<PAGE>
[LOGO]
Annual Report
INCOME FUNDS
May 31, 2000
CORPORATE BOND FUND
DIVERSIFIED BOND FUND
INCOME FUND
INCOME PLUS FUND
INTERMEDIATE GOVERNMENT INCOME FUND
LIMITED TERM GOVERNMENT INCOME FUND
STABLE INCOME FUND
VARIABLE RATE GOVERNMENT FUND
SUPPLEMENT TO THE PROSPECTUS ENCLOSED
<PAGE>
WELLS FARGO FUNDS TRUST
CORPORATE BOND FUND
INCOME FUND
INCOME PLUS FUND
LIMITED TERM GOVERNMENT INCOME FUND
VARIABLE RATE GOVERNMENT FUND
CLASS A, CLASS B, CLASS C AND INSTITUTIONAL CLASS
Supplement dated July 31, 2000 to the
Prospectuses dated November 8, 1999
Effective July 31, 2000, Jeffrey L. Weaver, CFA, is responsible as the sole
portfolio manager for the day-to-day management of the Corporate Bond Fund.
Mr. Weaver joined Wells Fargo Bank/Wells Capital Management Incorporated
("WCM") in 1994 as a portfolio manager for taxable short-duration fixed income
portfolios. Prior to joining WCM, Mr. Weaver was a short-term fixed income
trader and portfolio manager with Bankers Trust Company in New York. He has
over nine years of investment management experience. He earned his BA in
Economics from the University of Colorado, Boulder, and is a Chartered
Financial Analyst. Mr. Weaver is a member of the Association for Investment
Management and Research (AIMR) and the Security Analysts of San Francisco.
Effective July 31, 2000, Mark Walter is responsible as a portfolio manager for
the day-to-day management of the Income Fund with Marjorie H. Grace, CFA, who
continues to manage the Fund, and he replaces Paul C. Single and Jacqueline A.
Flippen as sole portfolio manager for the day-to-day management of the Limited
Term Government Income Fund. Mr. Walter joined WCM in 1999 as a portfolio
manager with the Tax-Exempt Fixed-Income Team, and simultaneously held the
position of assistant portfolio manager at Norwest Investment Management, Inc.
("NIM") (since 1997) until WCM and NIM combined investment advisory services
under the WCM name in 1999. As an assistant portfolio manager, Mr. Walter
assisted in the management of both taxable and tax-exempt fixed-income funds.
Prior to WCM, he worked as an Investment Consultant for Kirkpatrick, Petris, a
brokerage firm that is a wholly owned subsidiary of the Mutual of Omaha. In
his capacity as an Investment Consultant, Mr. Walter sold and traded taxable
and tax-exempt fixed-income securities to institutional clients. Mr. Walter
received a BS in Finance from the University of Colorado at Boulder in 1996.
Jacqueline A. Flippin, John W. Burgess, CFA, Paul C. Single and Allen E.
Wisniewski, CFA, no longer serve as portfolio managers for the day-to-day
management of the Income Plus Fund. The Income Plus Fund continues to be
managed by N. Graham Allen, FCMA, Daniel J. Kokoszka, CFA, and Scott M. Smith,
CFA.
Scott M. Smith, CFA, no longer serves as a portfolio manager for the
day-to-day management of the Variable Rate Government Fund. The Variable Rate
Government Fund continues to be managed by Paul C. Single.
<PAGE>
INCOME FUNDS
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TABLE OF CONTENTS
LETTER TO SHAREHOLDER ............................ 1
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PERFORMANCE HIGHLIGHTS
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CORPORATE BOND FUND ............................ 2
DIVERSIFIED BOND FUND ........................... 4
INCOME FUND ................................ 6
INCOME PLUS FUND .............................. 8
INTERMEDIATE GOVERNMENT INCOME FUND .................... 10
LIMITED TERM GOVERNMENT INCOME FUND .................... 12
STABLE INCOME FUND ............................ 14
VARIABLE RATE GOVERNMENT FUND ....................... 16
PORTFOLIO OF INVESTMENTS
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CORPORATE BOND FUND ............................ 18
DIVERSIFIED BOND FUND ........................... 21
INCOME FUND ................................ 22
INCOME PLUS FUND ............................. 27
INTERMEDIATE GOVERNMENT INCOME FUND .................... 31
LIMITED TERM GOVERNMENT INCOME FUND .................... 34
STABLE INCOME FUND ............................ 37
VARIABLE RATE GOVERNMENT FUND ....................... 38
FINANCIAL STATEMENTS
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STATEMENTS OF ASSETS AND LIABILITIES ................... 40
STATEMENTS OF OPERATIONS ......................... 42
STATEMENTS OF CHANGES IN NET ASSETS .................... 46
FINANCIAL HIGHLIGHTS ........................... 52
NOTES TO FINANCIAL HIGHLIGHTS ........................ 56
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NOTES TO FINANCIAL STATEMENTS ........................ 57
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INDEPENDENT AUDITORS' REPORT ........................ 65
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TAX INFORMATION ............................... 66
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CORE PORTFOLIOS
PORTFOLIO OF INVESTMENTS
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MANAGED FIXED INCOME PORTFOLIO ...................... 67
POSITIVE RETURN BOND PORTFOLIO ...................... 72
STABLE INCOME PORTFOLIO .......................... 73
STRATEGIC VALUE BOND PORTFOLIO ...................... 78
FINANCIAL STATEMENTS
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STATEMENTS OF ASSETS AND LIABILITIES ................... 83
STATEMENTS OF OPERATIONS ......................... 84
STATEMENTS OF CHANGES IN NET ASSETS .................... 86
FINANCIAL HIGHLIGHTS ........................... 88
NOTES TO FINANCIAL STATEMENTS ........................ 89
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INDEPENDENT AUDITORS' REPORT ........................ 93
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LIST OF ABBREVIATIONS ............................ 94
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NOT FDIC INSURED--NO BANK GUARANTEE--MAY LOSE VALUE
<PAGE>
INCOME FUNDS
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DEAR VALUED SHAREHOLDER,
Thank you for investing in Wells Fargo Funds.
We're pleased to provide this annual report for the period ended May 31,
2000. This report provides information about your investment in Wells Fargo
Income Funds, including economic and market trends over the 11- or 12-month
period. To improve our reporting process, the fiscal-year end for some of the
funds included in this report has changed to May 31 from June 30. This change
does not affect the objective or performance of your fund.
Heightened volatility among stocks and bonds over the past year reflected the
Federal Reserve Board's effort to slow economic growth and contain
inflationary pressures through a series of interest rate hikes. Short-term
rates climbed from 4.75 % to 6.50 % over the period. We anticipate additional
rate hikes until the economy exhibits clear and sustained signs of a slowdown.
Other events also shaped the bond market over the period. As U.S. Treasury
bond yields approached 7% during the first quarter of 2000, the U.S. Treasury
Department announced a plan to buy back and retire up to $30 billion in debt
by the end of 2000. Demand for 30-year Treasuries sent yields down to 6.10%,
with bond prices (which move opposite yields) posting a total return of 9%
during the first quarter -- a significant improvement over the 14.70% loss
posted in 1999. And in light of this development, the 10-year U.S. Treasury
note emerged as the new bond benchmark.
Agency securities, including bonds issued by Fannie Mae and Freddie Mac, also
performed well during the first quarter, despite the uncertainties over the
U.S. Government's implicit guarantee of the sector's debt. In contrast,
non-investment grade corporate bonds stumbled, while high-yield corporate
bonds were hurt by rising default rates coupled with net redemptions of assets
from high-yield mutual funds.
The U.S. Treasury Department's buyback program also triggered an unusual
event in the bond market: an inverted yield curve, which is characterized by
shorter-term bonds yielding more than longer-term bonds. Under normal
circumstances, the yield curve slopes gently upward, with yields on one-year
U.S. Treasury bills yielding approximately two points below rates on 10-year
notes and 30-year bonds. While an inverted yield curve typically heralds a
recession, market conditions simply reflected a tight supply of new longer-
term bonds.
Going forward, U.S. Treasury securities should continue to perform well in
coming months, with other shorter-term securities gaining favor due to
relatively attractive yields compared to U.S. Treasuries. Tighter credit
conditions have increased the risk level of lower-rated securities and made
higher-quality bonds an even more prudent investment.
Amid volatile markets, it's important to maintain a balanced portfolio to
help weather rapidly changing conditions. If you have any questions about your
investments or need further information, please contact your investment
professional, or contact us at 1-800-222-8222.
Again, thank you for choosing Wells Fargo Funds. We value your business and
will continue to offer an expanding array of investment options designed to
help you achieve your personal goals.
<TABLE>
<S> <C>
[LOGO]
MICHAEL J. HOGAN
PRESIDENT
WELLS FARGO FUNDS
</TABLE>
1
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
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CORPORATE BOND FUND
INVESTMENT OBJECTIVE
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The Corporate Bond Fund (the "Fund") seeks a high level of current income,
consistent with reasonable risk.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGERS
Graham Allen, FCMA (since 4/98)
John Burgess (since 4/98)
Jacqueline Flippin (since 4/98)
Daniel Kokoszka, CFA (since 8/98)
Scott Smith, CFA (since 8/98)
INCEPTION DATE
4/1/98
PERFORMANCE HIGHLIGHTS
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The Fund's Class A shares returned (3.36)%(1) for the 11-month period that
ended May 31, 2000, excluding sales charges, compared to a (0.48)% return
posted by its benchmark, the Lehman Brothers Corporate Long Bond Index(2). The
Fund's Class A shares distributed $0.59 per share in dividend income and no
capital gains during the 11-month period. Please keep in mind past performance
is no guarantee of future results.
The Fund's exposure to high-yield securities and lower-rated,
investment-grade corporate bonds negatively affected performance. The
corporate bond sector struggled over the past year as investors shifted assets
from high-yield bonds to equities in an attempt to capture higher returns.
Investment-grade corporate bonds, those rated BBB or better, weakened due to
the impact of rising interest rates, increased leveraged-buyout risk and
investor preference for the relative safety and security of U.S. Treasury
bonds.
In contrast, investment-grade corporate bonds issued by the real estate
investment trust sector performed well due to solid real estate fundamentals.
The Fund's aerospace and defense holdings, including Lockheed Martin and
Raytheon, were also strong performers, reflecting a turnaround in the
industry.
The Fund's portfolio was restructured earlier in the year to offset the
negative impact of higher interest rates within certain bond sectors. The Fund
reduced its exposure to high-yield bonds from 25% to less than 20%. Also, the
Fund reduced its holdings of investment-grade corporate bonds, investing the
proceeds in U.S. Treasury and mortgage-backed securities.
STRATEGIC OUTLOOK
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Going forward, the outlook for the Fund appears to be promising. Corporate
bond yields are quite generous and more accurately reflect risk in the
marketplace. The Fund will increase its exposure to corporate bonds by
purchasing higher quality bonds issued by companies with solid credit
fundamentals. In addition, the Fund will continue to focus on shorter maturity
corporate bonds and long-term U.S. Treasury bonds. While the weighted average
maturity of the portfolio is currently neutral to its peer group, the Fund
anticipates extending the average maturity as market conditions dictate.
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(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for Class A, Class B and Class C shares of the Wells Fargo
Corporate Bond Fund for periods prior to November 8, 1999, reflects performance
of the Class A, Class B and Class C shares of the Stagecoach Corporate Bond
Fund, its predecessor fund. Effective at the close of business November 5, 1999,
the Stagecoach Funds were reorganized into the Wells Fargo Funds. For Class A
shares, the maximum front-end sales charge is 4.50%. The maximum
contingent-deferred sales charge for Class B shares is 5.00%. The maximum sales
charge for Class C shares is 1.00%. Class B and C shares performance including
sales charge assumes the sales charge for the corresponding time period.
2
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
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AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
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<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
------------------------------------------ ----------------------------
Year-To-Date* 1-Year Since Inception 1-Year Since Inception
<S> <C> <C> <C> <C> <C>
CLASS A (1.94) (3.97) 0.45 (8.30) (1.66)
CLASS B (2.35) (4.69) (0.30) (9.17) (1.52)
CLASS C (2.24) (4.68) (0.32) (5.58) (0.32)
BENCHMARK
LEHMAN BROTHERS
CORPORATE LONG BOND
INDEX (0.88) (3.15)
LEHMAN BROTHERS U.S.
CREDIT INDEX(3) 0.16 (0.04)
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
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<TABLE>
<S> <C>
PORTFOLIO TURNOVER 103%
NUMBER OF HOLDINGS 65
AVERAGE CREDIT QUALITY(5) A
WEIGHTED AVERAGE COUPON 8.05%
ESTIMATED WEIGHTED AVERAGE
MATURITY 11.20 YEARS
ESTIMATED AVERAGE DURATION 5.34 YEARS
NAV (A, B, C) $8.72, $8.72, $8.72
DISTRIBUTION RATE(6) (A, B, C) 6.87%, 6.44%, 6.39%
SEC YIELD(7) (A, B, C) 7.36%, 6.95%, 6.91%
</TABLE>
PORTFOLIO ALLOCATION(8)
(AS OF MAY 31, 2000)
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds 42%
U.S. Treasury Bonds and Notes 20%
Non-Investment Grade Bonds (BB or Lower) 19%
Mortgage-Backed Securities 10%
Foreign Government 7%
Cash Equivalents 2%
</TABLE>
GROWTH OF $10,000 INVESTMENT(4)
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO LEHMAN BROTHERS LEHMAN BROTHERS
CORPORATE BOND FUND - CLASS A U.S. CREDIT INDEX CORPORATE LONG BOND INDEX
<S> <C> <C> <C>
Mar-98 $9,550 $10,000 $10,000
Apr-98 $9,548 $10,063 $10,073
May-98 $9,649 $10,183 $10,246
Jun-98 $9,739 $10,258 $10,354
Jul-98 $9,767 $10,248 $10,285
Aug-98 $9,767 $10,296 $10,294
Sep-98 $10,102 $10,630 $10,668
Oct-98 $9,989 $10,466 $10,379
Nov-98 $10,167 $10,663 $10,760
Dec-98 $10,219 $10,694 $10,766
Jan-99 $10,313 $10,800 $10,907
Feb-99 $10,078 $10,543 $10,523
Mar-99 $10,182 $10,618 $10,555
Apr-99 $10,207 $10,649 $10,567
May-99 $10,041 $10,507 $10,381
Jun-99 $9,978 $10,452 $10,244
Jul-99 $9,949 $10,394 $10,143
Aug-99 $9,844 $10,369 $10,085
Sep-99 $9,935 $10,481 $10,192
Oct-99 $9,899 $10,530 $10,255
Nov-99 $9,860 $10,541 $10,237
Dec-99 $9,834 $10,485 $10,144
Jan-00 $9,785 $10,448 $10,124
Feb-00 $9,883 $10,545 $10,243
Mar-00 $10,009 $10,635 $10,332
Apr-00 $9,816 $10,541 $10,170
May-00 $9,643 $10,502 $10,054
</TABLE>
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(2) The Lehman Brothers Corporate Long Bond Index is an unmanaged index
composed of all publicly-issued, fixed-rate non convertible investment-grade
domestic corporate debt. The Fund is a professionally managed mutual fund. You
cannot invest directly in an index.
(3) The Fund changed its benchmark to the Lehman Brothers U.S. Credit Index,
formerly the Lehman Brothers Corporate Index, because it is more representative
of the fund's average portfolio maturity and holdings. The Lehman Brothers U.S.
Credit Index is an unmanaged index composed of publicly-issued U.S. corporate
and specified foreign debentures and secured notes that meet the specified
maturity, liquidity, and quality requirements. To qualify, bonds must be
SEC-registered. The Fund is a professionally managed mutual fund. You cannot
invest directly in an index.
(4) The chart compares the performance of the Wells Fargo Corporate Bond Fund
Class A shares since inception with the Lehman Brothers U.S. Credit Index, and
the Lehman Brothers Corporate Long Bond Index, the former benchmark for this
fund. The chart assumes a hypothetical $10,000 investment in Class A shares and
reflects all operating expenses and assumes the maximum initial sales charge of
4.50%. The Fund is a professionally managed mutual fund.
(5) The average credit quality is compiled from ratings from Standard & Poor's
and/or Moody's Investors Service (together "rating agencies"). Standard & Poor's
is a registered trademark of McGraw-Hill, Inc., and has been licensed. The Fund
is not sponsored, sold or promoted by these rating agencies and these rating
agencies make no representation regarding the advisability of investing in the
Fund.
(6) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(7) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(8) Portfolio holdings are subject to change.
3
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
DIVERSIFIED BOND FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Diversified Bond Fund ("the Fund") seeks total return by
diversifying its investments among different fixed-income investment styles.
ADVISOR
Wells Fargo Bank, N.A.
FUND MANAGERS
Collectively Managed
INCEPTION DATE
12/31/82
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Institutional Class shares returned 3.22%(1) for the 12-month
period that ended May 31, 2000. The Fund outperformed its benchmark, Lehman
Brothers Aggregate Bond Index(2), which posted a 2.11% return during the
period. The Fund's Institutional Class shares distributed $1.16 per share in
dividend income and $0.53 in capital gains during the period. Please keep in
mind that past performance is no guarantee of future results.
The Diversified Bond Fund comprises three different fixed-income styles:
positive return bond, strategic value bond and managed fixed-income. "Style"
is either an approach to selecting investments or a type of investment that is
selected for a portfolio. This multi-style approach to investing is designed
to reduce the price and return volatility of the Fund, with the goal of
generating more consistent returns. During the period, the positive return
bond style returned 8.20%; the strategic value bond style returned 0.48%; and
the managed fixed-income style returned 1.49%.
The dominant trend in the bond market throughout 1999 was rising long bond
yields and falling bond prices. That trend reversed dramatically during the
first quarter of 2000 due to the temporary impact of falling interest rates.
The positive return bond style reacted to changing interest rates by shifting
assets between short-term, high-quality securities and long-term U.S. Treasury
bonds to capture capital gains. At fiscal year end, approximately 70 percent
of Fund assets were invested in U.S. Treasury bonds. Longer portfolio duration
was instrumental in the strong performance of the positive return bond style.
The strategic value bond component of the Fund benefited from allocations to
mortgage pass-through securities, long-term U.S. Treasuries, asset-backed
securities and taxable municipal bonds. Performance was affected negatively by
problems in the high-yield bond sector. Specifically, high yield bonds were
impacted by higher interest rates, which hurt corporate earnings, and rising
default rates.
In turn, the managed fixed-income segment of the Diversified Bond Fund also
capitalized on the strong performance of 30-year U.S. Treasury bonds and
mortgage-backed securities. Conversely, the segment was hurt by credit
concerns within specific corporate issues. In all, the segment outperformed
its peer group by emphasizing yield and strategic diversification within the
non-U.S. Treasury sectors.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
The Fund is managed to capitalize on changing interest rates. Since the
majority of the Fund's assets are currently invested in U.S. Treasury
securities, the Fund should continue to generate substantial gains if interest
rates fall. When rates remain stable, yield provides nearly all of a bond's
return. Should interest rates rise, the Fund will incrementally decrease
holdings of U.S. Treasury bonds in favor of short-term, high-quality
securities to protect principal. Therefore, in any interest rate environment,
the Fund seeks to deliver positive annual returns.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for the Institutional Class shares of the Wells Fargo
Diversified Bond Fund for periods prior to November 8, 1999 reflects performance
of the Institutional Class shares of Norwest Advantage Diversified Bond Fund,
its predecessor fund.
Performance of the Institutional Class shares of the Fund, prior to November
11, 1994, reflects the performance of a collective investment fund adjusted to
reflect Institutional Class expenses. Norwest Bank Minnesota, N.A. managed the
collective investment fund with an investment objective and principal investment
strategy that were substantially similar to those of the Fund. The performance
for the Fund includes performance of its predecessor collective investment fund
for periods before it became a mutual fund on November 11, 1994. The collective
investment fund's performance was adjusted to reflect the Fund's 1994 estimate
of expense ratios for the first year of operations as a mutual fund, including
any applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 ("1940 Act") nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
1940 Act or the Internal Revenue Code which, if applicable, may have adversely
affected the performance results. Institutional Class shares are sold without
sales charges or contingent deferred sales charge.
4
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
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AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
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<TABLE>
<CAPTION>
Year-To-Date* 1-Year 5-Year 10-Year
<S> <C> <C> <C> <C>
CLASS I 2.77 3.22 5.96 6.57
BENCHMARK
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CREDIT INDEX(3) 1.43 2.49 5.59 7.23
LEHMAN BROTHERS AGGREGATE
BOND INDEX 1.87 2.11 5.97 7.77
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 68%
NUMBER OF HOLDINGS 281
WEIGHTED AVERAGE COUPON 6.40%
ESTIMATED WEIGHTED AVERAGE
MATURITY 12.51 YEARS
ESTIMATED AVERAGE DURATION 6.12 YEARS
NAV (I) $25.22
SEC YIELD(5) (I) 6.40%
</TABLE>
PORTFOLIO ALLOCATION(6)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 30%
U.S. Treasury Bonds 27%
Corporate Bonds 14%
Cash Equivalents 8%
Asset-Backed Securities 6%
Non-Investment Grade Bonds (BB or Lower) 5%
Collateralized Mortgage Securities 5%
Variable/Floating Rate Bonds 2%
Municipal Bonds 2%
Mortgage-Backed Securities 1%
</TABLE>
GROWTH OF $10,000 INVESTMENT(4)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Wells Fargo Diversified Lehman Brothers Lehman Brothers
Bond Fund - Aggregate Intermediate Gov't/
Institutional Class Bond Index Credit Index
May-90 $10,000 $10,000 $10,000
Jun-90 $10,157 $10,161 $10,134
Jul-90 $10,232 $10,301 $10,275
Aug-90 $10,192 $10,163 $10,233
Sep-90 $10,288 $10,248 $10,312
Oct-90 $10,360 $10,378 $10,431
Nov-90 $10,524 $10,601 $10,590
Dec-90 $10,629 $10,766 $10,735
Jan-91 $10,725 $10,900 $10,844
Feb-91 $10,800 $10,992 $10,931
Mar-91 $10,921 $11,068 $11,005
Apr-91 $11,006 $11,188 $11,125
May-91 $11,063 $11,253 $11,193
Jun-91 $11,105 $11,247 $11,201
Jul-91 $11,203 $11,403 $11,326
Aug-91 $11,385 $11,650 $11,543
Sep-91 $11,535 $11,886 $11,741
Oct-91 $11,637 $12,018 $11,875
Nov-91 $11,742 $12,129 $12,012
Dec-91 $11,862 $12,489 $12,305
Jan-92 $11,862 $12,319 $12,193
Feb-92 $11,915 $12,399 $12,241
Mar-92 $11,933 $12,329 $12,193
Apr-92 $12,029 $12,418 $12,300
May-92 $12,187 $12,653 $12,491
Jun-92 $12,415 $12,827 $12,676
Jul-92 $12,308 $13,088 $12,928
Aug-92 $12,466 $13,221 $13,057
Sep-92 $12,649 $13,378 $13,234
Oct-92 $12,521 $13,200 $13,063
Nov-92 $12,584 $13,203 $13,013
Dec-92 $12,723 $13,413 $13,187
Jan-93 $12,770 $13,671 $13,444
Feb-93 $12,848 $13,910 $13,656
Mar-93 $12,924 $13,968 $13,710
Apr-93 $13,006 $14,065 $13,820
May-93 $13,004 $14,083 $13,790
Jun-93 $13,199 $14,338 $14,006
Jul-93 $13,252 $14,419 $14,040
Aug-93 $13,491 $14,672 $14,263
Sep-93 $13,570 $14,712 $14,322
Oct-93 $13,613 $14,767 $14,360
Nov-93 $13,488 $14,642 $14,280
Dec-93 $13,555 $14,721 $14,346
Jan-94 $13,702 $14,920 $14,505
Feb-94 $13,486 $14,661 $14,291
Mar-94 $13,292 $14,299 $14,055
Apr-94 $13,256 $14,185 $13,959
May-94 $13,209 $14,183 $13,969
Jun-94 $13,207 $14,152 $13,970
Jul-94 $13,357 $14,433 $14,171
Aug-94 $13,354 $14,451 $14,216
Sep-94 $13,281 $14,238 $14,085
Oct-94 $13,245 $14,225 $14,083
Nov-94 $13,210 $14,194 $14,019
Dec-94 $13,278 $14,292 $14,069
Jan-95 $13,420 $14,575 $14,306
Feb-95 $13,610 $14,921 $14,603
Mar-95 $13,699 $15,013 $14,686
Apr-95 $13,810 $15,222 $14,867
May-95 $14,152 $15,811 $15,317
Jun-95 $14,289 $15,927 $15,420
Jul-95 $14,299 $15,892 $15,422
Aug-95 $14,415 $16,083 $15,562
Sep-95 $14,541 $16,240 $15,675
Oct-95 $14,694 $16,451 $15,849
Nov-95 $14,836 $16,697 $16,058
Dec-95 $14,963 $16,932 $16,226
Jan-96 $15,054 $17,044 $16,366
Feb-96 $14,856 $16,748 $16,174
Mar-96 $14,754 $16,632 $16,091
Apr-96 $14,692 $16,538 $16,034
May-96 $14,726 $16,505 $16,022
Jun-96 $14,867 $16,726 $16,192
Jul-96 $14,901 $16,772 $16,240
Aug-96 $14,890 $16,744 $16,253
Sep-96 $15,094 $17,036 $16,479
Oct-96 $15,359 $17,413 $16,770
Nov-96 $15,597 $17,711 $16,992
Dec-96 $15,478 $17,547 $16,883
Jan-97 $15,496 $17,600 $16,948
Feb-97 $15,502 $17,644 $16,981
Mar-97 $15,319 $17,448 $16,864
Apr-97 $15,520 $17,710 $17,062
May-97 $15,643 $17,877 $17,203
Jun-97 $15,814 $18,090 $17,360
Jul-97 $16,351 $18,577 $17,714
Aug-97 $16,076 $18,419 $17,625
Sep-97 $16,376 $18,691 $17,830
Oct-97 $16,736 $18,962 $18,027
Nov-97 $16,840 $19,049 $18,067
Dec-97 $17,061 $19,241 $18,211
Jan-98 $17,334 $19,488 $18,450
Feb-98 $17,269 $19,473 $18,436
Mar-98 $17,301 $19,540 $18,495
Apr-98 $17,373 $19,642 $18,588
May-98 $17,581 $19,828 $18,724
Jun-98 $17,809 $19,996 $18,844
Jul-98 $17,789 $20,039 $18,910
Aug-98 $18,290 $20,365 $19,207
Sep-98 $18,752 $20,842 $19,690
Oct-98 $18,518 $20,732 $19,670
Nov-98 $18,602 $20,849 $19,669
Dec-98 $18,613 $20,912 $19,748
Jan-99 $18,725 $21,061 $19,856
Feb-99 $18,283 $20,694 $19,564
Mar-99 $18,374 $20,808 $19,710
Apr-99 $18,430 $20,874 $19,771
May-99 $18,311 $20,691 $19,619
Jun-99 $18,262 $20,625 $19,632
Jul-99 $18,241 $20,538 $19,615
Aug-99 $18,220 $20,527 $19,630
Sep-99 $18,367 $20,766 $19,813
Oct-99 $18,388 $20,842 $19,864
Nov-99 $18,409 $20,841 $19,889
Dec-99 $18,392 $20,740 $19,824
Jan-00 $18,414 $20,672 $19,752
Feb-00 $18,751 $20,922 $19,914
Mar-00 $19,156 $21,198 $20,122
Apr-00 $18,999 $21,137 $20,076
May-00 $18,901 $21,128 $20,108
</TABLE>
--------------------------------------------------------------------------------
(2) The Fund changed its benchmark to the Lehman Brothers Aggregate Bond Index
because it is more representative of the Fund's average portfolio maturity and
holdings. The Lehman Brothers Aggregate Bond Index is composed of the Lehman
Brothers Government/Credit Index and the Mortgage-Backed Securities Index and
includes Treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. The Fund is a professionally managed mutual fund.
