimes referred to herein as the "Investment Adviser" and collectively herein as the "Investment Advisers." In addition, Goldman Sachs serves as each Fund's distributor and transfer agent. Each Fund's custodian is State Street Bank and Trust Company.

Because each Fund's shares may be redeemed upon request of a shareholder on any business day at net asset value, the Funds offer greater liquidity than many competing investments, such as certificates of deposit and direct investments in certain securities in which the respective Fund may invest. However, unlike certificates of deposits, shares of the Funds are not insured by the Federal Deposit Insurance Corporation.

The following information relates to and supplements the description of each Fund's investment policies contained in the Prospectuses. See the Prospectuses for a fuller description of each Fund's investment objective and policies. Investing in the Funds entails certain risks and there is no assurance that a Fund will achieve its objective.