You cannot invest directly in an index.
(3) The Lehman Brothers Intermediate Government/Credit Index is an unmanaged
index composed of U.S. Government securities with maturities in the one- to
10-year range, including securities issued by the U.S. Treasury and U.S.
Government agencies. It also contains all publicly issued, fixed-rate
non-convertible investment-grade domestic corporate debt in the one- to 10- year
range. The Fund is a professionally managed mutual fund. You cannot invest
directly in an index.
(4) The chart compares the performance of the Wells Fargo Diversified Bond Fund
Institutional Class shares for the most recent ten years with the Lehman
Brothers Intermediate Government/Credit Index, the former benchmark for this
fund, and the Lehman Brothers Aggregate Bond Index. The chart assumes a
hypothetical $10,000 investment in Institutional Class shares and reflects all
operating expenses. The Fund is a professionally managed mutual fund.
(5) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(6) The Fund invests exclusively in Wells Fargo Core Portfolios. This chart
represents the composite of the Portfolio allocations of the core portfolios in
which it invests. Portfolio holdings are subject to change.
5
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
INCOME FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Income Fund (the "Fund") seeks current income and total
return.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGER
Marjorie Grace, CFA (since 1/96)
INCEPTION DATE
6/9/87
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Class A shares returned (0.23)%(1) for the 12-month period that
ended May 31, 2000, excluding sales charges. The Fund underperformed its
benchmark, the Lehman Brothers Aggregate Bond Index(2), which returned 2.11%
during the period. The Fund's Class A shares distributed $0.60 per share in
dividend income and no capital gains during the period. Please keep in mind
past performance is no guarantee of future results.
The Fund's performance over the period reflected the impact of rising
interest rates that depressed bond prices while increasing yields. In fact,
the yield on the 10-year U.S. Treasury note, similar in duration to the Fund's
average, a good proxy for the Fund, increased nearly 0.65% over the past year.
In addition, both corporate bonds and mortgage-backed securities
underperformed U.S. Treasuries, causing yields in these sectors to increase
much more than yields for U.S. Treasuries. Fund performance was mainly
hampered by maintaining a longer maturity than its peers.
Over the 12-month period, the Fund restructured its bond holdings to offset
the impact of changing interest rates on various bond holdings. For example,
the Fund reduced its exposure to corporate bonds from an overweight position
of 58% to a more neutral position of 45%. The proceeds were invested in U.S.
Treasuries. The Fund also remains underweighted in agency notes, another
underperforming sector during recent months.
The Fund currently maintains a "barbell" structure, with most portfolio
assets concentrated in short- and long-term maturities. This reallocation of
portfolio assets, combined with declining interest rates between intermediate-
and long-term U.S. Treasury bonds, contributed to an exceptional first and
second quarter, helping the Fund regain its "A" performance rating.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
The Fund will continue to employ yield curve strategies when appropriate to
enhance performance and stress high-quality assets.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower..
Performance shown for Class A, Class B and Institutional Class shares of the
Wells Fargo Income Fund for periods prior to November 8, 1999, reflects
performance of the Class A, Class B and Institutional Class shares of the
Norwest Advantage Income Fund (the accounting survivor of a merger of the
Norwest Advantage Income, Total Return Bond and Performa Strategic Value Bond
Funds at the close of business November 5, 1999), its predecessor fund.
Effective at the close of business November 5, 1999, the Norwest Advantage and
Performa Funds were reorganized into the Wells Fargo Funds. For Class A shares,
the maximum front- end sales charge is 4.50%. The maximum contingent-deferred
sales charge for Class B shares is 5%. Class B share performance including sales
charge assumes the sales charge for the corresponding period. Institutional
Class shares are sold without sales charges.
(2) The Fund changed its benchmark to the Lehman Brothers Aggregate Bond Index
because it is more represenative of the Fund's average portfolio maturity and
holdings. The Lehman Brothers Aggregate Bond Index is composed of the Lehman
Brothers Government/Credit Index and the Mortgage-Backed Securities Index and
includes Treasury issues, agency issues, corporate bond issues and
mortgage-backed securities. The Fund is a professionally managed mutual fund.
You cannot invest directly in an index.
6
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
----------------------------------------------- --------------------------------
Year-To-Date* 1-Year 5-Year 10-Year 1-Year 5-Year 10-Year
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A 0.95 (0.23) 4.79 6.74 (4.72) 3.83 6.25
CLASS B 0.52 (1.00) 4.01 5.92 (5.67) 3.70 5.92
INSTITUTIONAL CLASS 1.06 (0.10) 4.82 6.74
BENCHMARK
LEHMAN BROTHERS
AGGREGATE BOND INDEX 1.87 2.11 5.97 7.77
LEHMAN BROTHERS
INTERMEDIATE
GOVERNMENT/ CREDIT
INDEX(3) 1.43 2.49 5.59 7.23
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 124%
NUMBER OF HOLDINGS 99
AVERAGE CREDIT QUALITY(5) AA
WEIGHTED AVERAGE COUPON 7.88%
ESTIMATED WEIGHTED AVERAGE
LIFE 10.99 YEARS
ESTIMATED DURATION 6.01 YEARS
NAV (A, B, I) $8.86, $8.84, $8.85
DISTRIBUTION RATE(6) (A, B, I) 6.40%, 5.95%, 6.95%
SEC YIELD(7) (A, B, I) 6.30%, 5.85%, 6.85%
</TABLE>
PORTFOLIO ALLOCATION(8)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds 45%
U.S. Treasury Bonds and Notes 36%
Federal Agencies 15%
Asset-Backed Securities 4%
</TABLE>
GROWTH OF $10,000 INVESTMENT(4)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO WELLS FARGO LEHMAN BROTHERS INTERMEDIATE
INCOME FUND - LEHMAN BROTHERS INCOME FUND - GOV'T/CREDIT
<S> <C> <C> <C> <C>
Class A Aggregate Bond Index Institutional Class Index
May-90 $9,550 $10,000 $10,000 $10,000
Jun-90 $9,669 $10,161 $10,124 $10,134
Jul-90 $9,800 $10,301 $10,262 $10,275
Aug-90 $9,795 $10,163 $10,257 $10,233
Sep-90 $9,809 $10,248 $10,271 $10,312
Oct-90 $9,824 $10,378 $10,287 $10,431
Nov-90 $9,987 $10,601 $10,458 $10,590
Dec-90 $10,124 $10,766 $10,601 $10,735
Jan-91 $10,253 $10,900 $10,736 $10,844
Feb-91 $10,435 $10,992 $10,926 $10,931
Mar-91 $10,542 $11,068 $11,039 $11,005
Apr-91 $10,668 $11,188 $11,171 $11,125
May-91 $10,732 $11,253 $11,238 $11,193
Jun-91 $10,723 $11,247 $11,228 $11,201
Jul-91 $10,874 $11,403 $11,387 $11,326
Aug-91 $11,143 $11,650 $11,668 $11,543
Sep-91 $11,389 $11,886 $11,925 $11,741
Oct-91 $11,520 $12,018 $12,063 $11,875
Nov-91 $11,661 $12,129 $12,211 $12,012
Dec-91 $12,034 $12,489 $12,601 $12,305
Jan-92 $11,901 $12,319 $12,461 $12,193
Feb-92 $11,934 $12,399 $12,496 $12,241
Mar-92 $11,881 $12,329 $12,440 $12,193
Apr-92 $11,942 $12,418 $12,504 $12,300
May-92 $12,189 $12,653 $12,764 $12,491
Jun-92 $12,355 $12,827 $12,937 $12,676
Jul-92 $12,715 $13,088 $13,314 $12,928
Aug-92 $12,813 $13,221 $13,417 $13,057
Sep-92 $13,044 $13,378 $13,658 $13,234
Oct-92 $12,840 $13,200 $13,445 $13,063
Nov-92 $12,821 $13,203 $13,426 $13,013
Dec-92 $12,991 $13,413 $13,603 $13,187
Jan-93 $13,223 $13,671 $13,846 $13,444
Feb-93 $13,460 $13,910 $14,095 $13,656
Mar-93 $13,503 $13,968 $14,139 $13,710
Apr-93 $13,611 $14,065 $14,252 $13,820
May-93 $13,587 $14,083 $14,227 $13,790
Jun-93 $13,782 $14,338 $14,432 $14,006
Jul-93 $13,836 $14,419 $14,488 $14,040
Aug-93 $14,065 $14,672 $14,709 $14,263
Sep-93 $14,090 $14,712 $14,735 $14,322
Oct-93 $14,129 $14,767 $14,776 $14,360
Nov-93 $14,090 $14,642 $14,735 $14,280
Dec-93 $14,148 $14,721 $14,796 $14,346
Jan-94 $14,276 $14,920 $14,916 $14,505
Feb-94 $14,062 $14,661 $14,706 $14,291
Mar-94 $13,791 $14,299 $14,407 $14,055
Apr-94 $13,503 $14,185 $14,120 $13,959
May-94 $13,373 $14,183 $13,984 $13,969
Jun-94 $13,323 $14,152 $13,932 $13,970
Jul-94 $13,498 $14,433 $14,115 $14,171
Aug-94 $13,519 $14,451 $14,137 $14,216
Sep-94 $13,289 $14,238 $13,896 $14,085
Oct-94 $13,251 $14,225 $13,856 $14,083
Nov-94 $13,071 $14,194 $13,668 $14,019
Dec-94 $13,157 $14,292 $13,758 $14,069
Jan-95 $13,363 $14,575 $13,973 $14,306
Feb-95 $13,658 $14,921 $14,282 $14,603
Mar-95 $13,744 $15,013 $14,372 $14,686
Apr-95 $13,980 $15,222 $14,619 $14,867
May-95 $14,509 $15,811 $15,172 $15,317
Jun-95 $14,576 $15,927 $15,226 $15,420
Jul-95 $14,513 $15,892 $15,176 $15,422
Aug-95 $14,699 $16,083 $15,371 $15,562
Sep-95 $14,841 $16,240 $15,520 $15,675
Oct-95 $15,026 $16,451 $15,713 $15,849
Nov-95 $15,217 $16,697 $15,913 $16,058
Dec-95 $15,439 $16,932 $16,145 $16,226
Jan-96 $15,515 $17,044 $16,224 $16,366
Feb-96 $15,180 $16,748 $15,874 $16,174
Mar-96 $15,053 $16,632 $15,741 $16,091
Apr-96 $14,924 $16,538 $15,606 $16,034
May-96 $14,883 $16,505 $15,563 $16,022
Jun-96 $15,072 $16,726 $15,760 $16,192
Jul-96 $15,107 $16,772 $15,798 $16,240
Aug-96 $15,055 $16,744 $15,743 $16,253
Sep-96 $15,301 $17,036 $16,017 $16,479
Oct-96 $15,649 $17,413 $16,364 $16,770
Nov-96 $15,916 $17,711 $16,644 $16,992
Dec-96 $15,734 $17,547 $16,453 $16,883
Jan-97 $15,755 $17,600 $16,475 $16,948
Feb-97 $15,754 $17,644 $16,491 $16,981
Mar-97 $15,533 $17,448 $16,242 $16,864
Apr-97 $15,771 $17,710 $16,491 $17,062
May-97 $15,894 $17,877 $16,638 $17,203
Jun-97 $16,100 $18,090 $16,835 $17,360
Jul-97 $16,706 $18,577 $17,470 $17,714
Aug-97 $16,431 $18,419 $17,182 $17,625
Sep-97 $16,745 $18,691 $17,510 $17,830
Oct-97 $17,062 $18,962 $17,841 $18,027
Nov-97 $17,150 $19,049 $17,934 $18,067
Dec-97 $17,348 $19,241 $18,141 $18,211
Jan-98 $17,617 $19,488 $18,423 $18,450
Feb-98 $17,524 $19,473 $18,325 $18,436
Mar-98 $17,564 $19,540 $18,367 $18,495
Apr-98 $17,637 $19,642 $18,444 $18,588
May-98 $17,875 $19,828 $18,693 $18,724
Jun-98 $18,057 $19,996 $18,883 $18,844
Jul-98 $18,058 $20,039 $18,884 $18,910
Aug-98 $18,391 $20,365 $19,233 $19,207
Sep-98 $18,909 $20,842 $19,775 $19,690
Oct-98 $18,722 $20,732 $19,579 $19,670
Nov-98 $18,850 $20,849 $19,713 $19,669
Dec-98 $18,905 $20,912 $19,771 $19,748
Jan-99 $19,034 $21,061 $19,926 $19,856
Feb-99 $18,474 $20,694 $19,319 $19,564
Mar-99 $18,608 $20,808 $19,460 $19,710
Apr-99 $18,625 $20,874 $19,498 $19,771
May-99 $18,377 $20,691 $19,218 $19,619
Jun-99 $18,239 $20,625 $19,073 $19,632
Jul-99 $18,181 $20,538 $19,013 $19,615
Aug-99 $18,105 $20,527 $18,933 $19,630
Sep-99 $18,263 $20,766 $19,098 $19,813
Oct-99 $18,285 $20,842 $19,142 $19,864
Nov-99 $18,283 $20,841 $19,122 $19,889
Dec-99 $18,161 $20,740 $18,998 $19,824
Jan-00 $18,120 $20,672 $18,959 $19,752
Feb-00 $18,339 $20,922 $19,213 $19,914
Mar-00 $18,665 $21,198 $19,538 $20,122
Apr-00 $18,498 $21,137 $19,367 $20,076
May-00 $18,334 $21,128 $19,199 $20,108
</TABLE>
--------------------------------------------------------------------------------
(3) The Lehman Brothers Intermediate Government/Credit Index is an unmanaged
index composed of U.S. Government securities with maturities in the one- to
10-year range, including securities issued by the U.S. Treasury and U.S.
Government agencies. It also contains all publicly issued, fixed-rate non
convertible investment-grade domestic corporate debt in the one- to 10- year
range. The Fund is a professionally managed mutual fund. You cannot invest
directly in an index.
(4) The chart compares the performance of the Wells Fargo Income Fund Class A
and Institutional Class shares for the most recent ten years with the Lehman
Brothers Aggregate Bond Index and the Lehman Brothers Intermediate
Government/Credit Index, the former benchmark for this fund. The chart assumes a
hypothetical $10,000 investment in Class A shares and Institutional
Class shares, reflects all operating expenses and, for Class A shares, assumes
the maximum initial sales charge of 4.50%. The Fund is a professionally managed
mutual fund.
(5) The average credit quality is compiled from ratings from Standard & Poor's
and/or Moody's Investors Service (together "rating agencies"). Standard & Poor's
is a registered trademark of McGraw-Hill, Inc., and has been licensed. The Fund
is not sponsored, sold or promoted by these rating agencies and these rating
agencies make no representation regarding the advisability of investing in the
Fund.
(6) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(7) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(8) Portfolio holdings are subject to change.
7
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
INCOME PLUS FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Income Plus Fund (the "Fund") seeks to maximize income while
maintaining prospects for capital appreciation.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGERS
Graham Allen, F.C.M.A. (since 7/98)
John Burgess (since 7/98)
Jacqueline Flippin (since 7/98)
Daniel Kokoszka, C.F.A. (since 7/98)
Paul Single (since 7/98)
Scott Smith, C.F.A. (since 7/98)
Allen Wisniewski, C.F.A. (since 7/98)
INCEPTION DATE
7/13/98
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Class A shares returned (5.56)%(1) for the 11-month period ended
May 31, 2000, excluding sales charges. The Fund underperformed its benchmark,
the Lehman Brothers Aggregate Bond Index(2), which posted a 2.43% return
during the period. The Fund's Class A shares distributed $0.79 per share in
dividend income and no capital gains during the period. Please keep in mind
that past performance is no guarantee of future results.
The Fund's underperformance during the period was attributed to price
declines in the Fund's equity holdings, and an overweight position in sectors
of a weakening high-yield bond market, together with an underweight exposure
to riskier, yet higher performing, emerging markets, including Russia and
Ecuador.
In addition, the Fund incurred costs associated with the implementation of a
more diversified global asset allocation strategy. The objective of this
strategy is to establish a core presence in sectors that offer greater
opportunities to maximize income and profit from capital appreciation. As a
result, the Fund's equity holdings were trimmed from 7% to 0.5%, along with a
reduction in investment grade corporate bonds. Concurrently, the Fund
increased its exposure to U.S. Treasury securities, domestic and international
high-yield bonds, and the mortgage sector.
A non-U.S. dollar sovereign bond sector also was created within the Fund,
comprising AAA- and AA-rated sovereign credits of European countries. Since
these bonds are denominated in foreign currencies, they are hedged to
eliminate exchange rate risk. This hedging strategy generated incremental
returns to the underlying bonds. Fund performance improved in recent months
because of its new global asset allocation strategy. The Fund also benefited
from a strengthening non-U.S. dollar sector and positive developments in other
bond sectors.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
The U.S. economy is beginning to show signs of a slowdown from the torrid
growth that defined 1999. Still, above-average growth and lingering inflation
worries may trigger additional interest rate hikes by the Federal Reserve
Board (the Fed). Yet investors' upbeat view of the inflation outlook and their
confidence in the Fed's ability to control price pressures should limit any
accompanying rise in market interest rates. Amid a changing interest rate
environment, Fund holdings will continue to be adjusted to capitalize on
opportunities within the marketplace.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for Class A, Class B and Class C shares of the Wells Fargo
Income Plus Fund prior to November 8, 1999, reflects performance of the
Class A, Class B and Class C shares of the Stagecoach Strategic Income Fund, its
predecessor fund. Effective at close of business November 5, 1999 the Stagecoach
Funds were reorganized into the Wells Fargo Funds. For Class A shares, the
maximum front-end sales charge is 4.50%. The maximum contingent-deferred sales
charge for Class B shares is 5.00%. The maximum sales charge for Class C shares
is 1.00%. Class B and C share performance including sales charge assumes the
sales charge for the corresponding period.
8
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
------------------------------------------ -----------------------------
Year-To-Date* 1-Year Since Inception 1-Year Since Inception
<S> <C> <C> <C> <C> <C>
CLASS A (3.08) (6.18) (1.70) (10.37) (4.08)
CLASS B (3.37) (6.87) (2.38) (11.22) (4.24)
CLASS C (3.37) (6.87) (2.38) (7.74) (2.38)
BENCHMARK
LEHMAN BROTHERS
AGGREGATE BOND INDEX 1.87 2.11
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 95%
NUMBER OF HOLDINGS 80
AVERAGE CREDIT QUALITY(4) A
WEIGHTED AVERAGE COUPON 8.61%
ESTIMATED WEIGHTED AVERAGE
MATURITY 8.39 YEARS
ESTIMATED AVERAGE DURATION 4.93 YEARS
NAV (A, B, C) $10.60, $10.61, $10.61
DISTRIBUTION RATE(5) (A, B, C) 8.11%, 7.74%, 7.74%
SEC YIELD(6) (A, B, C) 8.20%, 7.83%, 7.83%
</TABLE>
PORTFOLIO ALLOCATION(7)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Non-Investment Grade Bonds (BB or Lower) 38%
U.S. Treasury Bonds and Notes 26%
Federal Agencies 14%
Foreign Government Bonds 12%
Corporate Bonds 5%
Cash Equivalents 4%
Other 1%
</TABLE>
GROWTH OF $10,000 INVESTMENT(3)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO LEHMAN BROTHERS
INCOME PLUS FUND - CLASS A AGGREGATE BOND INDEX
JUL-98 $9,512 $10,021
<S> <C> <C>
Aug-98 $9,382 $10,184
Sep-98 $9,709 $10,423
Oct-98 $9,637 $10,368
Nov-98 $9,844 $10,426
Dec-98 $9,883 $10,458
Jan-99 $9,945 $10,533
Feb-99 $9,764 $10,349
Mar-99 $9,810 $10,406
Apr-99 $9,976 $10,439
May-99 $9,855 $10,348
Jun-99 $9,790 $10,315
Jul-99 $9,717 $10,271
Aug-99 $9,594 $10,265
Sep-99 $9,649 $10,385
Oct-99 $9,502 $10,423
Nov-99 $9,519 $10,422
Dec-99 $9,539 $10,372
Jan-00 $9,415 $10,338
Feb-00 $9,482 $10,463
Mar-00 $9,444 $10,601
Apr-00 $9,387 $10,571
May-00 $9,246 $10,566
</TABLE>
--------------------------------------------------------------------------------
(2) The Lehman Brothers Aggregate Bond Index is composed of the Lehman Brothers
Government/Credit Index and the Lehman Brothers Mortgage-Backed Securities Index
and includes Treasury issues, agency issues, corporate bond issues and mortgage-
backed securities. The Fund is a professionally managed mutual fund. You cannot
invest directly in an index.
(3) The chart compares the performance of the Wells Fargo Income Plus Fund
Class A shares since inception with the Lehman Brothers Aggregate Bond Index.
The chart assumes a hypothetical $10,000 investment in Class A shares and
reflects all operating expenses and assumes the maximum initial sales charge of
4.50%. The Fund is a professionally managed mutual fund.
(4) The average credit quality is compiled from ratings from Standard & Poor's
and/or Moody's Investors Service (together "rating agencies"). Standard & Poor's
is a trademark of McGraw-Hill, Inc., and has been licensed. The Fund is not
sponsored, sold or promoted by these rating agencies and these rating agencies
make no representation regarding the advisability of investing in the Fund.
(5) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(6) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(7) Portfolio holdings are subject to change.
9
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Intermediate Government Income Fund (the "Fund") seeks current
income, consistent with safety of principal.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGER
Marjorie Grace, CFA (since 1/96)
INCEPTION DATE
12/31/82
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Class A shares returned 1.92%(1) for the 12-month period ended
May 31, 2000, excluding sales charges. The Fund underperformed its benchmark,
Lehman Brothers Intermediate U.S. Government Index(2), which returned 3.00%
for the period. The Fund's Class A shares distributed $0.68 per share in
dividend income and no capital gains during the period. Please keep in mind
that past performance is no guarantee of future results.
The period was a challenging time for most bond market investors. With the
economy growing faster than expected, the Federal Reserve Board (the Fed)
raised short-term interest rates on six occasions to moderate growth. During
this time, the yield on the five-year U.S. Treasury note -- a good proxy for
the Fund -- increased 0.94%. At the same time, mortgage-backed securities
underperformed U.S. Treasuries, causing yields to increase much more than U.S.
Treasury securities. In contrast, the Fund's portfolio of intermediate-and
long-term government bonds fared well, as the U.S. Treasury Department's
decision to reduce the supply of 30-year U.S. Treasuries contributed to a
strong demand for these bonds.
The Fund's portfolio was restructured during the first quarter to reduce
exposure to poorly performing sectors and to capitalize on favorable trends
within other bond sectors. For example, the Fund reduced its holdings of
mortgage-backed securities from 28% to 25%, with proceeds invested in agency
notes. The Fund also maintained a "barbell" structure, with assets invested in
short- and long-term bonds and fewer intermediate-term bonds. In the U.S.
Treasury sector, this structure was beneficial in light of an inverted yield
curve.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
The Fund maintains a slightly longer maturity positioning to reflect positive
sentiment in the bond market. The Fund also will continue to employ its
current barbell strategy until the Fed begins to ease interest rates.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for the Class A and Class B shares of the Wells Fargo
Intermediate Government Income Fund for periods prior to November 8, 1999,
reflects performance of the Class A and Class B shares of the Norwest Advantage
Intermediate Government Income Fund (the accounting survivor of a merger of the
Norwest Fund and the Stagecoach U.S. Government Income and U.S. Government
Allocation Funds at the close of business November 5, 1999), its predecessor
fund. Effective at the close of business November 5, 1999, the Norwest Advantage
and Stagecoach Funds were reorganized into the Wells Fargo Funds. Performance
shown for the Class A shares of the Fund prior to May 2, 1996, reflects the
performance of the Institutional Class shares of the Fund adjusted to reflect
Class A shares sales charges. Performance shown for the Class B shares of the
Fund prior to May 17, 1996 reflects the performance of the Institutional
Class shares of the Fund adjusted to reflect Class B sales charges and expenses.
Performance shown for the Class C shares of the Fund for periods prior to
November 8, 1999, reflects performance of the Class B shares of the predecessor
fund adjusted for Class C sales charges and expenses. Performance of the
Institutional Class shares of the Fund, prior to November 11, 1994, reflects the
performance of a collective investment fund adjusted to reflect Institutional
Class expenses. Norwest Bank Minnesota, N.A. managed the collective investment
fund with an investment objective and principal investment strategy that were
substantially similar to those of the Fund. The performance for the Fund
includes performance of its predecessor collective investment fund for periods
before it became a mutual fund on November 11, 1994. The collective investment
fund's performance was adjusted to reflect the Fund's 1994 estimate of expense
ratios for the first year of operations as a mutual fund, including any
applicable sales load (without giving effect to any fee waivers or expense
reimbursements). The collective investment fund was not registered under the
Investment Company Act of 1940 ("1940 Act") nor subject to certain investment
limitations, diversification requirements, and other restrictions imposed by the
1940 Act or the Internal Revenue Code which, if applicable, may have adversely
affected the performance results. For Class A shares, the maximum front-end
sales charge is 4.50%. The maximum contingent-deferred sales charge for Class B
shares is 5.00%. The maximum sales charge for Class C shares is 1.00%. Class B
share performance including sales charge assumes the sales charge for the
corresponding period.
Institutional Class shares are sold without a front-end sales charge or
contingent deferred sales charge. Other fees and expenses apply to a continued
investment in the fund and are described in the Fund's prospectus.
10
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
-------------------------------------- ------------------------
Year-To-Date* 1-Year 5-Year 10-Year 1-Year 5-Year 10-Year
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A 1.81 1.92 5.18 6.32 (2.67) 4.22 5.83
CLASS B 1.41 1.06 4.39 5.53 (3.71) 4.09 5.53
CLASS C 1.51 1.07 4.39 5.53 0.12 4.39 5.53
INSTITUTIONAL CLASS 1.92 1.94 5.20 6.33
BENCHMARK
LEHMAN BROTHERS
INTERMEDIATE
GOVERNMENT INDEX 1.87 3.00 5.62 7.13
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 139%
NUMBER OF HOLDINGS 67
AVERAGE CREDIT QUALITY(4) AAA
WEIGHTED AVERAGE COUPON 7.63%
ESTIMATED WEIGHTED AVERAGE
MATURITY 8.07 YEARS
ESTIMATED AVERAGE DURATION 4.88 YEARS
$10.56, $10.55, $10.55,
NAV (A, B, C, I) $10.56
5.95%, 5.51%, 5.50%, 6.50%
DISTRIBUTION RATE(5) (A, B, C, I)
SEC YIELD(6) (A, B, C, I) 5.97%, 5.51%, 5.51%, 6.53%
</TABLE>
PORTFOLIO ALLOCATION(7)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Bonds and Notes 59%
Federal Agencies 39%
Cash Equivalents 1%
Other 1%
</TABLE>
GROWTH OF $10,000 INVESTMENT(3)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO INTERMEDIATE LEHMAN BROTHERS WELLS FARGO INTERMEDIATE
GOVERNMENT INCOME FUND - INTERMEDIATE GOVERNMENT INCOME FUND -
CLASS A GOVERNMENT INDEX INSTITUTIONAL CLASS
<S> <C> <C> <C>
Jun-90 $9,660 $10,132 $10,115
Jul-90 $9,797 $10,274 $10,259
Aug-90 $9,752 $10,237 $10,211
Sep-90 $9,831 $10,328 $10,295
Oct-90 $9,955 $10,472 $10,425
Nov-90 $10,128 $10,630 $10,605
Dec-90 $10,247 $10,776 $10,730
Jan-91 $10,341 $10,887 $10,828
Feb-91 $10,401 $10,954 $10,891
Mar-91 $10,451 $11,014 $10,943
Apr-91 $10,559 $11,127 $11,057
May-91 $10,619 $11,190 $11,119
Jun-91 $10,593 $11,199 $11,092
Jul-91 $10,708 $11,320 $11,212
Aug-91 $10,924 $11,535 $11,439
Sep-91 $11,137 $11,731 $11,662
Oct-91 $11,244 $11,865 $11,774
Nov-91 $11,382 $12,003 $11,918
Dec-91 $11,682 $12,295 $12,232
Jan-92 $11,514 $12,177 $12,056
Feb-92 $11,542 $12,215 $12,086
Mar-92 $11,478 $12,166 $12,019
Apr-92 $11,581 $12,275 $12,127
May-92 $11,743 $12,459 $12,296
Jun-92 $11,912 $12,638 $12,474
Jul-92 $12,146 $12,881 $12,718
Aug-92 $12,288 $13,012 $12,867
Sep-92 $12,460 $13,191 $13,047
Oct-92 $12,288 $13,033 $12,867
Nov-92 $12,247 $12,980 $12,824
Dec-92 $12,382 $13,147 $12,966
Jan-93 $12,604 $13,392 $13,198
Feb-93 $12,819 $13,589 $13,423
Mar-93 $12,903 $13,639 $13,511
Apr-93 $13,014 $13,746 $13,627
May-93 $12,996 $13,708 $13,609
Jun-93 $13,183 $13,907 $13,804
Jul-93 $13,208 $13,935 $13,831
Aug-93 $13,421 $14,142 $14,053
Sep-93 $13,502 $14,200 $14,138
Oct-93 $13,541 $14,233 $14,180
Nov-93 $13,426 $14,163 $14,059
Dec-93 $13,491 $14,221 $14,127
Jan-94 $13,612 $14,362 $14,254
Feb-94 $13,337 $14,165 $13,966
Mar-94 $13,049 $13,958 $13,664
Apr-94 $12,821 $13,868 $13,425
May-94 $12,632 $13,878 $13,228
Jun-94 $12,562 $13,880 $13,154
Jul-94 $12,768 $14,063 $13,369
Aug-94 $12,726 $14,104 $13,325
Sep-94 $12,646 $13,987 $13,242
Oct-94 $12,645 $13,990 $13,240
Nov-94 $12,615 $13,928 $13,210
Dec-94 $12,660 $13,973 $13,257
Jan-95 $12,812 $14,201 $13,417
Feb-95 $13,085 $14,474 $13,702
Mar-95 $13,169 $14,554 $13,790
Apr-95 $13,328 $14,723 $13,957
May-95 $13,691 $15,138 $14,337
Jun-95 $13,789 $15,234 $14,439
Jul-95 $13,746 $15,242 $14,394
Aug-95 $13,850 $15,367 $14,504
Sep-95 $13,932 $15,470 $14,589
Oct-95 $14,075 $15,640 $14,739
Nov-95 $14,252 $15,831 $14,924
Dec-95 $14,400 $15,987 $15,080
Jan-96 $14,515 $16,122 $15,200
Feb-96 $14,333 $15,951 $15,009
Mar-96 $14,238 $15,878 $14,910
Apr-96 $14,188 $15,832 $14,857
May-96 $14,159 $15,824 $14,827
Jun-96 $14,283 $15,985 $14,970
Jul-96 $14,328 $16,034 $15,003
Aug-96 $14,296 $16,053 $14,970
Sep-96 $14,508 $16,260 $15,192
Oct-96 $14,782 $16,527 $15,493
Nov-96 $15,019 $16,726 $15,728
Dec-96 $14,852 $16,636 $15,552
Jan-97 $14,912 $16,700 $15,615
Feb-97 $14,906 $16,727 $15,623
Mar-97 $14,751 $16,632 $15,447
Apr-97 $14,944 $16,820 $15,649
May-97 $15,061 $16,951 $15,771
Jun-97 $15,205 $17,096 $15,937
Jul-97 $15,625 $17,411 $16,362
Aug-97 $15,466 $17,344 $16,195
Sep-97 $15,703 $17,533 $16,443
Oct-97 $15,949 $17,737 $16,701
Nov-97 $15,999 $17,776 $16,753
Dec-97 $16,147 $17,921 $16,923
Jan-98 $16,412 $18,155 $17,186
Feb-98 $16,339 $18,135 $17,124
Mar-98 $16,379 $18,192 $17,151
Apr-98 $16,440 $18,279 $17,230
May-98 $16,596 $18,404 $17,378
Jun-98 $16,735 $18,528 $17,523
Jul-98 $16,765 $18,600 $17,554
Aug-98 $17,145 $18,951 $17,953
Sep-98 $17,724 $19,394 $18,575
Oct-98 $17,645 $19,426 $18,492
Nov-98 $17,615 $19,366 $18,444
Dec-98 $17,705 $19,442 $18,539
Jan-99 $17,771 $19,528 $18,608
Feb-99 $17,370 $19,260 $18,205
Mar-99 $17,487 $19,388 $18,311
Apr-99 $17,528 $19,441 $18,353
May-99 $17,294 $19,321 $18,125
Jun-99 $17,226 $19,350 $18,054
Jul-99 $17,178 $19,352 $18,003
Aug-99 $17,170 $19,379 $17,979
Sep-99 $17,377 $19,545 $18,195
Oct-99 $17,418 $19,584 $18,221
Nov-99 $17,411 $19,598 $18,231
Dec-99 $17,314 $19,536 $18,129
Jan-00 $17,226 $19,471 $18,040
Feb-00 $17,431 $19,632 $18,260
Mar-00 $17,680 $19,856 $18,525
Apr-00 $17,633 $19,848 $18,479
May-00 $17,626 $19,901 $18,477
</TABLE>
--------------------------------------------------------------------------------
(2) The Lehman Brothers Intermediate U.S. Government Index is an unmanaged
index composed of U.S. Government securities with maturities in the one- to
10-year range, including securities issued by the U.S. Treasury and U.S.
Government agencies. The Fund is a professionally managed mutual fund. You
cannot invest directly in an index.
(3) The chart compares the performance of the Wells Fargo Intermediate
Government Income Fund Class A and Institutional Class shares for the most
recent ten years with the Lehman Brothers Intermediate Government Index. The
chart assumes a hypothetical $10,000 investment in Class A and Institutional
Class shares and reflects all operating expenses and, for Class A Shares,
assumes the maximum initial sales charge of 4.50%. The Fund is a professionally
managed mutual fund.
(4) The average credit quality is compiled from ratings from Standard & Poor's
and/or Moody's Investors Service (together "rating agencies"). Standard & Poor's
is a trademark of McGraw-Hill, Inc., and has been licensed. The Fund is not
sponsored, sold or promoted by these rating agencies and these rating agencies
make no representation regarding the advisability of investing in the Fund.
(5) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(6) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(7) Portfolio holdings are subject to change.
11
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Limited Term Government Income Fund (the "Fund") seeks current
income, while preserving capital.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGERS
Paul Single (since 3/99)
Jacqueline Flippin (since 3/99)
INCEPTION DATE
10/27/93
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Class A shares returned 2.08%(1) for the 11-month period ended
May 31, 2000, excluding sales charges. The Fund underperformed its benchmark,
the Lehman Brothers Intermediate Government/Credit Index(2), which returned
2.42% for the period. The Fund's Class A shares distributed $0.50 per share in
dividend income and no capital gains during the period. Please keep in mind
that past performance is no guarantee of future results.
The period was characterized by the aggressive tightening of monetary policy
by the Federal Reserve Board (the Fed). Since June 30, 1999, the Fed has
increased short-term interest rates on six separate occasions to slow economic
growth. Corporate bonds, which represented significant Fund holdings last
summer, slumped amid the impact of rising rates, contributing to the Fund's
underperformance.
The Fund made two successful moves early this year to improve performance.
First, the Fund reduced its exposure to the corporate bond sector while
simultaneously increasing its allocation of government and mortgage-backed
securities. This reallocation was designed to capture higher relative yields
while reducing prepayment risk. The Fund also implemented a "barbell"
strategy, with most of the portfolio in short-term and long-term bonds,
thereby reducing mid-term bond holdings that would be negatively affected by
interest rate increases. These two changes helped improve Fund performance
throughout the first half of 2000.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
Short-term interest rates are expected to increase as the Fed continues to
boost interest rates to slow economic growth. Also, the U.S. Treasury
Department's buyback program should continue to affect the price of long-term
government bonds. Amid these conditions, the Fund will maintain its flexible
barbell strategy to capitalize on marketplace opportunities.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for Class A, Class B and Institutional Class shares of the
Wells Fargo Limited Term Government Income Fund for periods prior to
November 8, 1999, reflects performance of the Class A, Class B and Institutional
Class shares of the Stagecoach Short-Intermediate U.S. Government Income Fund
(the accounting survivor of a merger of the Stagecoach Fund and the Norwest
Advantage Limited Term Government Income Fund at the close of business
November 5, 1999), its predecessor fund. Effective at the close of business
November 5, 1999 the Stagecoach and Norwest Advantage Funds were reorganized
into the Wells Fargo Funds. Performance shown for the Class B shares of the fund
for periods prior to June 15, 1998, reflects the performance and expenses of the
Fund's Class A shares. Performance shown for the Institutional Class shares for
periods prior to September 6, 1996, reflects performance of the Class A shares
of the predecessor fund. For Class A shares, the maximum front-end sales charge
is 4.50%. The maximum contingent-deferred sales charge for Class B shares is
5.00%. Class B share performance including sales charge assumes the sales charge
for the corresponding period. Institutional Class shares are sold without a
sales charge.
(2) The Lehman Brothers Intermediate Treasury Bond Index is an unmanaged index
composed of U.S. Treasury securities in the one- to 10-year range. The Fund is a
professionally managed mutual fund. You cannot invest directly in an index.
(3) The Fund changed its benchmark to the Lehman Brothers Intermediate
Government/Credit Index because it is more representative of the Fund's average
portfolio maturity and holdings. The Lehman Brothers Intermediate
Government/Credit Index is an unmanaged index composed of U.S. Government
securities with maturities in the one- to 10-year range, including securities
issued by the U.S. Treasury and U.S. Government agencies. Its also contains all
publicly issued, fixed-rate non-convertible investment-grade domestic corporate
debt in the one- to 10-year range. The Fund is a professionally managed mutual
fund. You cannot invest directly in an index.
12
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
---------------------------------------- ---------------------------
Since Since
Year-To-Date* 1-Year 5-Year Inception 1-Year 5-Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A 1.22 2.15 4.93 4.67 (2.44) 3.98 3.94
CLASS B 0.91 1.40 4.27 4.00 (3.42) 3.95 4.00
INSTITUTIONAL CLASS 1.31 2.30 5.01 4.73
BENCHMARK
LEHMAN BROTHERS
INTERMEDIATE TREASURY
BOND INDEX(3) 2.14 3.32 5.68
LEHMAN BROTHERS
INTERMEDIATE
GOVERNMENT/ CREDIT
INDEX 1.43 2.49 5.59
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 80%
NUMBER OF HOLDINGS 74
AVERAGE CREDIT QUALITY(5) AAA
WEIGHTED AVERAGE COUPON 6.52%
ESTIMATED WEIGHTED AVERAGE
MATURITY 3.99 YEARS
ESTIMATED DURATION 2.71 YEARS
NAV (A, B, I) $9.44, $9.44, $9.26
DISTRIBUTION RATE(6) (A, B, I) 5.47%, 4.97%, 6.00%
SEC YIELD(7) (A, B, I) 6.71%, 6.27%, 7.32%
</TABLE>
PORTFOLIO ALLOCATION(8)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 49%
U.S. Treasury Notes 20%
Corporate Bonds 12%
Asset-Backed Securities 10%
Cash Equivalents 5%
Collateralized Mortgage Securities 3%
Other 1%
</TABLE>
GROWTH OF $10,000 INVESTMENT(4)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO LIMITED TERM LEHMAN BROTHERS WELLS FARGO LIMITED LEHMAN BROTHERS
GOVERNMENT INCOME FUND - INTERMEDIATE TERM GOVERNMENT INCOME FUND INTERMEDIATE TREASURY
CLASS A GOV'T/CREDIT INDEX INSTITUTIONAL CLASS BOND INDEX
<S> <C> <C> <C> <C>
Oct-93 $9,550 $10,000 $10,000 $10,000
Nov-93 $9,566 $9,944 $10,015 $9,950
Dec-93 $9,596 $9,990 $10,047 $9,991
Jan-94 $9,656 $10,101 $10,110 $10,090
Feb-94 $9,598 $9,951 $10,050 $9,949
Mar-94 $9,546 $9,787 $9,995 $9,805
Apr-94 $9,513 $9,721 $9,960 $9,742
May-94 $9,540 $9,727 $9,989 $9,749
Jun-94 $9,549 $9,728 $9,997 $9,752
Jul-94 $9,607 $9,868 $10,058 $9,878
Aug-94 $9,603 $9,899 $10,055 $9,907
Sep-94 $9,484 $9,808 $9,930 $9,826
Oct-94 $9,478 $9,807 $9,924 $9,829
Nov-94 $9,423 $9,762 $9,866 $9,783
Dec-94 $9,460 $9,797 $9,905 $9,815
Jan-95 $9,609 $9,962 $10,061 $9,974
Feb-95 $9,784 $10,169 $10,244 $10,165
Mar-95 $9,835 $10,227 $10,297 $10,221
Apr-95 $9,919 $10,353 $10,385 $10,339
May-95 $10,142 $10,666 $10,619 $10,630
Jun-95 $10,202 $10,738 $10,681 $10,701
Jul-95 $10,205 $10,739 $10,684 $10,706
Aug-95 $10,273 $10,837 $10,756 $10,792
Sep-95 $10,333 $10,915 $10,819 $10,863
Oct-95 $10,434 $11,037 $10,924 $10,985
Nov-95 $10,546 $11,182 $11,041 $11,119
Dec-95 $10,659 $11,299 $11,160 $11,230
Jan-96 $10,751 $11,397 $11,257 $11,327
Feb-96 $10,659 $11,263 $11,160 $11,205
Mar-96 $10,597 $11,205 $11,095 $11,150
Apr-96 $10,556 $11,165 $11,052 $11,118
May-96 $10,531 $11,157 $11,026 $11,113
Jun-96 $10,630 $11,275 $11,130 $11,223
Jul-96 $10,658 $11,309 $11,159 $11,257
Aug-96 $10,657 $11,318 $11,158 $11,271
Sep-96 $10,802 $11,475 $11,301 $11,415
Oct-96 $10,938 $11,678 $11,445 $11,602
Nov-96 $11,092 $11,832 $11,609 $11,741
Dec-96 $11,044 $11,756 $11,557 $11,677
Jan-97 $11,114 $11,802 $11,631 $11,721
Feb-97 $11,154 $11,825 $11,672 $11,738
Mar-97 $11,080 $11,743 $11,593 $11,669
Apr-97 $11,207 $11,881 $11,740 $11,800
May-97 $11,280 $11,980 $11,818 $11,891
Jun-97 $11,372 $12,089 $11,915 $11,992
Jul-97 $11,583 $12,335 $12,128 $12,217
Aug-97 $11,528 $12,273 $12,068 $12,168
Sep-97 $11,644 $12,416 $12,192 $12,301
Oct-97 $11,766 $12,553 $12,322 $12,445
Nov-97 $11,786 $12,581 $12,344 $12,474
Dec-97 $11,880 $12,682 $12,444 $12,576
Jan-98 $12,041 $12,848 $12,619 $12,745
Feb-98 $12,016 $12,838 $12,592 $12,728
Mar-98 $12,043 $12,879 $12,619 $12,766
Apr-98 $12,095 $12,944 $12,675 $12,826
May-98 $12,186 $13,038 $12,771 $12,915
Jun-98 $12,228 $13,122 $12,815 $13,002
Jul-98 $12,281 $13,168 $12,871 $13,053
Aug-98 $12,498 $13,375 $13,103 $13,311
Sep-98 $12,816 $13,711 $13,442 $13,632
Oct-98 $12,779 $13,697 $13,402 $13,659
Nov-98 $12,748 $13,696 $13,368 $13,609
Dec-98 $12,783 $13,751 $13,405 $13,660
Jan-99 $12,855 $13,827 $13,481 $13,720
Feb-99 $12,632 $13,624 $13,241 $13,520
Mar-99 $12,718 $13,725 $13,333 $13,609
Apr-99 $12,757 $13,768 $13,374 $13,648
May-99 $12,632 $13,662 $13,254 $13,561
Jun-99 $12,641 $13,671 $13,248 $13,585
Jul-99 $12,606 $13,659 $13,225 $13,598
Aug-99 $12,599 $13,669 $13,217 $13,626
Sep-99 $12,749 $13,797 $13,363 $13,732
Oct-99 $12,776 $13,833 $13,394 $13,749
Nov-99 $12,782 $13,850 $13,416 $13,755
Dec-99 $12,748 $13,805 $13,382 $13,717
Jan-00 $12,674 $13,754 $13,305 $13,679
Feb-00 $12,774 $13,867 $13,413 $13,786
Mar-00 $12,889 $14,012 $13,539 $13,961
Apr-00 $12,896 $13,980 $13,548 $13,952
May-00 $12,904 $14,002 $13,558 $14,010
</TABLE>
--------------------------------------------------------------------------------
(4) The chart compares the performance of the Wells Fargo Limited Term
Government Income Fund Class A and Institutional Class shares since inception
with the Lehman Brothers Intermediate Treasury Bond Index, the former benchmark
for this fund, and the Lehman Brothers Intermediate Government/Credit Index. The
chart assumes a hypothetical $10,000 investment in Class A shares and
Institutional Class shares and reflects all operating expenses and, for Class A
shares, assumes the maximum initial sales charge of 4.50%. The Fund is a
professionally managed mutual fund.
(5) The average credit quality is compiled from ratings from Standard & Poor's
and/or Moody's Investors Service (together "rating agencies"). Standard & Poor's
is a trademark of McGraw-Hill, Inc., and has been licensed. The Fund is not
sponsored, sold or promoted by these rating agencies and these rating agencies
make no representation regarding the advisability of investing in the Fund.
(6) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(7) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(8) Portfolio holdings are subject to change.
13
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
STABLE INCOME FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Stable Income Fund (the "Fund") seeks stability of principal
while providing low volatility total return.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGER
John Huber (since 1998)
INCEPTION DATE
11/11/94
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Class A shares returned 4.28%(1) for the 12-month period ended
May 31, 2000, excluding sales charges. The Fund underperformed its benchmark,
the Merrill Lynch Treasury Bill One-Year Index(2), which returned 4.76% during
the period. The Fund's Class A shares distributed $0.54 per share in dividend
income and no capital gains during the period. Please keep in mind that past
performance is no guarantee of future results.
The Fund performed well over the period despite an interest rate environment
that profoundly affected short-term U.S. Treasury bills. The prospect of the
U.S. Treasury Department's discontinuation of one-year U.S. Treasury bills
only heightened volatility. Yet the Fund's diversified holdings across several
sectors, including mortgage- and asset-backed securities plus corporate and
taxable municipal bonds, contributed to the Fund's continued success.
As spreads widened because of the U.S. Treasury Department's buyback program,
the Fund added floating, fixed-rate and municipal securities to the portfolio
to capture attractive yields. These short-term securities, which have yielded
between 7% to 8%, should continue to aid the Fund's performance going forward.
At the same time, the Fund increased its exposure to discounted agency paper,
which also should help boost returns over the ensuing year.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
Going forward, historically wide yield spreads provide a significant
advantage for the Fund, and should contribute to the Fund's performance. The
Fund will continue to focus on selection of undervalued securities and sectors
on a strategically diversified basis while maintaining a controlled duration
around its key benchmark, the one-year U.S. Treasury bill. The Fund also
expects that long-term interest rates will remain in their recent range until
the Federal Reserve Board eases its monetary policy. If this is the case, the
environment for fixed-income securities will improve from an interest rate
perspective, with spreads narrowing toward their historic norms. This
combination of events bodes well for fixed-income investors.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for Class A, Class B and Institutional Class shares of the
Wells Fargo Stable Income Fund for periods prior to November 8, 1999, reflects
performance of the Class A, Class B and Institutional Class shares of the
Norwest Advantage Stable Income Fund, its predecessor fund. Effective at the
close of business November 5, 1999, the Norwest Advantage Funds were reorganized
into the Wells Fargo Funds. Performance shown for Class A shares for periods
prior to May 2, 1996 reflects performance of the Institutional Class shares of
the Norwest Fund adjusted for Class A sales charges. Performance shown for
Class B shares for periods prior to May 17, 1996 reflects performance of the
Institutional Class shares of the Norwest Fund adjusted for Class B sales
charges and expenses. For Class A shares, the maximum front-end sales charge is
1.50%. The maximum contingent-deferred sales charge for Class B shares is 5.00%.
Class B share performance including sales charge assumes the sales charge for
the corresponding period. Institutional Class shares are sold without sales
charges.
14
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
---------------------------------------- -------------------------
Since Since
Year-To-Date* 1-Year 5-Year Inception 1-Year 5-Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A 1.97 4.28 5.45 5.73 2.71 5.13 5.44
CLASS B 1.57 3.40 4.64 4.92 1.91 4.64 4.92
INSTITUTIONAL CLASS 2.07 4.32 5.48 5.76
BENCHMARK
MERRILL LYNCH TREASURY
BILL ONE-YEAR INDEX 2.36 4.76 5.52
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 40%
NUMBER OF HOLDINGS 132
AVERAGE CREDIT QUALITY(4) AA
WEIGHTED AVERAGE COUPON 6.85%
ESTIMATED WEIGHTED AVERAGE
MATURITY 2.39 YEARS
ESTIMATED AVERAGE DURATION 1.00 YEAR
NAV (A, B, I) $10.15, $10.14, $10.15
DISTRIBUTION RATE(5) (A, B, I) 5.35%, 4.69%, 5.67%
SEC YIELD(6) (A, B, I) 6.28%, 5.62%, 6.63%
</TABLE>
PORTFOLIO ALLOCATION(7)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds 25%
Federal Agencies 25%
Asset-Backed Securities 21%
Collateralized Mortgage Securities 10%
Municipal Bonds 8%
Variable/Floating Rate Bonds 8%
Cash Equivalents 2%
Other 1%
</TABLE>
GROWTH OF $10,000 INVESTMENT(3)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO STABLE WELLS FARGO STABLE
INCOME FUND - MERRILL LYNCH TREASURY INCOME FUND -
CLASS A BILL ONE-YEAR INDEX INSTITUTIONAL CLASS
<S> <C> <C> <C>
Oct-94 $9,850 $10,000 $10,000
Nov-94 $9,880 $9,995 $10,030
Dec-94 $9,919 $10,029 $10,070
Jan-95 $9,968 $10,129 $10,120
Feb-95 $10,047 $10,218 $10,200
Mar-95 $10,126 $10,277 $10,280
Apr-95 $10,185 $10,336 $10,340
May-95 $10,293 $10,428 $10,450
Jun-95 $10,352 $10,488 $10,510
Jul-95 $10,392 $10,540 $10,550
Aug-95 $10,451 $10,590 $10,610
Sep-95 $10,500 $10,634 $10,660
Oct-95 $10,559 $10,698 $10,720
Nov-95 $10,638 $10,762 $10,800
Dec-95 $10,706 $10,822 $10,869
Jan-96 $10,778 $10,891 $10,942
Feb-96 $10,778 $10,904 $10,942
Mar-96 $10,809 $10,934 $10,974
Apr-96 $10,836 $10,972 $11,001
May-96 $10,872 $11,012 $11,038
Jun-96 $10,934 $11,070 $11,101
Jul-96 $10,991 $11,112 $11,159
Aug-96 $11,030 $11,164 $11,198
Sep-96 $11,112 $11,240 $11,281
Oct-96 $11,196 $11,323 $11,366
Nov-96 $11,258 $11,379 $11,430
Dec-96 $11,290 $11,418 $11,462
Jan-97 $11,334 $11,474 $11,506
Feb-97 $11,374 $11,515 $11,547
Mar-97 $11,392 $11,544 $11,566
Apr-97 $11,491 $11,613 $11,666
May-97 $11,551 $11,685 $11,727
Jun-97 $11,614 $11,754 $11,791
Jul-97 $11,740 $11,838 $11,919
Aug-97 $11,748 $11,875 $11,927
Sep-97 $11,839 $11,938 $12,019
Oct-97 $11,925 $12,004 $12,107
Nov-97 $11,954 $12,039 $12,124
Dec-97 $12,020 $12,096 $12,203
Jan-98 $12,108 $12,175 $12,293
Feb-98 $12,150 $12,206 $12,335
Mar-98 $12,187 $12,269 $12,373
Apr-98 $12,244 $12,326 $12,431
May-98 $12,288 $12,376 $12,463
Jun-98 $12,344 $12,435 $12,533
Jul-98 $12,406 $12,494 $12,595
Aug-98 $12,508 $12,595 $12,699
Sep-98 $12,613 $12,697 $12,805
Oct-98 $12,645 $12,763 $12,838
Nov-98 $12,667 $12,764 $12,860
Dec-98 $12,725 $12,809 $12,907
Jan-99 $12,750 $12,854 $12,944
Feb-99 $12,749 $12,861 $12,944
Mar-99 $12,823 $12,939 $13,019
Apr-99 $12,871 $12,986 $13,068
May-99 $12,870 $13,020 $13,079
Jun-99 $12,911 $13,075 $13,109
Jul-99 $12,956 $13,129 $13,154
Aug-99 $12,986 $13,169 $13,184
Sep-99 $13,058 $13,238 $13,257
Oct-99 $13,080 $13,270 $13,279
Nov-99 $13,106 $13,297 $13,307
Dec-99 $13,161 $13,325 $13,367
Jan-00 $13,154 $13,360 $13,375
Feb-00 $13,226 $13,428 $13,437
Mar-00 $13,294 $13,496 $13,510
Apr-00 $13,346 $13,562 $13,565
May-00 $13,421 $13,640 $13,644
</TABLE>
--------------------------------------------------------------------------------
(2) The Merrill Lynch Treasury Bill One-Year Index is an unmanaged measure of
the performance of the One-Year Treasury bill. Treasury bills are guaranteed by
the U.S. Government and, if held to maturity, offer a fixed rate of return and
fixed principal value. The Fund is a professionally managed mutual fund. You
cannot invest directly in an index.
(3) The chart compares the performance of the Wells Fargo Stable Income Fund
Class A and Institutional Class shares since inception with the Merrill Lynch
Treasury Bill One-Year Index. The chart assumes a hypothetical $10,000
investment in Class A shares and reflects all operating expenses and, for
Class A shares, assumes the maximum initial sales charge of 1.50%. The Fund is a
professionally managed mutual fund. You cannot invest directly in an index.
(4) The average credit quality is compiled from ratings from Standard & Poor's
and/or Moody's Investors Service (together "rating agencies"). Standard & Poor's
is a trademark of McGraw-Hill, Inc., and has been licensed. The Fund is not
sponsored, sold or promoted by these rating agencies and these rating agencies
make no representation regarding the advisability of investing in the Fund.
(5) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(6) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(7) The Fund invests exclusively in Wells Fargo Core Portfolios. This chart
represents the portfolio allocations of the portfolios in which it invests.
Portfolio holdings are subject to change.
15
<PAGE>
INCOME FUNDS PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
The Wells Fargo Variable Rate Government Fund (the "Fund") seeks a high level
of current income, while reducing principal volatility, by investing primarily
in adjustable rate mortgage securities.
ADVISOR
Wells Fargo Bank, N.A.
SUB-ADVISOR
Wells Capital Management Incorporated
FUND MANAGERS
Paul Single (since 11/90)
Scott Smith, CFA (since 10/93)
INCEPTION DATE
11/1/90
PERFORMANCE HIGHLIGHTS
--------------------------------------------------------------------------------
The Fund's Class A shares returned 4.09%(1) for the 11-month period ended May
31, 2000, excluding sales charges. The Fund underperformed its benchmark, the
Lehman Brothers ARMs Index(2), which returned 4.73% for the period. The Fund's
Class A shares distributed $0.42 per share in dividend income and no capital
gains during the period. Please keep in mind that past performance is no
guarantee of future results.
During the period, the Federal Reserve Board, prompted by continued domestic
growth, tightened monetary policy six times by raising interest rates, for a
total rate increase of 175 basis points, or 1.75%. This development, coupled
with the U.S. Treasury Department's buyback of long-term debt, triggered an
inversion of the yield curve. An inverted yield curve is characterized by
shorter-term bonds yielding as much or more than longer-term bonds. Since the
coupon rates on adjustable rate mortgages (ARMs) are based on short-term
rates, this development helped increase coupon income. The Fund will continue
to hold seasoned ARMs which have lower prepayment rates because homeowners who
hold these mortgages have had several opportunities to refinance but have not.
This strategy will help maintain the income generated by higher-yielding ARMs.
Also, it's important to note that the Fund's investment policy prohibits the
purchase of derivative securities that other funds within the peer group may
hold as investments. This policy is designed to protect investors.
STRATEGIC OUTLOOK
--------------------------------------------------------------------------------
Looking ahead, the Fund will continue to emphasize "seasoned bonds" which
have lower prepayment risk. These loans offer high levels of income and are
less sensitive to changes in interest rates.
--------------------------------------------------------------------------------
(1) FIGURES QUOTED REPRESENT PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE
RESULTS. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost. The Fund's Advisor has committed through September 30, 2001
to waive fees and/or reimburse expenses to the extent necessary to maintain a
certain net operating expense ratio for the Fund. Actual reductions of operating
expenses can increase total return to shareholders. Without these reductions,
the Fund's returns would have been lower.
Performance shown for the Class A shares of the Wells Fargo Variable Rate
Government Fund for periods prior to November 8, 1999, reflects performance of
the Class A shares of the Stagecoach Variable Rate Government Fund, its
predecessor fund. Effective at the close of business November 5, 1999, the
Stagecoach Funds were reorganized into the Wells Fargo Funds. Performance shown
for the Class A shares of the Fund prior to December 12, 1997, reflects
performance of the Class A shares of the Overland Express Variable Rate
Government Fund, a predecessor portfolio with the same investment objective and
policies as the Fund.
16
<PAGE>
PERFORMANCE HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) (%) (AS OF MAY 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excluding Sales Charge Including Sales Charge
------------------------------------------------ -----------------------------
Since Since
Year-To-Date* 1-Year 5-Year Inception 1-Year 5-Year Inception
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A 2.14 4.02 4.35 4.40 (0.62) 3.39 3.90
BENCHMARK
LEHMAN BROTHERS ARMS
INDEX 2.13 4.88 6.28
</TABLE>
* RETURNS FOR PERIODS LESS THAN ONE YEAR ARE NOT ANNUALIZED.
CHARACTERISTICS (AS OF MAY 31, 2000)
----------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 36%
NUMBER OF HOLDINGS 19
WEIGHTED AVERAGE COUPON 6.80%
ESTIMATED WEIGHTED AVERAGE
MATURITY 3.83 YEARS
ESTIMATED AVERAGE DURATION 1.00 YEAR
NAV (A) $8.90
DISTRIBUTION RATE(4) (A) 5.31%
SEC YIELD(5) (A) 5.72%
</TABLE>
PORTFOLIO ALLOCATION(6)
(AS OF MAY 31, 2000)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 99%
Cash Equivalents 1%
</TABLE>
GROWTH OF $10,000 INVESTMENT(3)
----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WELLS FARGO VARIABLE LEHMAN BROTHERS
RATE GOVERNMENT FUND - CLASS A ARMS INDEX
11/1/1990 $9,550 $10,000
<S> <C> <C>
Nov-90 $9,726 $10,086
Dec-90 $9,813 $10,197
Jan-91 $9,929 $10,291
Feb-91 $10,026 $10,360
Mar-91 $10,062 $10,432
Apr-91 $10,112 $10,527
May-91 $10,224 $10,587
Jun-91 $10,234 $10,635
Jul-91 $10,292 $10,719
Aug-91 $10,370 $10,847
Sep-91 $10,456 $10,947
Oct-91 $10,510 $11,057
Nov-91 $10,573 $11,163
Dec-91 $10,657 $11,309
Jan-92 $10,708 $11,381
Feb-92 $10,747 $11,409
Mar-92 $10,764 $11,364
Apr-92 $10,823 $11,487
May-92 $10,890 $11,590
Jun-92 $10,955 $11,711
Jul-92 $11,019 $11,762
Aug-92 $11,071 $11,862
Sep-92 $11,099 $11,927
Oct-92 $11,059 $11,829
Nov-92 $11,085 $11,846
Dec-92 $11,108 $11,958
Jan-93 $11,162 $12,080
Feb-93 $11,236 $12,186
Mar-93 $11,288 $12,241
Apr-93 $11,330 $12,313
May-93 $11,361 $12,343
Jun-93 $11,448 $12,472
Jul-93 $11,514 $12,530
Aug-93 $11,577 $12,605
Sep-93 $11,608 $12,607
Oct-93 $11,615 $12,612
Nov-93 $11,597 $12,578
Dec-93 $11,648 $12,673
Jan-94 $11,712 $12,758
Feb-94 $11,693 $12,717
Mar-94 $11,614 $12,616
Apr-94 $11,547 $12,549
May-94 $11,456 $12,539
Jun-94 $11,472 $12,567
Jul-94 $11,465 $12,644
Aug-94 $11,496 $12,706
Sep-94 $11,444 $12,654
Oct-94 $11,407 $12,643
Nov-94 $11,263 $12,608
Dec-94 $11,204 $12,674
Jan-95 $11,304 $12,884
Feb-95 $11,407 $13,143
Mar-95 $11,492 $13,206
Apr-95 $11,557 $13,346
May-95 $11,663 $13,562
Jun-95 $11,687 $13,618
Jul-95 $11,752 $13,667
Aug-95 $11,809 $13,676
Sep-95 $11,853 $13,773
Oct-95 $11,921 $13,859
Nov-95 $12,026 $13,977
Dec-95 $12,066 $14,083
Jan-96 $12,157 $14,181
Feb-96 $12,144 $14,213
Mar-96 $12,118 $14,238
Apr-96 $12,141 $14,257
May-96 $12,167 $14,298
Jun-96 $12,248 $14,400
Jul-96 $12,277 $14,470
Aug-96 $12,333 $14,557
Sep-96 $12,428 $14,669
Oct-96 $12,476 $14,836
Nov-96 $12,550 $14,979
Dec-96 $12,598 $15,027
Jan-97 $12,658 $15,114
Feb-97 $12,717 $15,198
Mar-97 $12,768 $15,227
Apr-97 $12,869 $15,346
May-97 $12,945 $15,441
Jun-97 $13,020 $15,543
Jul-97 $13,067 $15,677
Aug-97 $13,066 $15,718
Sep-97 $13,135 $15,847
Oct-97 $13,206 $15,951
Nov-97 $13,221 $15,956
Dec-97 $13,282 $16,064
Jan-98 $13,313 $16,172
Feb-98 $13,353 $16,208
Mar-98 $13,415 $16,316
Apr-98 $13,460 $16,386
May-98 $13,528 $16,465
Jun-98 $13,570 $16,547
Jul-98 $13,583 $16,612
Aug-98 $13,655 $16,698
Sep-98 $13,697 $16,790
Oct-98 $13,664 $16,782
Nov-98 $13,704 $16,872
Dec-98 $13,758 $16,911
Jan-99 $13,813 $17,006
Feb-99 $13,742 $17,081
Mar-99 $13,853 $17,183
Apr-99 $13,901 $17,248
May-99 $13,874 $17,273
Jun-99 $13,864 $17,298
Jul-99 $13,856 $17,337
Aug-99 $13,833 $17,350
Sep-99 $13,983 $17,512
Oct-99 $14,025 $17,598
Nov-99 $14,067 $17,677
Dec-99 $14,130 $17,739
Jan-00 $14,199 $17,787
Feb-00 $14,243 $17,922
Mar-00 $14,306 $18,031
Apr-00 $14,384 $18,069
May-00 $14,433 $18,116
</TABLE>
--------------------------------------------------------------------------------
(2) The Lehman Brothers ARMs Index is an unmanaged index composed of
agency-guaranteed securities with coupons that periodically adjust based on a
spread over a published index. The Fund is a professionally managed mutual fund.
You cannot invest directly in an index.
(3) The chart compares the performance of the Wells Fargo Variable Rate
Government Fund Class A shares since inception with the Lehman Brothers ARMs
Index. The chart assumes a hypothetical $10,000 investment in Class A shares and
reflects all operating expenses and assumes the maximum initial sales charge of
4.50%. The Fund is a professionally managed mutual fund.
(4) The distribution rate is based on the actual distributions made by the
Fund. The distribution rate is calculated by annualizing the Fund's most recent
income dividend and dividing that figure by the applicable current public
offering price.
(5) The formula used to calculate the SEC yield is described in detail in the
Fund's Statement of Additional Information and is designed to standardize the
yield calculations so that all mutual fund companies with the same or similar
portfolios quote a uniform yield figure for their non-money market
advertisements. SEC yields include the actual amount of interest earned adjusted
by any gain or loss realized due to the return of principal, less expenses and
the maximum offering price calculated on a 30-day month-end basis.
(6) Portfolio holdings are subject to change.
17
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
CORPORATE BOND FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
FOREIGN BONDS - 5.23%(a)
250,000 KAPPA BEHEER BV (EURO)[::] 10.87% 07/15/09 $ 148,749
$ 100,000 PROVINCE OF QUEBEC 8.80 04/15/03 103,375
130,000 REPUBLIC OF ARGENTINA 11.00 10/09/06 117,325
340,000 REPUBLIC OF POLAND 7.13 07/01/04 327,250
130,000 UNITED MEXICAN STATES 8.63 03/12/08 119,600
816,299
TOTAL FOREIGN BONDS (COST $873,528)
-----------
CORPORATE BONDS & NOTES - 62.01%
AEROSPACE - 1.50%
150,000 LOCKHEED MARTIN CORPORATION 8.50 12/01/29 146,250
100,000 RAYTHEON COMPANY 6.55 03/15/10 86,875
233,125
-----------
BANK & FINANCE - 8.26%
150,000 AMBAC INCORPORATED 9.38 08/01/11 161,625
100,000 ASSOCIATES CORPORATION NA 6.73 09/30/02 98,125
300,000 CITICORP CAPITAL II 8.02 02/15/27 267,375
200,000 CONSECO INCORPORATED(::) 9.00 10/15/06 135,000
481,000 HOMESIDE INTERNATIONAL
INCORPORATED SERIES B 11.25 05/15/03 520,683
100,000 SEARS DISCOVER CREDIT
CORPORATION SERIES II 9.14 03/13/12 104,625
1,287,433
-----------
BUSINESS SERVICES - 0.93%
150,000 CENDANT CORPORATION 7.75 12/01/03 144,188
-----------
COMMERCIAL SERVICES - 1.95%
200,000 CSC HOLDINGS INCORPORATED 9.88 05/15/06 198,500
100,000 CSC HOLDINGS INCORPORATED 10.50 05/15/16 106,000
304,500
-----------
ENERGY & RELATED - 0.80%
25,000 GULF CANADA RESOURCE 9.25 01/15/04 25,063
25,000 OCEAN ENERGY INCORPORATED 8.88 07/15/07 24,219
25,000 PIONEER NATURAL RESOURCES 9.63 04/01/10 25,375
25,000 SNYDER OIL CORPORATION 8.75 06/15/07 24,906
25,000 VINTAGE PETROLEUM INCORPORATED 9.00 12/15/05 24,375
123,938
-----------
ENTERTAINMENT & LEISURE - 1.48%
125,000 PARK PLACE ENTERTAINMENT++ 9.38 02/15/07 121,250
125,000 SUN INTERNATIONAL HOTELS 9.00 03/15/07 110,000
231,250
-----------
FOOD & RELATED - 4.75%
125,000 CANANDAIGUA BRANDS 8.63 08/01/06 121,406
200,000 MARSH SUPERMARKET INCORPORATED 8.88 08/01/07 185,500
500,000 PEPSI BOTTLING GROUP 7.00 03/01/29 433,750
740,656
-----------
</TABLE>
18
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
CORPORATE BOND FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
HEALTHCARE - 1.16%
$ 200,000 TENET HEALTHCARE CORPORATION 8.13% 12/01/08 $ 181,000
-----------
INDUSTRIALS - 8.31%
250,000 APPLIED POWER INCORPORATED 8.75 04/01/09 257,188
125,000 CB BUS AB 11.00 02/15/10 120,560
300,000 DAIMLERCHRYSLER AG 7.45 02/01/97 268,500
100,000 GENERAL MOTORS 6.13 01/22/08 89,625
100,000 IBM CORPORATION 8.38 11/01/19 106,875
125,000 LEAR CORPORATION 8.25 02/01/02 122,344
125,000 PLAYTEX PRODUCTS INCORPORATED 8.88 07/15/04 119,844
250,000 REPUBLIC SERVICES INCORPORATED 7.13 05/15/09 211,250
1,296,186
-----------
INSURANCE CARRIERS - 1.07%
400,000 FREMONT GENERAL CORPORATION 7.88 03/17/09 167,000
-----------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT -
1.81%
300,000 ENSERCH CORPORATION 6.56 07/01/05 282,750
-----------
MEDIA - 2.83%
250,000 NEWS AMERICA HOLDINGS
INCORPORATED 9.25 02/01/13 254,062
200,000 NEWS AMERICA HOLDINGS
INCORPORATED 6.70 05/21/04 187,250
441,312
-----------
PRIMARY METAL INDUSTRIES - 4.64%
400,000 KINDER MORGAN INCORPORATED 6.80 03/01/08 370,500
400,000 TRANS-CANADA PIPELINES 6.49 01/21/09 352,500
723,000
-----------
REAL ESTATE - 2.41%
100,000 D.R. HORTON INCORPORATED 10.00 04/15/06 96,750
300,000 ERP OPERATING LP 6.63 04/13/05 279,375
376,125
-----------
REAL ESTATE INVESTMENT TRUSTS - 6.14%
490,000 CAMDEN PROPERTY TRUST 6.63 02/15/01 485,712
500,000 MACK-CALI REALTY LP 7.00 03/15/04 472,500
958,212
-----------
RETAIL & RELATED - 7.66%
100,000 DAYTON HUDSON CORPORATION 7.25 09/01/04 98,125
200,000 FRONTIERVISION LP CAPITAL 11.00 10/15/06 198,500
200,000 JONES APPAREL GROUP 7.88 06/15/06 191,500
250,000 KMART CORPORATION 8.25 01/01/22 210,313
500,000 SAKS INCORPORATED 7.00 07/15/04 433,750
250,000 VISTA EYECARE INCORPORATED 12.75{/\} 10/15/05 62,500
1,194,688
-----------
</TABLE>
19
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
CORPORATE BOND FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS - 4.57%
$ 100,000 ADELPHIA COMMUNICATIONS 8.88% 01/15/07 $ 89,250
100,000 ADELPHIA COMMUNICATIONS SERIES
B 9.88 03/01/07 94,000
400,000 TCI COMMUNICATIONS
INCORPORATED 7.88 02/15/26 379,500
150,000 WORLDCOM INCORPORATED 8.00 05/15/06 150,000
712,750
-----------
TRANSPORTATION - 1.74%
300,000 UNION PACIFIC CORPORATION 6.63 02/01/08 271,500
-----------
9,669,613
TOTAL CORPORATE BONDS & NOTES (COST
$11,036,599)
-----------
U.S. GOVERNMENT AGENCY SECURITIES - 9.69%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 9.69%
1,147,865 FNMA # 513615 7.50 09/01/29 1,114,496
407,737 FNMA # 525817 7.50 04/01/30 396,176
1,510,672
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $1,543,851)
-----------
U.S. TREASURY SECURITIES - 19.77%
U.S. TREASURY BONDS - 16.62%
1,300,000 U.S. TREASURY BONDS(::) 10.75 08/15/05 1,529,619
700,000 U.S. TREASURY BONDS(::) 5.25 02/15/29 609,133
455,000 U.S. TREASURY BONDS(::) 6.13 08/15/29 453,125
2,591,877
-----------
U.S. TREASURY NOTES - 3.15%
300,000 U.S. TREASURY NOTES 6.25 02/01/08 296,940
50,000 U.S. TREASURY NOTES 5.75 08/15/03 48,658
150,000 U.S. TREASURY NOTES(::) 5.88 02/15/04 146,266
491,864
-----------
3,083,741
TOTAL U.S. TREASURY SECURITIES (COST
$3,049,702)
-----------
SHORT-TERM INSTRUMENTS - 2.32%
362,000 GOLDMAN SACHS POOLED
REPURCHASE AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES (COST
$362,000) 6.36 06/01/00 362,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $16,865,680)* 99.02% $15,442,325
OTHER ASSETS AND LIABILITIES, NET 0.98 152,931
------- -----------
TOTAL NET ASSETS 100.00% $15,595,256
------- -----------
</TABLE>
(A) FOREIGN BOND PRINCIPAL IS DENOMINATED IN U.S. DOLLARS EXCEPT AS INDICATED
PARENTHETICALLY.
[::] ZERO COUPON RATE DISCLOSED REPRESENTS YIELD TO MATURITY AS DETERMINED AT
DATE OF PURCHASE.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
++ REPRESENTS SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM
EXEMPT FROM REGISTRATION UNDER SECTION 144A OF THE SECURITIES ACT OF 1933.
THESE SECURITIES MAY ONLY BE SOLD TO OTHER QUALIFIED INSTITUTIONAL BUYERS
AND ARE CONSIDERED LIQUID BY THE ADVISER PURSUANT TO GUIDELINES ESTABLISHED
BY THE BOARD OF TRUSTEES.
{/\} THIS SECURITY IS CURRENTLY IN DEFAULT WITH RESPECT TO ITS INTEREST PAYMENT.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL STATEMENT
PURPOSES AND NET UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 52,840
GROSS UNREALIZED DEPRECIATION (1,476,195)
----------
NET UNREALIZED DEPRECIATION $(1,423,355)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
DIVERSIFIED BOND FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE/SHARE
AMOUNT SECURITY DESCRIPTION VALUE
<C> <S> <C>
N/A WELLS FARGO MANAGED FIXED INCOME
PORTFOLIO $ 95,161,996
N/A WELLS FARGO POSITIVE RETURN BOND
PORTFOLIO 63,582,418
N/A WELLS FARGO STRATEGIC VALUE BOND
PORTFOLIO 31,772,300
190,516,714
TOTAL INVESTMENTS IN CORE PORTFOLIOS (100.12%) (COST
$194,858,119)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $194,858,119) 100.12% $190,516,714
OTHER ASSETS AND LIABILITIES, NET (0.12) (233,842)
------- ------------
TOTAL NET ASSETS 100.00% $190,282,872
------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES - 3.62%
$ 5,000,000 DISCOVER CARD MASTER TRUST I+ 6.64% 09/16/05 $ 5,002,500
924,738 FIRST USA CONSUMER TRUST CLASS
A 6.50 09/15/02 921,849
7,000,000 GREEN TREE FINANCIAL
CORPORATION SERIES 1997-6 A7 7.14 01/15/29 6,688,010
319,637 SEQUOIA MORTGAGE TRUST SERIES
2 CLASS A1+ 6.15 10/25/24 319,937
1,355,000 VAN KAMPEN CLO-I+ 6.57 10/08/07 1,361,688
14,293,984
TOTAL ASSET BACKED SECURITIES (COST
$14,639,023)
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.14%
553,826 SACO I INCORPORATED SERIES
1997-2+ 7.00 08/25/36 548,548
------------
548,548
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $568,383)
------------
CORPORATE BONDS & NOTES - 44.09%
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS - 0.10%
541,000 TOMMY HILFIGER 6.50 06/01/03 408,455
------------
AUTOMOTIVE DEALERS & GASOLINE SERVICE STATIONS - 0.13%
774,000 PEP BOYS 6.71 11/03/04 494,393
------------
AUTOMOTIVE REPAIR, SERVICES & PARKING - 1.24%
5,000,000 HERTZ CORPORATION 7.63 08/15/07 4,893,750
------------
BUSINESS SERVICES - 2.63%
5,000,000 FIRST DATA CORPORATION 6.38 12/15/07 4,631,250
5,968,000 ORACLE CORPORATION 6.72 02/15/04 5,759,120
10,390,370
------------
CHEMICALS & ALLIED PRODUCTS - 4.17%
5,000,000 E. I. DU PONT DE NEMOURS &
COMPANY 6.88 10/15/09 4,737,500
1,000,000 IMC GLOBAL INCORPORATED 7.63 11/01/05 968,750
6,800,000 MERCK & COMPANY
INCORPORATED(::) 6.40 03/01/28 5,941,500
5,000,000 PROCTER & GAMBLE COMPANY(::) 6.60 12/15/04 4,843,750
16,491,500
------------
COMMUNICATIONS - 3.56%
3,000,000 AT&T CAPITAL CORPORATION 6.75 12/01/00 2,992,500
4,500,000 LCI INTERNATIONAL INCORPORATED 7.25 06/15/07 4,196,250
2,000,000 QWEST COMMUNICATIONS
INTERNATIONAL INCORPORATED 7.50 11/01/08 1,882,500
5,000,000 WORLDCOM INCORPORATED 8.00 05/15/06 5,000,000
14,071,250
------------
DEPOSITORY INSTITUTIONS - 5.67%
3,500,000 BANK UNITED CORPORATION 8.00 03/15/09 3,040,625
4,500,000 BANKBOSTON CORPORATION 6.88 07/15/03 4,365,000
3,000,000 BANKERS TRUST NEW YORK
COMPANY(::) 7.38 05/01/08 2,835,000
194,000 GOLDEN STATE HOLDINGS 7.13 08/01/05 169,265
5,000,000 KEY BANK NA(::) 6.50 04/15/08 4,506,250
250,000 MIDLAND BANK PLC 6.95 03/15/11 225,313
5,000,000 NATIONSBANK CORPORATION 7.80 09/15/16 4,756,250
</TABLE>
22
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
DEPOSITORY INSTITUTIONS (continued)
$ 2,500,000 SOCIETY CORPORATION 8.13% 06/15/02 $ 2,512,500
22,410,203
------------
ELECTRIC, GAS & SANITARY SERVICES - 0.41%
147,000 NIAGARA MOHAWK POWER 7.38 07/01/03 143,692
725,000 TEXAS UTILITIES COMPANY 6.20 10/01/02 703,250
774,000 WILLIAMS COMPANIES
INCORPORATED 6.13 02/15/02 749,813
1,596,755
------------
ENERGY - 0.80%
3,300,000 MIDAMERICAN ENERGY HOLDINGS 6.96 09/15/03 3,159,750
------------
FOOD & KINDRED PRODUCTS - 1.55%
4,000,000 ANHEUSER BUSCH COMPANIES 9.00 12/01/09 4,330,000
1,500,000 FLOWERS INDUSTRIES
INCORPORATED 7.15 04/15/28 1,042,500
774,000 WHITMAN CORPORATION 7.29 09/15/26 760,455
6,132,955
------------
FOREIGN DEPOSITORY INSTITUTIONS - 0.72%
3,000,000 KOREA DEVELOPMENT BANK 7.13 04/22/04 2,857,500
------------
GENERAL MERCHANDISE STORES - 2.24%
5,000,000 SAKS INCORPORATED 7.50 12/01/10 3,868,750
5,000,000 TARGET CORPORATION 7.50 02/15/05 4,981,250
8,850,000
------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT - 2.59%
6,861,000 DELL COMPUTER CORPORATION 7.10 04/15/28 5,969,070
4,000,000 IBM CORPORATION 8.38 11/01/19 4,275,000
10,244,070
------------
INDUSTRIAL SERVICES - 0.64%
3,000,000 GRUMA SA DE CV (A) 7.63 10/15/07 2,520,000
------------
INSURANCE CARRIERS - 2.65%
8,000,000 AMBAC INCORPORATED(::) 9.38 08/01/11 8,620,000
968,000 RELIASTAR FINANCIAL
CORPORATION 7.13 03/01/03 945,010
968,000 TERRA NOVA HOLDINGS (U.K.) (A) 7.20 08/15/07 915,970
10,480,980
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS;
PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS - 0.10%
387,000 MALLINCKRODT INCORPORATED 6.30 03/15/01 380,227
------------
NONDEPOSITORY CREDIT INSTITUTIONS - 3.85%
4,500,000 DRESDNER FUNDING TRUST I 8.15 06/30/31 3,768,750
6,000,000 GENERAL ELECTRIC CAPITAL
CORPORATION(::) 8.70 02/15/03 6,172,500
5,000,000 GENERAL ELECTRIC CAPITAL
CORPORATION(::) 8.63 06/15/08 5,281,250
15,222,500
------------
</TABLE>
23
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
PRIMARY METAL INDUSTRIES - 0.90%
$ 194,000 CSC HOLDINGS INCORPORATED 7.25% 07/15/08 $ 173,872
4,000,000 CSC HOLDINGS INCORPORATED 7.63 07/15/18 3,370,000
3,543,872
------------
REAL ESTATE - 1.14%
4,500,000 ROUSE COMPANY 8.50 01/15/03 4,505,625
------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES - 2.76%
1,161,000 CHARLES SCHWAB CORPORATION 6.88 09/02/03 1,130,524
5,000,000 GOLDMAN SACHS GROUP
INCORPORATED(::) 7.50 01/28/05 4,893,750
5,000,000 LEHMAN BROTHERS HOLDINGS
INCORPORATED 8.50 08/01/15 4,893,750
10,918,024
------------
TECHNOLOGY - 0.42%
1,819,000 MASSACHUSETTS INSTITUTE OF
TECHNOLOGY 7.25 11/02/96 1,673,480
------------
TRANSPORTATION BY AIR - 1.55%
5,000,000 DELTA AIRLINES INCORPORATED 8.30 12/15/29 4,225,000
736,296 FEDERAL EXPRESS SERIES 97-B 7.52 01/15/18 703,678
1,200,000 SOUTHWEST AIRLINES COMPANY 7.88 09/01/07 1,195,500
6,124,178
------------
TRANSPORTATION EQUIPMENT - 2.85%
10,000,000 DAIMLERCHRYSLER 7.40 01/20/05 9,825,000
2,000,000 FEDERAL-MOGUL CORPORATION(::) 7.75 07/01/06 1,440,000
11,265,000
------------
UTILITY-ELECTRIC - 0.09%
387,000 CALENERGY COMPANY INCORPORATED 7.23 09/15/05 365,231
------------
WATER TRANSPORTATION - 0.28%
1,161,000 ROYAL CARIBBEAN CRUISES 7.13 09/18/02 1,111,658
------------
WHOLESALE TRADE - NONDURABLE GOODS - 1.05%
4,500,000 STAPLES INCORPORATED 7.13 08/15/07 4,151,250
------------
174,262,976
TOTAL CORPORATE BONDS & NOTES (COST
$190,840,483)
------------
MUNICIPAL BONDS - 0.38%
774,000 HUDSON COUNTY NJ IMPORT
AUTHORITY FACILITIES LEASING
RV FSA INSURED 7.40 12/01/25 718,767
778,000 WESTERN MINNESOTA POWER AGENCY
RV SERIES A AMBAC INSURED 6.33 01/01/02 765,599
1,484,366
TOTAL MUNICIPAL BONDS (COST $1,606,060)
------------
U.S. GOVERNMENT AGENCY SECURITIES - 14.50%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.42%
4,956,608 FHLMC # C00920+ 7.00 02/01/30 4,710,314
968,000 FHLMC SERIES T-20 CLASS A6 7.49 09/25/29 941,631
5,651,945
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 8.45%
4,500,000 FNMA(::) 7.13 02/15/05 4,451,265
</TABLE>
24
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (continued)
$ 4,740,000 FNMA(::) 6.25% 05/15/29 $ 4,117,875
4,855,669 FNMA 7.50 09/01/29 4,714,515
3,000,000 FNMA(::) 7.13 01/15/30 2,915,430
6,592,565 FNMA #253008 8.00 11/01/29 6,536,923
1,388 FNMA #303414 6.50 07/01/02 1,326
665,036 FNMA #408118 6.50 01/01/28 615,158
861,117 FNMA #415414 6.50 02/01/28 796,533
4,594,168 FNMA #492910+ 7.50 01/01/29 4,460,616
4,839,895 FNMA #520842 8.00 11/01/29 4,799,046
33,408,687
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.63%
4,971,306 GNMA(::) 7.50 01/15/29 4,881,176
4,895,448 GNMA #2824+(::) 7.00 10/20/29 4,676,670
1,153,540 GNMA #473918+ 7.00 04/15/28 1,107,030
4,572,689 GNMA # 491192(::) 7.00 02/15/29 4,388,319
3,360,937 GNMA #780626(::) 7.00 08/15/27 3,227,541
18,280,736
------------
57,341,368
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $59,737,405)
------------
U.S. TREASURY SECURITIES - 35.11%
U.S. TREASURY BONDS - 25.91%
6,500,000 U.S. TREASURY BONDS(::) 10.75 05/15/03 7,183,085
4,000,000 U.S. TREASURY BONDS(::) 11.88 11/15/03 4,623,400
13,500,000 U.S. TREASURY BONDS(::) 10.75 08/15/05 15,884,505
5,000,000 U.S. TREASURY BONDS 6.50 02/15/10 5,071,650
7,000,000 U.S. TREASURY BONDS(::) 11.25 02/15/15 10,121,090
1,000,000 U.S. TREASURY BONDS 10.63 08/15/15 1,397,480
14,500,000 U.S. TREASURY BONDS(::) 8.88 08/15/17 18,128,625
9,000,000 U.S. TREASURY BONDS(::) 8.13 08/15/19 10,661,760
5,000,000 U.S. TREASURY BONDS(::) 7.88 02/15/21 5,835,750
6,500,000 U.S. TREASURY BONDS(::) 8.13 08/15/21 7,786,220
10,000,000 U.S. TREASURY BONDS(::) 7.50 11/15/24 11,411,500
2,000,000 U.S. TREASURY BONDS 7.63 02/15/25 2,314,300
2,000,000 U.S. TREASURY BONDS(::) 6.13 08/15/29 1,991,760
102,411,125
------------
U.S. TREASURY NOTES - 9.20%
2,000,000 U.S. TREASURY NOTES(::) 6.38 03/31/01 1,993,800
2,000,000 U.S. TREASURY NOTES(::) 7.88 08/15/01 2,024,860
17,500,000 U.S. TREASURY NOTES(::) 7.50 05/15/02 17,730,825
11,000,000 U.S. TREASURY NOTES(::) 9.88 11/15/15 14,617,350
36,366,835
------------
138,777,960
TOTAL U.S. TREASURY SECURITIES (COST
$141,511,172)
------------
</TABLE>
25
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY NAME INTEREST RATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 0.67%
2,638,229 WELLS FARGO CASH INVESTMENT
FUND +X+ (COST $2,638,229) $ 2,638,229
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $411,540,755)* 98.51% $389,347,431
OTHER ASSETS AND LIABILITIES, NET 1.49 5,876,573
------- ------------
TOTAL NET ASSETS 100.00% $395,224,004
------- ------------
</TABLE>
+ VARIABLE RATE SECURITIES.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
+X+ THIS WELLS FARGO FUND INVESTS CASH BALANCES THAT IT RETAINS FOR LIQUIDITY
PURPOSES IN A WELLS FARGO MONEY MARKET FUND. THE FUND DOES NOT PAY AN
INVESTMENT ADVISORY FEE TO THE WELLS FARGO MONEY MARKET FUND FOR SUCH
INVESTMENTS.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $411,959,431 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 489,595
GROSS UNREALIZED DEPRECIATION (23,101,595)
------------
NET UNREALIZED DEPRECIATION $(22,612,000)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
26
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
INCOME PLUS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY NAME VALUE
<C> <S> <C> <C> <C>
COMMON STOCKS - 0.58%
REAL ESTATE INVESTMENT TRUSTS - 0.58%
8,500 HEALTH CARE PROPERTY INVESTORS
INCORPORATED (COST $261,991) $ 226,844
-----------
<CAPTION>
PRINCIPAL INTEREST RATE MATURITY DATE
<C> <S> <C> <C> <C>
FOREIGN BONDS - 11.77%(A)
500,000 AMERICAN STANDARD INCORPORATED
(EURO) 7.13% 06/01/06 460,238
236,000 AUSTRALIAN GOVERNMENT
(AUSTRALIAN DOLLAR) 9.50 08/15/03 147,324
294,000 BUNDESREPUBLIK DEUTSCHLAND
(EURO) 7.38 01/03/05 296,242
269,000 BUONI POLIENNALI DEL TES
(EURO) 9.50 02/01/06 298,044
293,000 CANADA-GOVERNMENT (CANADIAN
DOLLAR) 8.75 12/01/05 218,185
125,000 CB BUS AB (EURO) 11.00 02/15/10 120,560
264,000 GOVERNMENT OF FRANCE (EURO) 8.50 10/25/08 296,251
500,000 KAPPA BEHEER BV (EURO)[::] 10.87 07/15/09 297,499
1,151,000 KINGDOM OF DENMARK (DANISH
KRONE) 8.00 03/15/06 158,427
465,000 REPUBLIC OF ARGENTINA(::) 11.00 10/09/06 419,663
475,000 REPUBLIC OF BRAZIL(::) 11.63 04/15/04 469,062
440,000 REPUBLIC OF PHILIPPINES 8.88 04/15/08 387,200
170,000 REPUBLIC OF POLAND 7.13 07/01/04 163,625
230,000 REPUBLIC OF TURKEY 11.88 11/05/04 234,025
1,100,000 SWEDISH GOVERNMENT (SWEDISH
KRONA) 6.00 02/09/05 125,572
133,000 UNITED KINGDOM - TREASURY
(BRITISH POUND) 7.75 09/08/06 220,365
335,000 UNITED MEXICAN STATES 8.63 03/12/08 308,200
4,620,482
TOTAL FOREIGN BONDS (COST $4,777,180)
-----------
CORPORATE BONDS & NOTES - 41.97%
BANK & FINANCE - 4.95%
500,000 AMERICAN GENERAL FINANCE
CORPORATION 8.13 08/15/09 495,000
225,000 CONSECO INCORPORATED(::) 9.00 10/15/06 151,875
500,000 FREMONT GENERAL CORPORATION 7.88 03/17/09 208,750
500,000 HOMESIDE INTERNATIONAL
INCORPORATED 11.25 05/15/03 541,250
300,000 NAVISTAR FINANCIAL CORPORATION 9.00 06/01/02 298,125
250,000 TEMBEC FINANCE CORPORATION 9.88 09/30/05 250,625
1,945,625
-----------
BUSINESS SERVICES - 5.95%
225,000 CENDANT CORPORATION 7.75 12/01/03 216,281
500,000 CSC HOLDINGS INCORPORATED 9.88 02/15/13 498,125
500,000 CSC HOLDINGS INCORPORATED 10.50 05/15/16 530,000
1,204,872 FEDERAL EXPRESS CORPORATION
SERIES 981B 6.84 01/15/19 1,090,277
2,334,683
-----------
COMMERCIAL SERVICES - 0.61%
250,000 KAUFMAN & BROAD HOME
CORPORATION 9.63 11/15/06 238,125
-----------
ELECTRIC, GAS & SANITARY SERVICES - 1.00%
500,000 ALLIED WASTE NORTH AMERICA(::) 10.00 08/01/09 395,000
-----------
</TABLE>
27
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
INCOME PLUS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
ENERGY & RELATED - 1.96%
$ 150,000 GULF CANADA RESOURCE 9.25% 01/15/04 $ 150,375
150,000 OCEAN ENERGY INCORPORATED 8.88 07/15/07 145,312
150,000 PIONEER NATURAL RESOURCES 9.63 04/01/10 152,250
175,000 SNYDER OIL CORPORATION 8.75 06/15/07 174,344
150,000 VINTAGE PETROLEUM INCORPORATED 9.00 12/15/05 146,250
768,531
-----------
ENTERTAINMENT & LEISURE - 2.95%
250,000 CINEMARK USA INCORPORATED 9.63 08/01/08 140,000
250,000 PARK PLACE ENTERTAINMENT ++ 9.38 02/15/07 242,500
250,000 REGAL CINEMAS INCORPORATED 9.50 06/01/08 101,250
250,000 STATION CASINOS 8.88 12/01/08 234,375
500,000 SUN INTERNATIONAL HOTELS
LIMITED 9.00 03/15/07 440,000
1,158,125
-----------
FOOD & RELATED - 3.41%
250,000 CANANDAIGUA BRANDS 8.63 08/01/06 242,812
500,000 CHIQUITA BRANDS INTERNATIONAL
INCORPORATED 10.25 11/01/06 402,500
750,000 MARSH SUPERMARKET INCORPORATED 8.88 08/01/07 695,625
1,340,937
-----------
HEALTHCARE - 0.58%
250,000 TENET HEALTHCARE CORPORATION 8.13 12/01/08 226,250
-----------
INDUSTRIALS - 4.30%
500,000 APPLIED POWER INCORPORATED 8.75 04/01/09 514,374
250,000 ICN PHARMACEUTICALS
INCORPORATED 9.25 08/15/05 243,125
250,000 LEAR CORPORATION 8.25 02/01/02 244,688
250,000 PLAYTEX PRODUCTS INCORPORATED 8.88 07/15/04 239,688
250,000 RUSSEL METALS INCORPORATED 10.00 06/01/09 245,000
250,000 TM GROUP HOLDINGS 11.00 05/15/08 200,000
1,686,875
-----------
MEDIA - 0.52%
225,000 NEWS AMERICA HOLDINGS
INCORPORATED 8.00 10/17/16 203,344
-----------
PUBLISHING - 1.17%
250,000 GARDEN STATE NEWSPAPERS 8.63 07/01/11 216,250
250,000 HOLLINGER INTERNATIONAL
PUBLISHING INCORPORATED 9.25 03/15/07 245,000
461,250
-----------
REAL ESTATE - 0.62%
250,000 D.R. HORTON INCORPORATED 10.00 04/15/06 241,875
-----------
RETAIL & RELATED - 7.35%
250,000 AMES DEPARTMENT STORES
INCORPORATED 10.00 04/15/06 195,000
250,000 FRONTIERVISION OPERATING
PARTNERS 11.00 10/15/06 248,125
125,000 HOME INTERIORS & GIFTS 10.13 06/01/08 75,000
200,000 JONES APPAREL GROUP 7.88 06/15/06 191,500
</TABLE>
28
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
INCOME PLUS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
RETAIL & RELATED (continued)
$1,000,000 K-MART CORPORATION 8.25% 01/01/22 $ 841,250
1,000,000 SAKS INCORPORATED 7.00 07/15/04 867,500
250,000 SIMMONS COMPANY(::) 10.25 03/15/09 220,000
1,000,000 VISTA EYECARE INCORPORATED 12.75{/\} 10/15/05 250,000
2,888,375
-----------
TELECOMMUNICATIONS - 4.84%
500,000 ADELPHIA COMMUNICATIONS
CORPORATION SERIES B 10.50 07/15/04 495,000
500,000 ADELPHIA COMMUNICATIONS
CORPORATION SERIES B 9.88 03/01/07 470,000
500,000 CHARTER COMMUNICATIONS
HOLDINGS LLC(::) 8.63 04/01/09 417,500
500,000 TCI COMMUNICATIONS
INCORPORATED 8.75 08/01/15 516,250
1,898,750
-----------
TRANSPORTATION - 1.76%
1,000,000 BUDGET GROUP INCORPORATED 9.13 04/01/06 690,000
-----------
16,477,745
TOTAL CORPORATE BONDS & NOTES (COST
$19,936,089)
-----------
U.S. GOVERNMENT AGENCY SECURITIES - 13.59%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 13.59%
1,041,367 FNMA # 411023 6.50 03/01/13 988,643
318,709 FNMA # 512386 7.00 09/01/29 302,375
330,434 FNMA # 512387 7.00 09/01/29 313,499
2,011,217 FNMA # 513615 7.50 09/01/29 1,952,750
331,735 FNMA # 514262 7.00 09/01/29 314,733
1,477,467 FNMA # 533381 8.00 03/01/30 1,464,997
5,336,997
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $5,505,345)
-----------
U.S. TREASURY SECURITIES - 26.05%
U.S. TREASURY BONDS - 22.83%
5,000,000 U.S. TREASURY BONDS(::) 10.75 08/15/05 5,883,150
225,000 U.S. TREASURY BONDS(::) 6.50 02/15/10 228,224
3,275,000 U.S. TREASURY BONDS(::) 5.25 02/15/29 2,849,872
8,961,246
-----------
U.S. TREASURY NOTES - 3.22%
800,000 U.S. TREASURY NOTES(::) 5.88 02/15/04 780,088
500,000 U.S. TREASURY NOTES 5.88 11/15/04 485,680
1,265,768
-----------
10,227,014
TOTAL U.S. TREASURY SECURITIES (COST
$10,196,072)
-----------
SHORT-TERM INSTRUMENTS - 4.04%
829,000 GOLDMAN SACHS POOLED
REPURCHASE AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.36 06/01/00 829,000
</TABLE>
29
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
INCOME PLUS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INSTRUMENTS (continued)
$ 755,000 JP MORGAN SECURITIES POOLED
REPURCHASE AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.34% 06/01/00 $ 755,000
1,584,000
TOTAL SHORT-TERM INSTRUMENTS (COST
$1,584,000)
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $42,260,677)* 98.00% $38,473,082
OTHER ASSETS AND LIABILITIES, NET 2.00 784,727
------- -----------
TOTAL NET ASSETS 100.00% $39,257,809
------- -----------
</TABLE>
(A) FOREIGN BOND PRINCIPAL IS DENOMINATED IN U.S. DOLLARS EXCEPT AS INDICATED
PARENTHETICALLY.
[::] ZERO COUPON RATE DISCLOSED REPRESENTS YIELD TO MATURITY AS DETERMINED AT
DATE OF PURCHASE.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
++ REPRESENTS SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM
EXEMPT FROM REGISTRATION UNDER SECTION 144A OF THE SECURITIES ACT OF 1933.
THESE SECURITIES MAY ONLY BE SOLD TO OTHER QUALIFIED INSTITUTIONAL BUYERS
AND ARE CONSIDERED LIQUID BY THE ADVISER PURSUANT TO GUIDELINES ESTABLISHED
BY THE BOARD OF TRUSTEES.
{/\} THIS SECURITY IS CURRENTLY IN DEFAULT WITH RESPECT TO ITS INTEREST PAYMENT.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $42,259,099 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 131,738
GROSS UNREALIZED DEPRECIATION (3,917,755)
-----------
NET UNREALIZED DEPRECIATION $(3,786,017)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 40.01%
FEDERAL HOME LOAN BANK - 3.58%
$ 10,000,000 FHLB[::] 6.48% 02/01/01 $ 9,543,300
7,000,000 FHLB(::) 5.13 02/26/02 6,763,750
7,000,000 FHLB 6.43 12/12/11 6,404,580
22,711,630
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 13.71%
10,000,000 FHLMC(::) 7.00 02/15/03 9,912,500
20,000,000 FHLMC 6.88 01/15/05 19,594,000
4,000,000 FHLMC 8.06 01/27/05 4,102,960
5,000,000 FHLMC 7.10 04/10/07 4,891,750
25,545,710 FHLMC #C00874 7.00 10/01/29 24,276,343
4,956,608 FHLMC #C00920 7.00 02/01/30 4,710,313
9,465,019 FHLMC #C22339 6.50 02/01/29 8,775,776
9,867,479 FHLMC #C31808 7.50 10/01/29 9,605,300
1,131,183 FHLMC #G00683 8.50 12/01/25 1,145,674
87,014,616
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 13.47%
10,000,000 FNMA 6.63 01/15/02 9,909,500
4,000,000 FNMA 5.88 04/23/04 3,785,600
8,500,000 FNMA(::) 7.13 02/15/05 8,407,945
10,196,906 FNMA 7.50 09/01/29 9,900,482
6,015,102 FNMA #251615 7.50 04/01/28 5,840,243
6,846,469 FNMA #253057 8.00 12/01/29 6,788,685
2,939,439 FNMA #417768 6.50 03/01/28 2,718,981
5,435,414 FNMA #424815 6.50 04/01/28 5,027,758
3,526,351 FNMA #426032 7.50 06/01/28 3,423,840
8,811,820 FNMA #429182 6.50 05/01/28 8,150,933
9,188,337 FNMA #492910 7.50 01/01/29 8,921,232
9,679,789 FNMA #520842 8.00 11/01/29 9,598,092
2,983,867 FNMA #70765 9.00 03/01/21 3,059,388
85,532,679
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 7.76%
516,911 GNMA #1580 10.00 03/20/21 546,634
9,168,259 GNMA #158794 7.00 09/15/28 8,798,594
413,094 GNMA #1616 10.00 05/20/21 446,657
8,813,177 GNMA #2824 7.00 10/20/29 8,419,316
1,603,017 GNMA #306052 9.00 06/15/21 1,648,590
1,913,276 GNMA #319413 7.25 12/15/18 1,791,898
1,866,475 GNMA #358863 7.25 01/15/29 1,748,066
1,548,364 GNMA #362589 6.88 01/15/29 1,478,192
10,216,968 GNMA #445071 7.50 01/15/27 10,031,734
5,399,864 GNMA #467791 7.50 04/15/28 5,301,965
9,394,072 GNMA #491192 7.00 02/15/29 9,015,303
49,226,949
------------
</TABLE>
31
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
STUDENT LOAN MARKETING ASSOCATION - 0.17%
$ 1,000,000 SLMA 9.15% 12/01/04 $ 1,063,790
------------
TENNESSEE VALLEY AUTHORITY - 1.32%
4,000,000 TVA 6.38 06/15/05 3,800,000
5,000,000 TVA 6.75 11/01/25 4,568,750
8,368,750
------------
253,918,414
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $263,203,826)
------------
U.S. TREASURY SECURITIES - 58.27%
U.S. TREASURY BONDS - 31.44%
33,500,000 U.S. TREASURY BONDS(::) 7.88 11/15/04 35,049,710
2,400,000 U.S. TREASURY BONDS(::) 11.63 11/15/04 2,848,032
1,400,000 U.S. TREASURY BONDS 12.00 05/15/05 1,710,100
3,800,000 U.S. TREASURY BONDS(::) 10.75 08/15/05 4,471,194
3,100,000 U.S. TREASURY BONDS(::) 9.38 02/15/06 3,497,885
13,000,000 U.S. TREASURY BONDS(::) 10.38 11/15/12 15,758,340
10,000,000 U.S. TREASURY BONDS 11.25 02/15/15 14,458,700
10,000,000 U.S. TREASURY BONDS 10.63 08/15/15 13,974,800
23,000,000 U.S. TREASURY BONDS 8.75 05/15/17 28,390,050
9,500,000 U.S. TREASURY BONDS 9.13 05/15/18 12,172,920
22,000,000 U.S. TREASURY BONDS(::) 8.13 08/15/19 26,062,080
7,000,000 U.S. TREASURY BONDS(::) 7.88 02/15/21 8,170,050
18,000,000 U.S. TREASURY BONDS(::) 7.50 11/15/24 20,540,700
5,000,000 U.S. TREASURY BONDS 7.63 02/15/25 5,785,750
5,000,000 U.S. TREASURY BONDS(::) 5.50 08/15/28 4,489,900
1,500,000 U.S. TREASURY BONDS 5.25 11/15/28 1,300,650
1,000,000 U.S. TREASURY BONDS(::) 5.25 02/15/29 870,190
199,551,051
------------
U.S. TREASURY NOTES - 26.83%
3,000,000 U.S. TREASURY NOTES(::) 6.38 03/31/01 2,990,700
9,000,000 U.S. TREASURY NOTES(::) 8.00 05/15/01 9,096,840
6,000,000 U.S. TREASURY NOTES(::) 7.88 08/15/01 6,074,580
24,500,000 U.S. TREASURY NOTES(::) 7.50 11/15/01 24,738,875
18,000,000 U.S. TREASURY NOTES(::) 6.63 03/31/02 17,950,320
45,000,000 U.S. TREASURY NOTES(::) 7.50 05/15/02 45,593,550
18,000,000 U.S. TREASURY NOTES 12.38 05/15/04 21,470,580
11,000,000 U.S. TREASURY NOTES 7.25 08/15/04 11,238,260
19,300,000 U.S. TREASURY NOTES 7.50 02/15/05 19,954,270
11,000,000 U.S. TREASURY NOTES 7.00 07/15/06 11,221,540
170,329,515
------------
369,880,566
TOTAL U.S. TREASURY SECURITIES (COST
$378,411,097)
------------
</TABLE>
32
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
INTERMEDIATE GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY NAME VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS - 0.75%
4,776,403 WELLS FARGO GOVERNMENT MONEY
MARKET FUND +X+ (COST
$4,776,403) $ 4,776,403
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $646,391,326)* 99.03% $628,575,383
OTHER ASSETS AND LIABILITIES, NET 0.97 6,182,110
------- ------------
TOTAL NET ASSETS 100.00% $634,757,493
------- ------------
</TABLE>
[::] ZERO COUPON RATE DISCLOSED REPRESENTS YIELD TO MATURITY AS DETERMINED AT
DATE OF PURCHASE.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
+X+ THIS WELLS FARGO FUND INVESTS CASH BALANCES THAT IT RETAINS FOR LIQUIDITY
PURPOSES IN A WELLS FARGO MONEY MARKET FUND. THE FUND DOES NOT PAY AN
INVESTMENT ADVISORY FEE TO THE WELLS FARGO MONEY MARKET FUND FOR SUCH
INVESTMENTS.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $647,062,304 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 2,252,853
GROSS UNREALIZED DEPRECIATION (20,739,774)
------------
NET UNREALIZED DEPRECIATION $(18,486,921)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
33
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES - 8.12%
$2,475,000 CHASE MANHATTAN RV OWNER TRUST
SERIES 1997-A CLASS A10 6.37% 03/15/10 $ 2,375,010
1,125,000 CIT RV TRUST 1999-A CLASS A4+ 6.16 06/15/13 1,078,447
3,000,000 CIT RV TRUST 1997-A CLASS A7+ 6.40 08/15/13 2,916,360
1,000,000 FLEET CREDIT CARD MASTER
TRUST+ 6.00 11/15/05 964,040
1,610,000 HONDA AUTO LEASE+ 6.45 09/16/02 1,593,417
2,250,000 MBNA MASTER CREDIT CARD TRUST
II SERIES 1999-G CLASS B+ 6.60 12/15/06 2,158,493
2,450,000 PREMIER AUTO TRUST SERIES
1999-3 CLASS A3 6.27 04/08/03 2,414,377
13,500,144
TOTAL ASSET BACKED SECURITIES (COST
$13,799,259)
------------
COLLATERALIZED MORTGAGE OBLIGATION - 1.04%
1,837,772 ENTERPRISE MORTGAGE ACCEPTANCE
COMPANY 6.42 09/15/08 1,727,910
------------
1,727,910
TOTAL COLLATERALIZED MORTGAGE OBLIGATION
(COST $1,847,136)
------------
CORPORATE BONDS & NOTES - 15.50%
AUTOMOTIVE REPAIR, SERVICES & PARKING - 1.56%
2,805,000 HERTZ CORPORATION 6.50 05/15/06 2,591,119
------------
BANKING & FINANCE - 4.48%
2,226,000 DISCOVER CARD MASTER TRUST I+ 6.05 01/17/06 2,119,152
3,750,000 DISTRIBUTION FINANCIAL
SERVICES TRUST+ 5.84 10/17/11 3,630,038
1,715,000 ONYX ACCEPTANCE AUTO TRUST+ 5.78 02/15/03 1,687,028
7,436,218
------------
COMMUNICATIONS - 2.37%
500,000 AT&T MOUNTAIN 6.25 05/15/01 493,750
1,000,000 NYNEX CREDIT COMPANY 6.25 06/13/02 972,500
2,500,000 WORLDCOM INCORPORATED 6.13 08/15/01 2,462,500
3,928,750
------------
DEPOSITORY INSTITUTIONS - 0.27%
200,000 BANC ONE CORPORATION 7.00 03/25/02 197,250
250,000 BANKAMERICA CORPORATION 8.38 03/15/02 252,812
450,062
------------
ELECTRIC GAS & SANITARY SERVICES - 0.31%
500,000 PUBLIC SERVICE ELECTRIC & GAS
COMPANY 9.13 07/01/05 520,625
------------
OIL & GAS EXTRACTION - 1.91%
3,275,000 CANADIAN OCCIDENTAL PETROLEUM 7.13 02/04/04 3,164,469
------------
PRINTING PUBLISHING & ALLIED INDUSTRIES - 0.28%
500,000 NEWS AMERICA INCORPORATED 6.70 05/21/04 468,125
------------
REAL ESTATE - 1.15%
500,000 EQUITY RESIDENTIAL PROPERTIES 6.15 09/15/00 498,310
1,500,000 MACK-CALI REALTY CORPORATION 7.00 03/15/04 1,417,500
1,915,810
------------
TOBACCO PRODUCTS - 0.52%
1,000,000 IMPERIAL TOBACCO OVERSEAS 7.13 04/01/09 865,000
------------
</TABLE>
34
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
TRANSPORTATION BY AIR - 2.07%
$3,799,982 FEDERAL EXPRESS CORPORATION 6.84% 01/15/19 $ 3,438,565
TRANSPORTATION EQUIPMENT - 0.58%
1,000,000 DAIMLER CHRYSLER(::) 6.90 09/01/04 967,500
25,746,243
TOTAL CORPORATE BONDS & NOTES (COST
$27,210,200)
------------
U.S. GOVERNMENT AGENCY SECURITIES - 49.82%
FEDERAL FARM CREDIT BANKS - 1.12%
2,000,000 FFCB 5.75 02/09/05 1,866,720
------------
FEDERAL HOME LOAN BANK - 11.66%
5,000,000 FHLB 6.37 04/09/01 4,972,000
2,000,000 FHLB 5.88 08/15/01 1,969,700
3,000,000 FHLB 5.13 02/26/02 2,898,750
8,000,000 FHLB 5.53 01/15/03 7,657,120
2,000,000 FHLB 5.13 09/15/03 1,871,120
19,368,690
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 29.73%
5,000,000 FNMA 6.18 06/23/00 5,002,200
2,000,000 FNMA 6.69 08/07/01 1,989,020
10,603,000 FNMA 5.13 02/13/04 9,826,118
3,533 FNMA+ 7.75 04/25/23 3,804
314,934 FNMA #190843 7.00 06/01/09 304,796
249,243 FNMA #303905 6.50 05/01/11 236,624
2,327,601 FNMA #313644 7.00 08/01/27 2,208,312
4,202,237 FNMA #401770 6.50 10/01/27 3,887,069
1,687,017 FNMA #411023 6.50 03/01/13 1,601,603
3,653,392 FNMA #454390 6.00 12/01/28 3,278,920
2,019,870 FNMA #50761 6.00 07/01/08 1,878,479
4,937,834 FNMA #519202 7.50 01/01/30 4,794,291
4,909,485 FNMA #524356 7.50 12/01/29 4,766,767
4,984,095 FNMA #524658 7.50 01/01/30 4,839,208
4,921,130 FNMA #525817 7.50 12/01/29 4,778,073
49,395,284
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.11%
100,721 GNMA #157247 9.50 05/20/16 103,617
1,812,288 GNMA #22036 8.00 07/20/25 1,802,647
682,480 GNMA #336930 7.50 03/15/23 670,106
850,336 GNMA #417389 7.00 05/15/26 816,050
998,023 GNMA #418261 6.50 04/15/26 933,770
1,243,201 GNMA #423779 7.00 05/15/26 1,193,075
1,958,576 GNMA #455464 7.50 08/15/27 1,923,067
2,818,221 GNMA #491192 7.00 02/15/29 2,704,591
10,146,923
------------
</TABLE>
35
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
LIMITED TERM GOVERNMENT INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
TENNESSEE VALLEY AUTHORITY - 1.20%
$2,000,000 TVA 6.50% 08/20/01 $ 1,985,000
------------
82,762,617
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $85,514,401)
------------
U.S. TREASURY SECURITIES - 20.02%
U.S. TREASURY NOTES - 20.02%
3,000,000 U.S. TREASURY NOTES 6.00 08/15/00 3,000,000
3,500,000 U.S. TREASURY NOTES 8.50 11/15/00 3,530,590
3,000,000 U.S. TREASURY NOTES 5.63 11/30/00 2,988,480
50,000 U.S. TREASURY NOTES(::) 6.38 03/31/01 49,845
2,000,000 U.S. TREASURY NOTES 6.25 04/30/01 1,991,480
6,000,000 U.S. TREASURY NOTES 6.25 01/31/02 5,950,020
1,500,000 U.S. TREASURY NOTES(::) 6.63 03/31/02 1,495,860
1,500,000 U.S. TREASURY NOTES 5.63 12/31/02 1,460,550
4,000,000 U.S. TREASURY NOTES(::) 6.25 02/15/03 3,950,160
500,000 U.S. TREASURY NOTES 5.75 08/15/03 486,575
1,000,000 U.S. TREASURY NOTES 6.00 08/15/04 977,520
300,000 U.S. TREASURY NOTES 7.25 08/15/04 306,498
800,000 U.S. TREASURY NOTES 5.88 11/15/04 777,088
500,000 U.S. TREASURY NOTES(::) 6.50 08/15/05 497,445
3,000,000 U.S. TREASURY NOTES(::) 10.75 08/15/05 3,529,890
250,000 U.S. TREASURY NOTES 7.00 07/15/06 255,035
2,000,000 U.S. TREASURY NOTES 6.63 05/15/07 2,009,120
33,256,156
TOTAL U.S. TREASURY SECURITIES (COST
$34,406,713)
------------
SHORT-TERM INVESTMENTS - 4.74%
7,770,000 GOLDMAN SACHS POOLED
REPURCHASE AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.36 06/01/00 7,770,000
107,000 JP MORGAN SECURITIES
INCORPORATED REPURCHASE
AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.34 06/01/00 107,000
7,877,000
TOTAL SHORT-TERM INVESTMENTS (COST
$7,877,000)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $170,654,709)* 99.24% $164,870,070
OTHER ASSETS AND LIABILITIES, NET 0.76 1,266,187
------- ------------
TOTAL NET ASSETS 100.00% $166,136,257
------- ------------
</TABLE>
+ VARIABLE RATE SECURITIES.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $170,511,206 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 34,037
GROSS UNREALIZED DEPRECIATION (5,675,173)
-----------
NET UNREALIZED DEPRECIATION $(5,641,136)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 INCOME FUNDS
--------------------------------------------------------------------------------
STABLE INCOME FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE/SHARE
AMOUNT SECURITY DESCRIPTION VALUE
<C> <S> <C>
N/A WELLS FARGO STABLE INCOME PORTFOLIO $202,794,572
------------
202,794,572
TOTAL INVESTMENT IN CORE PORTFOLIOS (100.04%) (COST
$205,090,438)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $205,090,438)* 100.04% $202,794,572
OTHER ASSETS AND LIABILITIES, NET (0.04) (75,901)
------- ------------
TOTAL NET ASSETS 100.00% $202,718,671
------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
37
<PAGE>
INCOME FUNDS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 98.45%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 27.90%
$4,258,524 FHLMC # 610303+ 7.54% 04/01/18 $ 4,282,457
2,058,785 FHLMC # 840118+ 7.23 09/01/18 2,105,107
10,178 FHLMC # 845410+ 7.89 07/01/23 10,197
3,998 FHLMC # 845613+ 7.83 01/01/24 4,081
6,977,388 FHLMC # 846150+ 7.71 04/01/21 7,134,379
4,689,664 FHLMC # 846602+ 7.31 04/01/27 4,760,009
1,155,204 FHLMC SERIES 1534 CLASS PF 6.39 06/15/23 1,176,799
19,473,029
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 57.64%
2,000,000 FNMA 5.13 02/13/04 1,853,460
5,032,709 FNMA # 136014+ 5.85 05/01/18 4,886,408
6,946,849 FNMA # 323186+ 7.39 09/01/25 7,111,837
4,153,665 FNMA # 323382+ 7.47 08/01/27 4,260,082
5,726,681 FNMA # 57733+ 6.22 02/01/17 5,587,064
2,469,179 FNMA # 57775+ 6.11 05/01/18 2,408,980
7,297,722 FNMA # 66397+ 6.27 03/01/18 7,119,803
7,191,319 FNMA SERIES 1999-31 CLASS F+ 6.75 05/25/28 7,001,893
40,229,527
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 12.91%
3,944,369 GNMA # 80205+ 6.00 06/20/28 3,907,371
5,106,161 GNMA # 8076+ 7.13 11/20/22 5,102,944
9,010,315
-----------
68,712,871
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $70,166,652)
-----------
SHORT-TERM INSTRUMENTS - 1.24%
59,000 GOLDMAN SACHS POOLED
REPURCHASE AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.36 06/01/00 59,000
808,000 JP MORGAN SECURITIES POOLED
REPURCHASE AGREEMENT - 102%
COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.34 06/01/00 808,000
867,000
TOTAL SHORT-TERM INSTRUMENTS (COST
$867,000)
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $71,033,652)* 99.69% $69,579,871
OTHER ASSETS AND LIABILITIES, NET 0.31 219,445
------- -----------
TOTAL NET ASSETS 100.00% $69,799,316
------- -----------
</TABLE>
+ VARIABLE RATE SECURITIES.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL STATEMENT
PURPOSES AND NET UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 25
GROSS UNREALIZED DEPRECIATION (1,453,806)
-----------
NET UNREALIZED DEPRECIATION $(1,453,781)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
38
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
39
<PAGE>
INCOME FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE DIVERSIFIED
BOND BOND INCOME
<S> <C> <C> <C>
-------------------------------------------------------------------------
ASSETS
INVESTMENTS:
IN SECURITIES, AT MARKET
VALUE (SEE COST BELOW)... $15,442,325 $190,516,714 $389,347,431
CASH...................... 5,104 0 100
COLLATERAL FOR SECURITIES
LOANED................... 2,977,886 0 177,507,117
RECEIVABLE FOR DIVIDENDS,
INTEREST AND OTHER
RECEIVABLES.............. 301,713 731 6,712,120
RECEIVABLE FOR FUND SHARES
ISSUED................... 82,771 380,215 1,692,487
PREPAID EXPENSES.......... 6,214 0 14,509
----------- ------------ ------------
TOTAL ASSETS.................. 18,816,013 190,897,660 575,273,764
----------- ------------ ------------
LIABILITIES
PAYABLE FOR SECURITIES
LOANED.................... 2,977,886 0 177,507,117
DEPRECIATION ON FORWARD
CURRENCY CONTRACTS........ 8,982 0 0
DIVIDENDS PAYABLE........... 32,607 0 1,884,231
PAYABLE FOR FUND SHARES
REDEEMED.................. 97,219 507,190 233,127
PAYABLE TO INVESTMENT
ADVISOR AND AFFILIATES.... 2,252 39,020 222,124
PAYABLE TO OTHER RELATED
PARTIES................... 10,595 15,473 39,498
ACCRUED EXPENSES AND OTHER
LIABILITIES............... 91,216 53,105 163,663
----------- ------------ ------------
TOTAL LIABILITIES............. 3,220,757 614,788 180,049,760
----------- ------------ ------------
TOTAL NET ASSETS.............. $15,595,256 $190,282,872 $395,224,004
----------- ------------ ------------
NET ASSETS CONSIST OF:
-------------------------------------------------------------------------
PAID-IN CAPITAL............. $18,073,671 $190,146,038 $448,470,945
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)............. 67,541 7,446,340 (118)
UNDISTRIBUTED NET REALIZED
GAIN (LOSS) ON
INVESTMENTS............... (1,113,619) (2,968,101) (31,053,499)
NET UNREALIZED APPRECIATION
(DEPRECIATION) OF
INVESTMENTS............... (1,423,355) (4,341,405) (22,193,324)
NET UNREALIZED APPRECIATION
(DEPRECIATION) OF FOREIGN
CURRENCY.................. (8,982) 0 0
----------- ------------ ------------
TOTAL NET ASSETS.............. $15,595,256 $190,282,872 $395,224,004
----------- ------------ ------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE
-------------------------------------------------------------------------
NET ASSETS - CLASS A.......... $ 5,062,377 N/A $ 16,894,583
SHARES OUTSTANDING -
CLASS A..................... 580,464 N/A 1,907,505
NET ASSET VALUE PER SHARE -
CLASS A..................... $ 8.72 $ 8.86
MAXIMUM OFFERING PRICE PER
SHARE - CLASS A............. $ 9.13(1) N/A $ 9.28(1)
NET ASSETS - CLASS B.......... $ 9,494,291 N/A $ 8,610,759
SHARES OUTSTANDING -
CLASS B..................... 1,088,468 N/A 973,580
NET ASSET VALUE AND OFFERING
PRICE PER SHARE -
CLASS B..................... $ 8.72 N/A $ 8.84
NET ASSETS - CLASS C.......... $ 1,038,588 N/A N/A
SHARES OUTSTANDING -
CLASS C..................... 119,098 N/A N/A
NET ASSET VALUE AND OFFERING
PRICE PER SHARE -
CLASS C..................... $ 8.72 N/A N/A
NET ASSETS - INSTITUTIONAL
CLASS....................... N/A $190,282,872 $369,718,662
SHARES OUTSTANDING -
INSTITUTIONAL CLASS......... N/A 7,545,493 41,785,788
NET ASSET VALUE AND OFFERING
PRICE PER SHARE -
INSTITUTIONAL CLASS......... N/A $ 25.22 $ 8.85
INVESTMENTS AT COST
(NOTE 3).................... $16,865,680 $194,858,119 $411,540,755
----------- ------------ ------------
</TABLE>
(1) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/95.5 OF NET ASSET VALUE. ON
INVESTMENTS OF $50,000 OR MORE THE OFFERING PRICE IS REDUCED.
(2) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/98.5 OF NET ASSET VALUE.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
40
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES -- MAY 31, 2000
INCOME FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME INTERMEDIATE LIMITED TERM STABLE VARIABLE RATE
PLUS GOVERNMENT INCOME GOVERNMENT INCOME INCOME GOVERNMENT
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS:
IN SECURITIES, AT MARKET
VALUE (SEE COST BELOW)... $ 38,473,082 $ 628,575,383 $ 164,870,070 $ 202,794,572 $ 69,579,871
CASH...................... 3,854 0 5,268 0 5,036
COLLATERAL FOR SECURITIES
LOANED................... 11,443,138 142,006,261 8,284,167 0 0
RECEIVABLE FOR DIVIDENDS,
INTEREST AND OTHER
RECEIVABLES.............. 806,151 6,759,647 1,929,726 0 702,170
RECEIVABLE FOR FUND SHARES
ISSUED................... 100,100 889,587 125,813 95,875 0
PREPAID EXPENSES.......... 14,805 18,035 9,273 524 8,190
-------------- --------------- --------------- --------------- ---------------
TOTAL ASSETS.................. 50,841,130 778,248,913 175,224,317 202,890,971 70,295,267
-------------- --------------- --------------- --------------- ---------------
LIABILITIES
PAYABLE FOR SECURITIES
LOANED.................... 11,443,138 142,006,261 8,284,167 0 0
DEPRECIATION ON FORWARD
CURRENCY CONTRACTS........ 5,025 0 0 0 0
DIVIDENDS PAYABLE........... 0 0 512,001 0 278,893
PAYABLE FOR FUND SHARES
REDEEMED.................. 31,025 461,076 36,206 80,687 30,803
PAYABLE TO INVESTMENT
ADVISOR AND AFFILIATES.... 19,583 331,926 79,380 3,723 40,512
PAYABLE TO OTHER RELATED
PARTIES................... 22,558 191,865 17,473 17,820 0
ACCRUED EXPENSES AND OTHER
LIABILITIES............... 61,992 500,292 158,833 70,070 145,743
-------------- --------------- --------------- --------------- ---------------
TOTAL LIABILITIES............. 11,583,321 143,491,420 9,088,060 172,300 495,951
-------------- --------------- --------------- --------------- ---------------
TOTAL NET ASSETS.............. $ 39,257,809 $ 634,757,493 $ 166,136,257 $ 202,718,671 $ 69,799,316
-------------- --------------- --------------- --------------- ---------------
NET ASSETS CONSIST OF:
--------------------------------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL............. $ 46,508,106 $ 723,646,980 $ 190,063,559 $ 212,405,383 $ 203,241,035
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)............. 340,143 714,840 (2,040) 236,261 (69,757)
UNDISTRIBUTED NET REALIZED
GAIN (LOSS) ON
INVESTMENTS............... (3,772,882) (71,788,384) (18,140,623) (7,627,107) (131,918,181)
NET UNREALIZED APPRECIATION
(DEPRECIATION) OF
INVESTMENTS............... (3,787,595) (17,815,943) (5,784,639) (2,295,866) (1,453,781)
NET UNREALIZED APPRECIATION
(DEPRECIATION) OF FOREIGN
CURRENCY.................. (29,963) 0 0 0 0
-------------- --------------- --------------- --------------- ---------------
TOTAL NET ASSETS.............. $ 39,257,809 $ 634,757,493 $ 166,136,257 $ 202,718,671 $ 69,799,316
-------------- --------------- --------------- --------------- ---------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE
--------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - CLASS A.......... $ 8,371,294 $ 193,615,495 $ 29,927,972 $ 8,912,003 $ 69,799,316
SHARES OUTSTANDING -
CLASS A..................... 789,587 18,339,048 3,170,010 878,114 7,844,633
NET ASSET VALUE PER SHARE -
CLASS A..................... $ 10.60 $ 10.56 $ 9.44 $ 10.15 $ 8.90
MAXIMUM OFFERING PRICE PER
SHARE - CLASS A............. $ 11.10(1) $ 11.06(1) $ 9.88(1) $ 10.30(2) $ 9.32(1)
NET ASSETS - CLASS B.......... $ 28,336,089 $ 51,494,756 $ 8,864,420 $ 2,448,962 N/A
SHARES OUTSTANDING -
CLASS B..................... 2,671,167 4,880,258 938,776 241,398 N/A
NET ASSET VALUE AND OFFERING
PRICE PER SHARE -
CLASS B..................... $ 10.61 $ 10.55 $ 9.44 $ 10.14 N/A
NET ASSETS - CLASS C.......... $ 2,550,426 $ 4,348,312 N/A N/A N/A
SHARES OUTSTANDING -
CLASS C..................... 240,432 412,300 N/A N/A N/A
NET ASSET VALUE AND OFFERING
PRICE PER SHARE -
CLASS C..................... $ 10.61 $ 10.55 N/A N/A N/A
NET ASSETS - INSTITUTIONAL
CLASS....................... N/A $ 385,298,930 $ 127,343,865 $ 191,357,706 N/A
SHARES OUTSTANDING -
INSTITUTIONAL CLASS......... N/A 36,486,438 13,746,197 18,850,427 N/A
NET ASSET VALUE AND OFFERING
PRICE PER SHARE -
INSTITUTIONAL CLASS......... N/A $ 10.56 $ 9.26 $ 10.15 N/A
INVESTMENTS AT COST
(NOTE 3).................... $ 42,260,677 $ 646,391,326 $ 170,654,709 $ 205,090,438 $ 71,033,652
-------------- --------------- --------------- --------------- ---------------
</TABLE>
(1) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/95.5 OF NET ASSET VALUE. ON
INVESTMENTS OF $50,000 OR MORE THE OFFERING PRICE IS REDUCED.
(2) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/98.5 OF NET ASSET VALUE.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
41
<PAGE>
INCOME FUNDS
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BOND DIVERSIFIED BOND
------------------------------ ----------------
FOR THE ELEVEN FOR THE FOR THE
MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 2000 JUNE 30, 1999 MAY 31, 2000
<S> <C> <C> <C>
---------------------------------------------------------------------------
INVESTMENT INCOME(2)
DIVIDENDS.............. $ 0 $ 0 $ 0
INTEREST............... 1,315,060 1,095,858 12,067,210
SECURITIES LENDING
INCOME............... 4,217 0 53,934
NET EXPENSES ALLOCATED
FROM CORE
PORTFOLIOS........... 0 0 (743,705)
------------ ------------- ----------------
TOTAL INVESTMENT
INCOME................. 1,319,277 1,095,858 11,377,439
------------ ------------- ----------------
EXPENSES
ADVISORY FEES.......... 82,895 76,788 465,146
ADMINISTRATION FEES.... 24,869 12,808 199,680
SHAREHOLDER SERVICING
FEES................. 41,448 38,394 0
PORTFOLIO ACCOUNTING
FEES................. 57,557 34,749 23,364
CUSTODY................ 3,095 2,565 0
TRANSFER AGENT
CLASS A.............. 4,703 6,794 N/A
CLASS B.............. 15,575 12,686 N/A
CLASS C.............. 1,551 2,020 N/A
INSTITUTIONAL
CLASS.............. N/A N/A 219,847
DISTRIBUTION FEES
CLASS A.............. 407 2,427 N/A
CLASS B.............. 74,695 67,963 N/A
CLASS C.............. 10,576 10,821 N/A
LEGAL AND AUDIT FEES... 12,686 57,702 10,955
REGISTRATION FEES...... 13,018 29,620 19,923
DIRECTORS' FEES........ 3,517 4,543 4,149
SHAREHOLDER REPORTS.... 4,367 12,786 11,134
OTHER.................. 3,452 13,036 14,945
------------ ------------- ----------------
TOTAL EXPENSES........... 354,411 385,702 969,143
LESS:
WAIVED FEES AND
REIMBURSED
EXPENSES............. (102,383) (163,180) (410,349)
------------ ------------- ----------------
NET EXPENSES........... 252,028 222,522 558,794
------------ ------------- ----------------
NET INVESTMENT INCOME.... 1,067,249 873,336 10,818,645
------------ ------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
---------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
FROM:
SECURITIES............. (976,877) (93,479) 0
FOREIGN CURRENCY
TRANSACTIONS......... 26,553 651 0
SECURITIES TRANSACTIONS
ALLOCATED FROM
PORTFOLIOS........... 0 0 (2,753,575)
------------ ------------- ----------------
NET REALIZED GAIN (LOSS)
FROM INVESTMENTS....... (950,324) (92,828) (2,753,575)
------------ ------------- ----------------
NET CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) OF:
SECURITIES............. (774,265) (689,154) 0
FOREIGN CURRENCY
TRANSACTIONS......... (8,982) 0 0
SECURITIES TRANSACTIONS
ALLOCATED FROM
PORTFOLIOS........... 0 0 (2,014,985)
------------ ------------- ----------------
NET CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS............ (783,247) (689,154) (2,014,985)
------------ ------------- ----------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS......... (1,733,571) (781,982) (4,768,560)
------------ ------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ (666,322) $ 91,354 $ 6,050,085
------------ ------------- ----------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30,
1999.
(2) INTEREST, DIVIDEND AND SECURITIES LENDING INCOME INCLUDE AMOUNTS ALLOCATED
FROM PORTFOLIOS WHERE APPLICABLE.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42
<PAGE>
STATEMENT OF OPERATIONS
INCOME FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE
GOVERNMENT
INCOME INCOME PLUS INCOME LIMITED TERM GOVERNMENT INCOME
-------------- ------------------------------ ------------- -------------------------------
FOR THE FOR THE ELEVEN FOR THE FOR THE FOR THE ELEVEN FOR THE
YEAR ENDED MONTHS ENDED PERIOD ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 2000 JUNE 30, 1999 MAY 31, 2000 MAY 31, 2000 JUNE 30, 1999
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME(2)
DIVIDENDS.............. $ 0 $ 157,588 $ 339,097 $ 0 $ 0 $ 0
INTEREST............... 29,484,030 3,431,186 2,630,458 40,674,832 9,501,583 9,219,109
SECURITIES LENDING
INCOME............... 154,285 13,341 0 201,677 22,065 0
NET EXPENSES ALLOCATED
FROM CORE
PORTFOLIOS........... 0 0 0 0 0 0
-------------- ------------ ------------- ------------ ------------ -------------
TOTAL INVESTMENT
INCOME................. 29,638,315 3,602,115 2,969,555 40,876,509 9,523,648 9,219,109
-------------- ------------ ------------- ------------ ------------ -------------
EXPENSES
ADVISORY FEES.......... 1,982,198 250,204 207,018 2,498,513 721,118 696,188
ADMINISTRATION FEES.... 519,616 62,551 32,646 760,440 216,724 112,334
SHAREHOLDER SERVICING
FEES................. 36,702 104,252 96,048 372,248 175,557 370,653
PORTFOLIO ACCOUNTING
FEES................. 84,989 61,536 49,955 102,198 73,853 89,345
CUSTODY................ 70,509 7,767 6,416 75,684 28,790 27,052
TRANSFER AGENT
CLASS A.............. 26,676 6,242 12,282 256,622 37,872 63,167
CLASS B.............. 19,221 30,612 37,834 45,487 12,260 12,313
CLASS C.............. N/A 2,362 3,671 4,632 N/A N/A
INSTITUTIONAL
CLASS.............. 443,451 N/A N/A 543,625 27,146 51,194
DISTRIBUTION FEES
CLASS A.............. 0 800 4,387 0 0 0
CLASS B.............. 63,773 227,155 202,679 252,707 66,098 65,964
CLASS C.............. N/A 19,868 19,664 18,998 N/A N/A
LEGAL AND AUDIT FEES... 26,101 19,950 37,185 36,984 36,105 54,380
REGISTRATION FEES...... 48,931 29,886 44,351 84,168 49,443 52,294
DIRECTORS' FEES........ 4,992 3,794 4,641 5,569 5,185 1,370
SHAREHOLDER REPORTS.... 44,839 15,149 18,307 114,804 44,603 34,124
OTHER.................. 35,769 4,329 8,840 53,366 3,724 9,873
-------------- ------------ ------------- ------------ ------------ -------------
TOTAL EXPENSES........... 3,407,767 846,457 785,924 5,226,045 1,498,478 1,640,251
LESS:
WAIVED FEES AND
REIMBURSED
EXPENSES............. (306,108) (140,718) (283,866) (641,825) (297,516) (284,939)
-------------- ------------ ------------- ------------ ------------ -------------
NET EXPENSES........... 3,101,659 705,739 502,058 4,584,220 1,200,962 1,355,312
-------------- ------------ ------------- ------------ ------------ -------------
NET INVESTMENT INCOME.... 26,536,656 2,896,376 2,467,497 36,292,289 8,322,686 7,863,797
-------------- ------------ ------------- ------------ ------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
-------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
FROM:
SECURITIES............. (18,974,113) (3,132,300) (617,257) (24,818,228) (2,390,574) 29,922
FOREIGN CURRENCY
TRANSACTIONS......... 0 225,122 1,690 0 0 0
SECURITIES TRANSACTIONS
ALLOCATED FROM
PORTFOLIOS........... 0 0 0 0 0 0
-------------- ------------ ------------- ------------ ------------ -------------
NET REALIZED GAIN (LOSS)
FROM INVESTMENTS....... (18,974,113) (2,907,178) (615,567) (24,818,228) (2,390,574) 29,922
-------------- ------------ ------------- ------------ ------------ -------------
NET CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) OF:
SECURITIES............. (8,738,341) (2,746,639) (1,041,954) (2,504,140) (2,990,751) (3,516,889)
FOREIGN CURRENCY
TRANSACTIONS......... 0 (44,066) 15,101 0 0 0
SECURITIES TRANSACTIONS
ALLOCATED FROM
PORTFOLIOS........... 0 0 0 0 0 0
-------------- ------------ ------------- ------------ ------------ -------------
NET CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS............ (8,738,341) (2,790,705) (1,026,853) (2,504,140) (2,990,751) (3,516,889)
-------------- ------------ ------------- ------------ ------------ -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS......... (27,712,454) (5,697,883) (1,642,420) (27,322,368) (5,381,325) (3,486,967)
-------------- ------------ ------------- ------------ ------------ -------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ (1,175,798) $ (2,801,507) $ 825,077 $ 8,969,921 $ 2,941,361 $ 4,376,830
-------------- ------------ ------------- ------------ ------------ -------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30,
1999.
(2) INTEREST, DIVIDEND AND SECURITIES LENDING INCOME INCLUDE AMOUNTS ALLOCATED
FROM PORTFOLIOS WHERE APPLICABLE.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
43
<PAGE>
INCOME FUNDS
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STABLE INCOME VARIABLE RATE GOVERNMENT
------------- ------------------------------
FOR THE FOR THE ELEVEN FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 2000 JUNE 30, 1999
<S> <C> <C> <C>
------------------------------------------------------------------------
INVESTMENT INCOME(2)
DIVIDENDS.............. $ 0 $ 0 $ 0
INTEREST............... 12,265,304 4,906,262 7,505,993
SECURITIES LENDING
INCOME............... 15,635 2,915 0
NET EXPENSES ALLOCATED
FROM CORE
PORTFOLIOS........... (940,641) 0 0
------------- ------------ -------------
TOTAL INVESTMENT
INCOME................. 11,340,298 4,909,177 7,505,993
------------- ------------ -------------
EXPENSES
ADVISORY FEES.......... 0 419,599 684,217
ADMINISTRATION FEES.... 217,442 125,879 108,812
SHAREHOLDER SERVICING
FEES................. 16,439 169,337 379
PORTFOLIO ACCOUNTING
FEES................. 49,557 56,658 88,866
CUSTODY................ 0 19,098 32,854
TRANSFER AGENT
CLASS A.............. 12,239 16,918 191,368
CLASS B.............. 4,518 N/A N/A
CLASS C.............. N/A N/A 212
INSTITUTIONAL
CLASS............... 225,344 N/A N/A
DISTRIBUTION FEES
CLASS A.............. 0 40,462 341,729
CLASS B.............. 19,196 N/A N/A
CLASS C.............. N/A N/A 758
LEGAL AND AUDIT FEES... 10,108 20,961 41,268
REGISTRATION FEES...... 27,116 2,777 2,019
DIRECTORS' FEES........ 4,218 3,439 1,555
SHAREHOLDER REPORTS.... 15,421 30,313 36,772
OTHER.................. 19,379 10,355 15,958
------------- ------------ -------------
TOTAL EXPENSES........... 620,977 915,796 1,546,767
LESS:
WAIVED FEES AND
REIMBURSED
EXPENSES............. (218,116) (260,591) (480,389)
------------- ------------ -------------
NET EXPENSES........... 402,861 655,205 1,066,378
------------- ------------ -------------
NET INVESTMENT INCOME.... 10,937,437 4,253,972 6,439,615
------------- ------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
------------------------------------------------------------------------
NET REALIZED GAIN (LOSS)
FROM:
SECURITIES............. 0 (845,250) (1,468,711)
FOREIGN CURRENCY
TRANSACTIONS......... 0 0 0
SECURITIES TRANSACTIONS
ALLOCATED FROM
PORTFOLIOS........... (701,367) 0 0
------------- ------------ -------------
NET REALIZED GAIN (LOSS)
FROM INVESTMENTS....... (701,367) (845,250) (1,468,711)
------------- ------------ -------------
NET CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) OF:
SECURITIES............. 0 123,470 (1,882,277)
FOREIGN CURRENCY
TRANSACTIONS......... 0 0 0
SECURITIES TRANSACTIONS
ALLOCATED FROM
PORTFOLIOS........... (1,632,414) 0 0
------------- ------------ -------------
NET CHANGE IN UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS............ (1,632,414) 123,470 (1,882,277)
------------- ------------ -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS......... (2,333,781) (721,780) (3,350,988)
------------- ------------ -------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $ 8,603,656 $ 3,532,192 $ 3,088,627
------------- ------------ -------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30,
1999.
(2) INTEREST, DIVIDEND AND SECURITIES LENDING INCOME INCLUDE AMOUNTS ALLOCATED
FROM PORTFOLIOS WHERE APPLICABLE.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
45
<PAGE>
INCOME FUNDS STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BOND
-------------------------------------------------------
FOR THE ELEVEN FOR THE FOR THE
MONTHS ENDED YEAR ENDED PERIOD ENDED
MAY 31, 2000 JUNE 30, 1999 JUNE 30, 1998(1)
<S> <C> <C> <C>
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
BEGINNING NET ASSETS..... $ 18,786,765 $ 10,397,222 $ 0
---------------- ---------------- -------------------
OPERATIONS:
NET INVESTMENT
INCOME............... 1,067,249 873,336 97,942
NET REALIZED GAIN
(LOSS) ON SALE OF
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS......... (950,324) (92,828) 14,604
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... (774,265) (689,154) 40,064
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FOREIGN CURRENCY..... (8,982) 0 0
---------------- ---------------- -------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ (666,322) 91,354 152,610
---------------- ---------------- -------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
NET INVESTMENT INCOME
CLASS A.............. (362,850) (301,656) (59,155)
CLASS B.............. (617,389) (494,210) (36,202)
CLASS C.............. (87,010) (78,121) (2,585)
INSTITUTIONAL
CLASS............... N/A N/A N/A
NET REALIZED GAIN ON
SALE OF INVESTMENTS
CLASS A.............. (418) (17,016) 0
CLASS B.............. (795) (34,782) 0
CLASS C.............. (124) (4,732) 0
INSTITUTIONAL
CLASS............... N/A N/A N/A
CAPITAL SHARE
TRANSACTIONS:
PROCEEDS FROM SHARES
SOLD - CLASS A....... 1,768,862 4,298,862 5,486,114
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 164,748 127,714 25,324
COST OF SHARES REDEEMED
- CLASS A............ (1,809,292) (4,188,224) (35,386)
---------------- ---------------- -------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS A................ 124,318 238,352 5,476,052
---------------- ---------------- -------------------
PROCEEDS FROM SHARES
SOLD - CLASS B....... 2,531,235 8,152,989 4,674,276
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 393,734 350,463 10,428
COST OF SHARES REDEEMED
- CLASS B............ (3,693,437) (1,310,668) (115,854)
---------------- ---------------- -------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS B................ (768,468) 7,192,784 4,568,850
---------------- ---------------- -------------------
PROCEEDS FROM SHARES
SOLD - CLASS C....... 600,212 2,076,396 296,460
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. 69,793 66,082 1,192
COST OF SHARES REDEEMED
- CLASS C............ (1,482,456) (344,908) 0
---------------- ---------------- -------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS C................ (812,451) 1,797,570 297,652
---------------- ---------------- -------------------
PROCEEDS FROM SHARES
SOLD - INSTITUTIONAL
CLASS................ N/A N/A N/A
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ N/A N/A N/A
COST OF SHARES REDEEMED
- INSTITUTIONAL
CLASS................ N/A N/A N/A
---------------- ---------------- -------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
INSTITUTIONAL CLASS.... N/A N/A N/A
---------------- ---------------- -------------------
INCREASE (DECREASE) IN
NET ASSETS............. (3,191,509) 8,389,543 10,397,222
---------------- ---------------- -------------------
NET ASSETS:
ENDING NET ASSETS........ $ 15,595,256 $ 18,786,765 $ 10,397,222
---------------- ---------------- -------------------
SHARES ISSUED AND REDEEMED:
SHARES SOLD -
CLASS A.............. 190,078 427,782 549,592
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 17,973 12,788 2,541
SHARES REDEEMED -
CLASS A.............. (197,557) (419,200) (3,533)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS A................ 10,494 21,370 548,600
SHARES SOLD -
CLASS B.............. 272,287 814,237 468,524
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 42,863 35,042 1,045
SHARES REDEEMED -
CLASS B.............. (402,498) (131,436) (11,597)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS B................ (87,348) 717,843 457,972
SHARES SOLD -
CLASS C.............. 66,019 206,133 29,746
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. 7,564 6,636 119
SHARES REDEEMED -
CLASS C.............. (161,840) (35,279) 0
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS C................ (88,257) 177,490 29,865
SHARES SOLD -
INSTITUTIONAL
CLASS................ N/A N/A N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ N/A N/A N/A
SHARES REDEEMED -
INSTITUTIONAL
CLASS................ N/A N/A N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
INSTITUTIONAL CLASS.... N/A N/A N/A
ENDING BALANCE OF
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 67,541 $ 12,515 $ 5,621
---------------- ---------------- -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS INCOME FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVERSIFIED BOND INCOME INCOME PLUS
----------------------------------- ----------------------------------- ----------------
FOR THE FOR THE FOR THE FOR THE FOR THE ELEVEN
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MONTHS ENDED
MAY 31, 2000 MAY 31, 1999 MAY 31, 2000(2) MAY 31, 1999(3) MAY 31, 2000
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
BEGINNING NET ASSETS..... $ 179,133,459 $ 134,830,774 $ 369,928,292 $ 303,081,744 $ 51,152,364
----------------- ---------------- ---------------- ----------------- ----------------
OPERATIONS:
NET INVESTMENT
INCOME............... 10,818,645 8,791,665 26,536,656 20,783,023 2,896,376
NET REALIZED GAIN
(LOSS) ON SALE OF
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS......... (2,753,575) 3,794,321 (18,974,113) 1,744,973 (2,907,178)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... (2,014,985) (7,276,006) (8,738,341) (14,614,100) (2,746,639)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FOREIGN CURRENCY..... 0 0 0 0 (44,066)
----------------- ---------------- ---------------- ----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ 6,050,085 5,309,980 (1,175,798) 7,913,896 (2,801,507)
----------------- ---------------- ---------------- ----------------- ----------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
NET INVESTMENT INCOME
CLASS A.............. N/A N/A (1,024,531) (644,375) (658,566)
CLASS B.............. N/A N/A (503,494) (338,080) (2,056,415)
CLASS C.............. N/A N/A N/A N/A (179,939)
INSTITUTIONAL
CLASS............... (8,273,759) (8,345,049) (25,060,771) (19,800,568) N/A
NET REALIZED GAIN ON
SALE OF INVESTMENTS
CLASS A.............. N/A N/A 0 0 0
CLASS B.............. N/A N/A 0 0 0
CLASS C.............. N/A N/A N/A N/A 0
INSTITUTIONAL
CLASS............... (3,751,737) (2,943,586) 0 0 N/A
CAPITAL SHARE
TRANSACTIONS:
PROCEEDS FROM SHARES
SOLD - CLASS A....... N/A N/A 9,560,870 9,443,566 2,318,150
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. N/A N/A 599,333 444,993 479,861
COST OF SHARES REDEEMED
- CLASS A............ N/A N/A (5,948,693) (3,311,262) (4,463,052)
----------------- ---------------- ---------------- ----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS A................ N/A N/A 4,211,510 6,577,297 (1,665,041)
----------------- ---------------- ---------------- ----------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS B....... N/A N/A 5,459,661 4,176,972 4,680,931
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. N/A N/A 404,273 258,830 1,416,311
COST OF SHARES REDEEMED
- CLASS B............ N/A N/A (4,378,387) (1,281,451) (10,504,386)
----------------- ---------------- ---------------- ----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS B................ N/A N/A 1,485,547 3,154,351 (4,407,144)
----------------- ---------------- ---------------- ----------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS C....... N/A N/A N/A N/A 938,122
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. N/A N/A N/A N/A 135,803
COST OF SHARES REDEEMED
- CLASS C............ N/A N/A N/A N/A (1,199,868)
----------------- ---------------- ---------------- ----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS C................ N/A N/A N/A N/A (125,943)
----------------- ---------------- ---------------- ----------------- ----------------
PROCEEDS FROM SHARES
SOLD - INSTITUTIONAL
CLASS................ 75,735,487 93,461,345 170,773,723 116,593,000 N/A
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ 10,832,344 10,514,121 3,674,438 1,404,934 N/A
COST OF SHARES REDEEMED
- INSTITUTIONAL
CLASS................ (69,443,007) (53,694,126) (127,084,912) (48,013,907) N/A
----------------- ---------------- ---------------- ----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
INSTITUTIONAL CLASS.... 17,124,824 50,281,340 47,363,249 69,984,027 N/A
----------------- ---------------- ---------------- ----------------- ----------------
INCREASE (DECREASE) IN
NET ASSETS............. 11,149,413 44,302,685 25,295,712 66,846,548 (11,894,555)
----------------- ---------------- ---------------- ----------------- ----------------
NET ASSETS:
ENDING NET ASSETS........ $ 190,282,872 $ 179,133,459 $ 395,224,004 $ 369,928,292 $ 39,257,809
----------------- ---------------- ---------------- ----------------- ----------------
SHARES ISSUED AND REDEEMED:
SHARES SOLD -
CLASS A.............. N/A N/A 1,046,017 963,101 203,593
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. N/A N/A 65,850 38,853 42,613
SHARES REDEEMED -
CLASS A.............. N/A N/A (653,454) (335,760) (388,963)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS A................ N/A N/A 458,413 666,194 (142,757)
SHARES SOLD -
CLASS B.............. N/A N/A 594,550 429,256 409,648
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. N/A N/A 44,495 22,307 125,637
SHARES REDEEMED -
CLASS B.............. N/A N/A (482,096) (131,835) (926,576)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS B................ N/A N/A 156,949 319,728 (391,291)
SHARES SOLD -
CLASS C.............. N/A N/A N/A N/A 82,145
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. N/A N/A N/A N/A 12,070
SHARES REDEEMED -
CLASS C.............. N/A N/A N/A N/A (105,912)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS C................ N/A N/A N/A N/A (11,697)
SHARES SOLD -
INSTITUTIONAL
CLASS................ 2,970,784 3,450,235 18,613,511 9,749,900 N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ 441,236 394,526 405,668 126,666 N/A
SHARES REDEEMED -
INSTITUTIONAL
CLASS................ (2,727,375) (1,972,081) (14,042,302) (4,886,126) N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
INSTITUTIONAL CLASS.... 684,645 1,872,680 4,976,877 4,990,440 N/A
ENDING BALANCE OF
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 7,446,340 $ 4,918,887 $ (118) $ 14,155 $ 340,143
----------------- ---------------- ---------------- ----------------- ----------------
<CAPTION>
INCOME PLUS
----------------
FOR THE
PERIOD ENDED
JUNE 30, 1999(4)
<S> <C>
-------------------------
INCREASE (DECREASE) IN NE
BEGINNING NET ASSETS..... $ 0
----------------
OPERATIONS:
NET INVESTMENT
INCOME............... 2,467,497
NET REALIZED GAIN
(LOSS) ON SALE OF
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS......... (615,567)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... (1,040,956)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FOREIGN CURRENCY..... 14,103
----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ 825,077
----------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
NET INVESTMENT INCOME
CLASS A.............. (592,308)
CLASS B.............. (1,634,801)
CLASS C.............. (157,519)
INSTITUTIONAL
CLASS............... N/A
NET REALIZED GAIN ON
SALE OF INVESTMENTS
CLASS A.............. 0
CLASS B.............. 0
CLASS C.............. 0
INSTITUTIONAL
CLASS............... N/A
CAPITAL SHARE
TRANSACTIONS:
PROCEEDS FROM SHARES
SOLD - CLASS A....... 17,861,432
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 471,992
COST OF SHARES REDEEMED
- CLASS A............ (6,778,268)
----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS A................ 11,555,156
----------------
PROCEEDS FROM SHARES
SOLD - CLASS B....... 47,027,538
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 1,158,652
COST OF SHARES REDEEMED
- CLASS B............ (10,161,143)
----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS B................ 38,025,047
----------------
PROCEEDS FROM SHARES
SOLD - CLASS C....... 4,318,436
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. 130,309
COST OF SHARES REDEEMED
- CLASS C............ (1,317,033)
----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS C................ 3,131,712
----------------
PROCEEDS FROM SHARES
SOLD - INSTITUTIONAL
CLASS................ N/A
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ N/A
COST OF SHARES REDEEMED
- INSTITUTIONAL
CLASS................ N/A
----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
INSTITUTIONAL CLASS.... N/A
----------------
INCREASE (DECREASE) IN
NET ASSETS............. 51,152,364
----------------
NET ASSETS:
ENDING NET ASSETS........ $ 51,152,364
----------------
SHARES ISSUED AND REDEEME
SHARES SOLD -
CLASS A.............. 1,437,339
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 38,209
SHARES REDEEMED -
CLASS A.............. (543,204)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS A................ 932,344
SHARES SOLD -
CLASS B.............. 3,788,681
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 93,706
SHARES REDEEMED -
CLASS B.............. (819,929)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS B................ 3,062,458
SHARES SOLD -
CLASS C.............. 347,631
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. 10,533
SHARES REDEEMED -
CLASS C.............. (106,035)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS C................ 252,129
SHARES SOLD -
INSTITUTIONAL
CLASS................ N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ N/A
SHARES REDEEMED -
INSTITUTIONAL
CLASS................ N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
INSTITUTIONAL CLASS.... N/A
ENDING BALANCE OF
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 84,559
----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
47
<PAGE>
INCOME FUNDS STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT
INCOME
-----------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MAY 31, 2000(5) MAY 31, 1999
<S> <C> <C>
--------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
BEGINNING NET ASSETS..... $ 447,437,913 $ 422,947,755
----------------- ----------------
OPERATIONS:
NET INVESTMENT
INCOME............... 36,292,289 25,631,632
NET REALIZED GAIN
(LOSS) ON SALE OF
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS......... (24,818,228) 9,601,541
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... (2,504,140) (17,398,354)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FOREIGN CURRENCY..... 0 0
----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ 8,969,921 17,834,819
----------------- ----------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
NET INVESTMENT INCOME
CLASS A.............. (7,772,879) (989,253)
CLASS B.............. (1,861,068) (436,710)
CLASS C.............. (142,070)(6) N/A
INSTITUTIONAL
CLASS............... (26,326,161) (24,119,784)
NET REALIZED GAIN ON
SALE OF INVESTMENTS
CLASS A.............. 0 0
CLASS B.............. 0 0
CLASS C.............. 0 N/A
INSTITUTIONAL
CLASS............... 0 0
CAPITAL SHARE
TRANSACTIONS:
PROCEEDS FROM SHARES
SOLD - CLASS A....... 229,307,012 10,419,234
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 5,528,205 656,708
COST OF SHARES REDEEMED
- CLASS A............ (53,251,940) (6,477,809)
----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS A................ 181,583,277 4,598,133
----------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS B....... 57,945,911 2,225,321
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 1,340,221 306,880
COST OF SHARES REDEEMED
- CLASS B............ (14,552,078) (2,117,425)
----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS B................ 44,734,054 414,776
----------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS C....... 7,999,452(6) N/A
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. 86,802(6) N/A
COST OF SHARES REDEEMED
- CLASS C............ (3,607,769)(6) N/A
----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS C................ 4,478,485(6) N/A
----------------- ----------------
PROCEEDS FROM SHARES
SOLD - INSTITUTIONAL
CLASS................ 83,535,695 99,614,489
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ 4,117,311 3,149,067
COST OF SHARES REDEEMED
- INSTITUTIONAL
CLASS................ (103,996,985) (75,575,379)
----------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
INSTITUTIONAL CLASS.... (16,343,979) 27,188,177
----------------- ----------------
INCREASE (DECREASE) IN
NET ASSETS............. 187,319,580 24,490,158
----------------- ----------------
NET ASSETS:
ENDING NET ASSETS........ $ 634,757,493 $ 447,437,913
----------------- ----------------
SHARES ISSUED AND REDEEMED:
SHARES SOLD -
CLASS A.............. 21,126,090 882,227
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 519,485 57,675
SHARES REDEEMED -
CLASS A.............. (4,990,212) (532,944)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS A................ 16,655,363 406,958
SHARES SOLD -
CLASS B.............. 5,343,404 197,858
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 125,937 24,843
SHARES REDEEMED -
CLASS B.............. (1,362,932) (186,963)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS B................ 4,106,409 35,738
SHARES SOLD -
CLASS C.............. 743,198(6) N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. 8,176(6) N/A
SHARES REDEEMED -
CLASS C.............. (339,074)(6) N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS C................ 412,300(6) N/A
SHARES SOLD -
INSTITUTIONAL
CLASS................ 7,746,511 8,727,027
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ 384,049 276,758
SHARES REDEEMED -
INSTITUTIONAL
CLASS................ (9,690,746) (6,624,019)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
INSTITUTIONAL CLASS.... (1,560,186) 2,379,766
ENDING BALANCE OF
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ 714,840 $ 520,614
----------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
48
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS INCOME FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIMITED TERM GOVERNMENT INCOME STABLE INCOME
---------------------------------------------------------- ----------------------------------
FOR THE ELEVEN FOR THE FOR THE THREE FOR THE FOR THE
MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 2000(7) JUNE 30, 1999(8) JUNE 30, 1998(9) MAY 31, 2000 MAY 31, 1999
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
BEGINNING NET ASSETS..... $ 132,387,973 $ 135,808,583 $ 81,667,790 $ 190,146,200 $ 154,592,410
----------------- ----------------- -------------------- ---------------- ----------------
OPERATIONS:
NET INVESTMENT
INCOME............... 8,322,686 7,863,797 1,204,587 10,937,437 9,000,111
NET REALIZED GAIN
(LOSS) ON SALE OF
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS......... (2,390,574) 29,922 197,277 (701,367) 77,235
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... (2,990,751) (3,516,889) (315,497) (1,632,414) (817,887)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FOREIGN CURRENCY..... 0 0 0 0 0
----------------- ----------------- -------------------- ---------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ 2,941,361 4,376,830 1,086,367 8,603,656 8,259,459
----------------- ----------------- -------------------- ---------------- ----------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
NET INVESTMENT INCOME
CLASS A.............. (1,797,068) (2,552,631) (411,840) (477,370) (441,356)
CLASS B.............. (432,404) (435,667) (16,670)(10) (115,407) (91,337)
CLASS C.............. N/A N/A N/A N/A N/A
INSTITUTIONAL
CLASS............... (6,103,604) (4,875,499) (776,077) (10,234,518) (8,493,767)
NET REALIZED GAIN ON
SALE OF INVESTMENTS
CLASS A.............. 0 0 0 0 0
CLASS B.............. 0 0 0(10) 0 0
CLASS C.............. N/A N/A N/A N/A N/A
INSTITUTIONAL
CLASS............... 0 0 0 0 0
CAPITAL SHARE
TRANSACTIONS:
PROCEEDS FROM SHARES
SOLD - CLASS A....... 4,495,987 35,462,628 11,342,063 1,741,130 69,160,904
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 1,273,228 1,958,664 298,853 351,790 274,004
COST OF SHARES REDEEMED
- CLASS A............ (17,710,742) (31,334,933) (3,209,710) (1,636,425) (68,232,510)
----------------- ----------------- -------------------- ---------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS A................ (11,941,527) 6,086,359 8,431,206 456,495 1,202,398
----------------- ----------------- -------------------- ---------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS B....... 3,356,306 4,909,279 7,582,398(10) 1,559,171 1,191,404
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 349,777 374,047 5(10) 103,710 81,915
COST OF SHARES REDEEMED
- CLASS B............ (4,188,868) (2,896,538) (27,179)(10) (1,572,047) (738,126)
----------------- ----------------- -------------------- ---------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS B................ (482,785) 2,386,788 7,555,224(10) 90,834 535,193
----------------- ----------------- -------------------- ---------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS C....... N/A N/A N/A N/A N/A
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. N/A N/A N/A N/A N/A
COST OF SHARES REDEEMED
- CLASS C............ N/A N/A N/A N/A N/A
----------------- ----------------- -------------------- ---------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS C................ N/A N/A N/A N/A N/A
----------------- ----------------- -------------------- ---------------- ----------------
PROCEEDS FROM SHARES
SOLD - INSTITUTIONAL
CLASS................ 96,762,357 16,076,383 43,495,528 120,568,832 104,727,907
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ 1,915,894 2,114,406 182,366 8,568,469 7,027,178
COST OF SHARES REDEEMED
- INSTITUTIONAL
CLASS................ (47,113,940) (26,597,579) (5,405,311) (114,888,520) (77,171,885)
----------------- ----------------- -------------------- ---------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
INSTITUTIONAL CLASS.... 51,564,311 (8,406,790) 38,272,583 14,248,781 34,583,200
----------------- ----------------- -------------------- ---------------- ----------------
INCREASE (DECREASE) IN
NET ASSETS............. 33,748,284 (3,420,610) 54,140,793 12,572,471 35,553,790
----------------- ----------------- -------------------- ---------------- ----------------
NET ASSETS:
ENDING NET ASSETS........ $ 166,136,257 $ 132,387,973 $ 135,808,583 $ 202,718,671 $ 190,146,200
----------------- ----------------- -------------------- ---------------- ----------------
SHARES ISSUED AND REDEEMED:
SHARES SOLD -
CLASS A.............. 471,237 3,504,267 1,131,614 170,237 6,572,253
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 133,038 195,337 30,004 34,557 26,555
SHARES REDEEMED -
CLASS A.............. (1,846,605) (3,111,992) (321,454) (160,397) (6,595,554)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS A................ (1,242,330) 587,612 840,164 44,397 3254
SHARES SOLD -
CLASS B.............. 349,468 488,761 756,223(10) 152,823 148,486
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. 36,565 37,358 1(10) 10,193 7,941
SHARES REDEEMED -
CLASS B.............. (437,696) (289,187) (2,717)(10) (154,241) (100,175)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS B................ (51,663) 236,932 753,507(10) 8,775 56,252
SHARES SOLD -
CLASS C.............. N/A N/A N/A N/A N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. N/A N/A N/A N/A N/A
SHARES REDEEMED -
CLASS C.............. N/A N/A N/A N/A N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS C................ N/A N/A N/A N/A N/A
SHARES SOLD -
INSTITUTIONAL
CLASS................ 10,215,567 1,633,872 4,422,174 11,824,746 10,204,127
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ 204,333 215,215 18,665 841,855 680,833
SHARES REDEEMED -
INSTITUTIONAL
CLASS................ (5,026,389) (2,709,472) (552,996) (11,269,430) (7,428,994)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
INSTITUTIONAL CLASS.... 5,393,511 (860,385) 3,887,843 1,397,171 3,455,966
ENDING BALANCE OF
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ (2,040) $ 0 $ 0 $ 236,261 $ 135,855
----------------- ----------------- -------------------- ---------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
49
<PAGE>
INCOME FUNDS STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT
-------------------------------------------------------------
FOR THE ELEVEN FOR THE FOR THE SIX
MONTHS ENDED YEAR ENDED MONTHS ENDED
MAY 31, 2000 JUNE 30, 1999(11) JUNE 30, 1998
<S> <C> <C> <C>
----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
BEGINNING NET ASSETS..... $ 108,202,622 $ 169,619,917 $ 231,810,756
---------------- -------------------- ----------------
OPERATIONS:
NET INVESTMENT
INCOME............... 4,253,972 6,439,615 4,927,547
NET REALIZED GAIN
(LOSS) ON SALE OF
INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS......... (845,250) (1,468,711) 12,439
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... 123,470 (1,882,277) (1,051,658)
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
FOREIGN CURRENCY..... 0 0 0
---------------- -------------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ 3,532,192 3,088,627 3,888,328
---------------- -------------------- ----------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
NET INVESTMENT INCOME
CLASS A.............. (4,253,972) (6,432,666) (4,809,412)
CLASS B.............. N/A N/A N/A
CLASS C.............. N/A (6,949)(12) (118,135)
INSTITUTIONAL
CLASS.............. N/A N/A N/A
NET REALIZED GAIN ON
SALE OF INVESTMENTS
CLASS A.............. 0 0 0
CLASS B.............. N/A N/A N/A
CLASS C.............. N/A 0(12) 0
INSTITUTIONAL
CLASS.............. N/A N/A N/A
CAPITAL SHARE
TRANSACTIONS:
PROCEEDS FROM SHARES
SOLD - CLASS A....... 39,889,676 93,797,081 48,964,576
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 453,667 959,349 817,437
COST OF SHARES REDEEMED
- CLASS A............ (78,024,869) (148,197,189) (111,124,094)
---------------- -------------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS A................ (37,681,526) (53,440,759) (61,342,081)
---------------- -------------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS B....... N/A N/A N/A
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. N/A N/A N/A
COST OF SHARES REDEEMED
- CLASS B............ N/A N/A N/A
---------------- -------------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS B................ N/A N/A N/A
---------------- -------------------- ----------------
PROCEEDS FROM SHARES
SOLD - CLASS C....... N/A 0(12) 26,817,057
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. N/A 8,618(12) 60,258
COST OF SHARES REDEEMED
- CLASS C............ N/A (4,634,166)(12) (26,686,854)
---------------- -------------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
CLASS C................ N/A (4,625,548)(12) 190,461
---------------- -------------------- ----------------
PROCEEDS FROM SHARES
SOLD - INSTITUTIONAL
CLASS................ N/A N/A N/A
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ N/A N/A N/A
COST OF SHARES REDEEMED
- INSTITUTIONAL
CLASS................ N/A N/A N/A
---------------- -------------------- ----------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS -
INSTITUTIONAL CLASS.... N/A N/A N/A
---------------- -------------------- ----------------
INCREASE (DECREASE) IN
NET ASSETS............. (38,403,306) (61,417,295) (62,190,839)
---------------- -------------------- ----------------
NET ASSETS:
ENDING NET ASSETS........ $ 69,799,316 $ 108,202,622 $ 169,619,917
---------------- -------------------- ----------------
SHARES ISSUED AND REDEEMED:
SHARES SOLD -
CLASS A.............. 4,473,645 10,323,043 5,306,636
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS A.............. 50,929 105,348 88,803
SHARES REDEEMED -
CLASS A.............. (8,757,346) (16,309,899) (12,066,556)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS A................ (4,232,772) (5,881,508) (6,671,117)
SHARES SOLD -
CLASS B.............. N/A N/A N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS B.............. N/A N/A N/A
SHARES REDEEMED -
CLASS B.............. N/A N/A N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS B................ N/A N/A N/A
SHARES SOLD -
CLASS C.............. N/A (331,880)(12) 1,937,902
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
CLASS C.............. N/A 625(12) 4,358
SHARES REDEEMED -
CLASS C.............. N/A (4,126)(12) (1,928,389)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
CLASS C................ N/A (335,381)(12) 13,871
SHARES SOLD -
INSTITUTIONAL
CLASS................ N/A N/A N/A
SHARES ISSUED IN
REINVESTMENT OF
DIVIDENDS -
INSTITUTIONAL
CLASS................ N/A N/A N/A
SHARES REDEEMED -
INSTITUTIONAL
CLASS................ N/A N/A N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING -
INSTITUTIONAL CLASS.... N/A N/A N/A
ENDING BALANCE OF
UNDISTRIBUTED NET
INVESTMENT INCOME...... $ (69,757) $ 0 $ 0
---------------- -------------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
50
<PAGE>
NOTES TO STATEMENTS OF CHANGES IN NET ASSETS INCOME FUNDS
--------------------------------------------------------------------------------
NOTES TO STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
(1) This Fund commenced operations April 1, 1998.
(2) "Proceeds from shares sold" includes $1,168,370 for Class A, and "Shares
sold" includes 126,310 for Class A as a result of the consolidation of the
Norwest Advantage Total Return Bond Fund. "Proceeds from shares sold"
includes $2,408,469 for Class B, and "Shares sold" includes 260,657 for
Class B as a result of the consolidation of the Norwest Advantage Total
Return Bond Fund. "Proceeds from shares sold" includes $82,283,786 for
Institutional Class shares, and "Shares sold" includes 8,905,172 for
Institutional Class shares as a result of the consolidation of the Norwest
Advantage Total Return Bond Fund. "Proceeds from shares sold" includes
$8,786,406 for Institutional Class shares, and "Shares sold" includes
950,910 for Institutional Class shares as a result of the consolidation of
the Norwest Advantage Performa Strategic Value Bond Fund.
(3) "Proceeds from shares sold" includes $20,822,516 for Institutional
Class shares and "Shares sold" includes 2,096,930 for Institutional
Class shares as a result of the consolidation of the Founders Trust Income
Fund.
(4) This Fund commenced operations on July 13, 1998.
(5) "Proceeds from shares sold" includes $145,943,819 for Class A, and "Shares
sold" includes 13,426,294 for Class A as a result of the consolidation of
the Stagecoach U.S. Govt. Income Fund. "Proceeds from shares sold"
includes $61,839,662 for Class A, and "Shares sold" includes 5,689,021 for
Class A as a result of the consolidation of the Stagecoach U.S. Govt.
Allocation Fund. "Proceeds from shares sold" includes $35,145,993 for
Class B, and "Shares sold" includes 3,236,279 for Class B as a result of
the consolidation of the Stagecoach U.S. Govt. Income Fund. "Proceeds from
shares sold" includes $17,089,828 for Class B, and "Shares sold" includes
1,573,649 for Class B as a result of the consolidation of the Stagecoach
U.S. Govt. Allocation Fund. "Proceeds from shares sold" includes
$4,408,810 for Class C, and "Shares sold" 405,968 for Class C as a result
of the consolidation of the Stagecoach U.S. Govt. Income Fund. "Proceeds
from shares sold" includes $6,920,937 for Institutional Class shares, and
"Shares sold" includes 636,701 for Institutional Class shares as a result
of the consolidation of the Stagecoach U.S. Govt. Income Fund.
(6) This class of shares commenced operations on November 8, 1999.
(7) "Proceeds from shares sold" includes $78,780,293 for Institutional shares,
and "Shares sold" includes 8,292,662 for Institutional shares as a result
of the consolidation of the Norwest Advantage Limited Term Government
Income Fund.
(8) "Proceeds from shares sold" includes $8,897,237 for Class A as a result of
the consolidation of the Masterworks Short-Intermediate Term Fund.
(9) "Proceeds from shares sold" includes $9,084,926 for Class A $7,491,591 for
Class B and $41,157,653 for Institutional Class as a result of the
consolidation of the Stagecoach Intermediate Bond Fund.
(10) This class of shares commenced operations on June 15, 1998.
(11) "Proceeds from shares sold" includes $4,577,231 for Class A as a result of
the conversion of the Fund's Class C shares on July 13, 1998.
(12) This class of shares ceased operations on July 13, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
51
<PAGE>
INCOME FUNDS FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED
BEGINNING AND DIVIDENDS DISTRIBUTIONS
NET ASSET NET UNREALIZED FROM NET FROM NET
VALUE PER INVESTMENT GAIN (LOSS) ON INVESTMENT REALIZED
SHARE INCOME INVESTMENTS INCOME GAINS
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
CORPORATE BOND FUND
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 9.62 0.59 (0.90) (0.59) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 10.03 0.62 (0.37) (0.62) (0.04)
APRIL 1, 1998(4) TO JUNE 30, 1998............ $ 10.00 0.17 0.03 (0.17) 0
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 9.62 0.52 (0.90) (0.52) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 10.03 0.55 (0.37) (0.55) (0.04)
APRIL 1, 1998(4) TO JUNE 30, 1998............ $ 10.00 0.15 0.03 (0.15) 0
C SHARES
JULY 1, 1999(3) TO NOVEMBER 30, 1999......... $ 9.62 0.52 (0.91) (0.52) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 10.03 0.55 (0.37) (0.55) (0.04)
APRIL 1, 1998(4) TO JUNE 30, 1998............ $ 10.00 0.15 0.03 (0.15) 0
DIVERSIFIED BOND FUND
---------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 26.11 1.43 (0.63) (1.16) (0.53)
JUNE 1, 1998 TO MAY 31, 1999................. $ 27.03 1.34 (0.17) (1.43) (0.66)
JUNE 1, 1997 TO MAY 31, 1998................. $ 25.60 1.61 1.51 (1.66) (0.03)
JUNE 1, 1996 TO MAY 31, 1997................. $ 26.03 1.59 0.01 (1.69) (0.34)
NOVEMBER 1, 1995 TO MAY 31, 1996(6).......... $ 27.92 1.07 (0.99) (1.67) (0.30)
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... $ 25.08 1.65 1.19 0 0
INCOME FUND
---------------------------------------------------------------------------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 9.48 0.59 (0.62) (0.59) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 9.79 0.59 (0.31) (0.59) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 9.27 0.61 0.52 (0.61) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 9.27 0.62 0 (0.62) 0
JUNE 1, 1995 TO MAY 31, 1996................. $ 9.63 0.61 (0.36) (0.61) 0
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 9.46 0.53 (0.62) (0.53) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 9.77 0.52 (0.31) (0.52) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 9.26 0.54 0.51 (0.54) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 9.26 0.55 0 (0.55) 0
JUNE 1, 1995 TO MAY 31, 1996................. $ 9.61 0.54 (0.35) (0.54) 0
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 9.47 0.61 (0.62) (0.61) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 9.78 0.59 (0.31) (0.59) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 9.27 0.61 0.51 (0.61) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 9.26 0.62 0.01 (0.62) 0
JUNE 1, 1995 TO MAY 31, 1996................. $ 9.62 0.61 (0.36) (0.61) 0
INCOME PLUS FUND
---------------------------------------------------------------------------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 12.04 0.79 (1.44) (0.79) 0
JULY 13, 1998(4) TO JUNE 30, 1999............ $ 12.50 0.77 (0.46) (0.77) 0
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 12.05 0.72 (1.44) (0.72) 0
JULY 13, 1998(4) TO JUNE 30, 1999............ $ 12.50 0.68 (0.45) (0.68) 0
C SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 12.05 0.72 (1.44) (0.72) 0
JULY 13, 1998(4) TO JUNE 30, 1999............ $ 12.50 0.68 (0.45) (0.68) 0
INTERMEDIATE GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 11.04 0.64 (0.44) (0.68) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 11.22 0.64 (0.17) (0.65) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 10.84 0.77 0.31 (0.70) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 10.89 0.73 (0.05) (0.73) 0
MAY 2, 1996(4) TO MAY 31, 1996............... $ 10.89 0.03 0 (0.03) 0
</TABLE>
52
<PAGE>
FINANCIAL HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ENDING RATIO TO AVERAGE NET ASSETS (ANNUALIZED)
NET ASSET ---------------------------------------------
RETURN OF VALUE PER NET INVESTMENT NET GROSS
CAPITAL SHARE INCOME EXPENSES EXPENSES(1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
CORPORATE BOND FUND
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 8.72 6.95% 1.00% 1.59%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 9.62 6.21% 0.93% 2.10%
APRIL 1, 1998(4) TO JUNE 30, 1998............ 0 $ 10.03 6.47% 0.56% 3.74%
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 8.72 6.16% 1.75% 2.37%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 9.62 5.43% 1.68% 2.65%
APRIL 1, 1998(4) TO JUNE 30, 1998............ 0 $ 10.03 5.47% 1.35% 4.30%
C SHARES
JULY 1, 1999(3) TO NOVEMBER 30, 1999......... 0 $ 8.72 6.16% 1.75% 2.43%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 9.62 5.39% 1.70% 2.94%
APRIL 1, 1998(4) TO JUNE 30, 1998............ 0 $ 10.03 5.57% 1.34% 8.58%
DIVERSIFIED BOND FUND
------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 25.22 5.80% 0.70%(5) 0.92%(5)
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 26.11 5.58% 0.70%(5) 1.07%(5)
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 27.03 5.98% 0.70%(5) 1.02%(5)
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 25.60 6.19% 0.70% 0.77%
NOVEMBER 1, 1995 TO MAY 31, 1996(6).......... 0 $ 26.03 6.78% 0.70% 0.77%
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... 0 $ 27.92 5.87% 0.67% 0.82%
INCOME FUND
------------------------------------------------------------------------------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 8.86 6.50% 0.90% 1.05%
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 9.48 5.98% 0.75% 1.08%
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 9.79 6.29% 0.75% 1.14%
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 9.27 6.59% 0.75% 1.17%
JUNE 1, 1995 TO MAY 31, 1996................. 0 $ 9.27 6.33% 0.75% 1.16%
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 8.84 5.74% 1.65% 1.93%
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 9.46 5.22% 1.50% 2.13%
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 9.77 5.54% 1.50% 2.19%
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 9.26 5.87% 1.50% 2.25%
JUNE 1, 1995 TO MAY 31, 1996................. 0 $ 9.26 5.57% 1.50% 2.27%
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 8.85 6.65% 0.75% 0.82%
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 9.47 6.00% 0.75% 0.92%
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 9.78 6.32% 0.75% 0.92%
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 9.27 6.59% 0.75% 1.02%
JUNE 1, 1995 TO MAY 31, 1996................. 0 $ 9.26 6.30% 0.75% 1.06%
INCOME PLUS FUND
------------------------------------------------------------------------------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 10.60 7.56% 1.08% 1.41%
JULY 13, 1998(4) TO JUNE 30, 1999............ 0 $ 12.04 6.95% 0.66% 1.62%
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 10.61 6.77% 1.86% 2.18%
JULY 13, 1998(4) TO JUNE 30, 1999............ 0 $ 12.05 6.25% 1.50% 2.14%
C SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 10.61 6.80% 1.83% 2.27%
JULY 13, 1998(4) TO JUNE 30, 1999............ 0 $ 12.05 6.23% 1.47% 2.49%
INTERMEDIATE GOVERNMENT INCOME FUND
------------------------------------------------------------------------------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 10.56 6.29% 0.94% 1.16%
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 11.04 5.76% 0.68% 0.87%
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 11.22 6.35% 0.68% 0.86%
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 10.84 6.58% 0.68% 0.80%
MAY 2, 1996(4) TO MAY 31, 1996............... 0 $ 10.89 7.32% 0.75% 1.74%
<CAPTION>
PORTFOLIO NET ASSETS AT
TOTAL TURNOVER END OF PERIOD
RETURN(2) RATE (000'S OMITTED)
<S> <C> <C> <C>
---------------------------------------------
CORPORATE BOND FUND
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. (3.36)% 103% $ 5,062
JULY 1, 1998 TO JUNE 30, 1999................ 2.45% 115% $ 5,482
APRIL 1, 1998(4) TO JUNE 30, 1998............ 1.98% 33% $ 5,503
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. (4.03)% 103% $ 9,494
JULY 1, 1998 TO JUNE 30, 1999................ 1.68% 115% $ 11,311
APRIL 1, 1998(4) TO JUNE 30, 1998............ 1.81% 33% $ 4,595
C SHARES
JULY 1, 1999(3) TO NOVEMBER 30, 1999......... (4.02)% 103% $ 1,039
JULY 1, 1998 TO JUNE 30, 1999................ 1.67% 115% $ 1,994
APRIL 1, 1998(4) TO JUNE 30, 1998............ 1.78% 33% $ 299
DIVERSIFIED BOND FUND
---------------------------------------------
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 3.22% 68%(10) $190,283
JUNE 1, 1998 TO MAY 31, 1999................. 4.15% 77%(10) $179,133
JUNE 1, 1997 TO MAY 31, 1998................. 12.39% 91%(10) $134,831
JUNE 1, 1996 TO MAY 31, 1997................. 6.23% 57% $162,310
NOVEMBER 1, 1995 TO MAY 31, 1996(6).......... 0.22% 119% $167,159
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... 11.32% 59% $171,453
INCOME FUND
---------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. (0.23)% 124% $ 16,895
JUNE 1, 1998 TO MAY 31, 1999................. 2.81% 202% $ 13,731
JUNE 1, 1997 TO MAY 31, 1998................. 12.47% 167% $ 7,661
JUNE 1, 1996 TO MAY 31, 1997................. 6.79% 231% $ 5,142
JUNE 1, 1995 TO MAY 31, 1996................. 2.58% 270% $ 5,521
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. (1.00)% 124% $ 8,611
JUNE 1, 1998 TO MAY 31, 1999................. 2.03% 202% $ 7,726
JUNE 1, 1997 TO MAY 31, 1998................. 11.52% 167% $ 4,855
JUNE 1, 1996 TO MAY 31, 1997................. 6.03% 231% $ 3,349
JUNE 1, 1995 TO MAY 31, 1996................. 1.92% 270% $ 3,292
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. (0.10)% 124% $369,719
JUNE 1, 1998 TO MAY 31, 1999................. 2.81% 202% $348,472
JUNE 1, 1997 TO MAY 31, 1998................. 12.35% 167% $290,566
JUNE 1, 1996 TO MAY 31, 1997................. 6.90% 231% $258,207
JUNE 1, 1995 TO MAY 31, 1996................. 2.58% 270% $271,157
INCOME PLUS FUND
---------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. (5.56)% 95% $ 8,371
JULY 13, 1998(4) TO JUNE 30, 1999............ 2.52% 176% $ 11,223
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. (6.19)% 95% $ 28,336
JULY 13, 1998(4) TO JUNE 30, 1999............ 1.87% 176% $ 36,892
C SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. (6.19)% 95% $ 2,550
JULY 13, 1998(4) TO JUNE 30, 1999............ 1.87% 176% $ 3,037
INTERMEDIATE GOVERNMENT INCOME FUND
---------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 1.92% 139% $193,615
JUNE 1, 1998 TO MAY 31, 1999................. 4.21% 124% $ 18,594
JUNE 1, 1997 TO MAY 31, 1998................. 10.19% 97% $ 14,325
JUNE 1, 1996 TO MAY 31, 1997................. 6.36% 183% $ 13,038
MAY 2, 1996(4) TO MAY 31, 1996............... 0.26% 75% $ 16,562
</TABLE>
53
<PAGE>
INCOME FUNDS FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED
BEGINNING AND DIVIDENDS DISTRIBUTIONS
NET ASSET NET UNREALIZED FROM NET FROM NET
VALUE PER INVESTMENT GAIN (LOSS) ON INVESTMENT REALIZED
SHARE INCOME INVESTMENTS INCOME GAINS
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 11.04 0.62 (0.51) (0.60) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 11.21 0.53 (0.13) (0.57) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 10.83 0.69 0.31 (0.62) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 10.89 0.64 (0.05) (0.65) 0
MAY 17, 1996(4) TO MAY 31, 1996.............. $ 10.97 0.03 (0.08) (0.03) 0
C SHARES
NOVEMBER 8, 1999(4) TO MAY 31, 2000.......... $ 10.86 0.32 (0.31) (0.32) 0
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 11.05 0.70 (0.50) (0.69) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 11.22 0.66 (0.18) (0.65) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 10.84 0.71 0.37 (0.70) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 10.89 0.72 (0.04) (0.73) 0
NOVEMBER 1, 1995 TO MAY 31, 1996............. $ 12.40 0.40 0.53 (1.32) (1.12)
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... $ 11.11 0.93 0.36 0 0
LIMITED TERM GOVERNMENT INCOME FUND
---------------------------------------------------------------------------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 9.74 0.50 (0.30) (0.50) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 9.97 0.57 (0.23) (0.57) 0
APRIL 1, 1998(7) TO JUNE 30, 1998............ $ 9.95 0.13 0.02 (0.13) 0
APRIL 1, 1997 TO MARCH 31, 1998.............. $ 9.64 0.51 0.31 (0.51) 0
OCTOBER 1, 1996(8) TO MARCH 31, 1997......... $ 9.73 0.34 (0.09) (0.34) 0
JANUARY 1, 1996(9) TO SEPTEMBER 30, 1996..... $ 10.00 0.41 (0.27) (0.41) 0
JANUARY 1, 1995 TO DECEMBER 31, 1995......... $ 9.39 0.55 0.61 (0.55) 0
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 9.74 0.43 (0.30) (0.43) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 9.97 0.50 (0.23) (0.50) 0
JUNE 15, 1998(4) TO JUNE 30, 1998............ $ 10.03 0.02 (0.06) (0.02) 0
INSTITUTIONAL SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 9.55 0.51 (0.29) (0.51) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 9.78 0.56 (0.23) (0.56) 0
APRIL 1, 1998(7) TO JUNE 30, 1998............ $ 9.76 0.13 0.02 (0.13) 0
APRIL 1, 1997 TO MARCH 31, 1998.............. $ 9.45 0.51 0.31 (0.51) 0
OCTOBER 1, 1996(8) TO MARCH 31, 1997......... $ 9.54 0.34 (0.09) (0.34) 0
SEPTEMBER 6, 1996(4) TO SEPTEMBER 30, 1996... $ 9.46 0.03 0.08 (0.03) 0
STABLE INCOME FUND
---------------------------------------------------------------------------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 10.26 0.54 (0.11) (0.54) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 10.31 0.54 (0.06) (0.53) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 10.24 0.58 0.06 (0.57) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 10.20 0.58 0.04 (0.58) 0
MAY 2, 1996(4) TO MAY 31, 1996............... $ 10.22 0.02 0 (0.04) 0
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 10.26 0.46 (0.12) (0.46) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 10.30 0.44 (0.04) (0.44) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 10.24 0.51 0.04 (0.49) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 10.20 0.52 0.02 (0.50) 0
MAY 17, 1996(4) TO MAY 31, 1996.............. $ 10.23 0.02 (0.01) (0.04) 0
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. $ 10.27 0.55 (0.12) (0.55) 0
JUNE 1, 1998 TO MAY 31, 1999................. $ 10.30 0.52 (0.02) (0.53) 0
JUNE 1, 1997 TO MAY 31, 1998................. $ 10.24 0.58 0.05 (0.57) 0
JUNE 1, 1996 TO MAY 31, 1997................. $ 10.20 0.58 0.04 (0.58) 0
NOVEMBER 1, 1995 TO MAY 31, 1996............. $ 10.72 0.28 0.03 (0.77) (0.06)
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... $ 10.00 0.50 0.22 0 0
VARIABLE RATE GOVERNMENT FUND
---------------------------------------------------------------------------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. $ 8.96 0.42 (0.06) (0.42) 0
JULY 1, 1998 TO JUNE 30, 1999................ $ 9.19 0.43 (0.23) (0.43) 0
JANUARY 1, 1998(11) TO JUNE 30, 1998......... $ 9.23 0.24 (0.04) (0.24) 0
JANUARY 1, 1997 TO DECEMBER 31, 1997......... $ 9.25 0.51 (0.02) (0.51) 0
JANUARY 1, 1996 TO DECEMBER 31, 1996......... $ 9.35 0.50 (0.10) (0.46) 0
JANUARY 1, 1995 TO DECEMBER 31, 1995......... $ 9.19 0.53 0.16 (0.53) 0
</TABLE>
54
<PAGE>
FINANCIAL HIGHLIGHTS INCOME FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ENDING RATIO TO AVERAGE NET ASSETS (ANNUALIZED)
NET ASSET ---------------------------------------------
RETURN OF VALUE PER NET INVESTMENT NET GROSS
CAPITAL SHARE INCOME EXPENSES EXPENSES(1)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 10.55 5.55% 1.68% 1.83%
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 11.04 5.01% 1.43% 1.91%
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 11.21 5.60% 1.43% 1.85%
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 10.83 5.80% 1.42% 1.85%
MAY 17, 1996(4) TO MAY 31, 1996.............. 0 $ 10.89 5.56% 1.35% 2.65%
C SHARES
NOVEMBER 8, 1999(4) TO MAY 31, 2000.......... 0 $ 10.55 5.54% 1.71% 1.90%
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 10.56 6.43% 0.68% 0.75%
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 11.05 5.77% 0.68% 0.72%
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 11.22 6.35% 0.68% 0.72%
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 10.84 6.57% 0.68% 0.72%
NOVEMBER 1, 1995 TO MAY 31, 1996............. 0 $ 10.89 6.71% 0.71% 1.17%
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... 0 $ 12.40 7.79% 0.68% 0.93%
LIMITED TERM GOVERNMENT INCOME FUND
------------------------------------------------------------------------------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 9.44 5.62% 0.96% 1.21%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 9.74 5.66% 0.96% 1.21%
APRIL 1, 1998(7) TO JUNE 30, 1998............ 0 $ 9.97 5.36% 0.96% 1.24%
APRIL 1, 1997 TO MARCH 31, 1998.............. 0 $ 9.95 5.19% 0.78% 1.30%
OCTOBER 1, 1996(8) TO MARCH 31, 1997......... 0 $ 9.64 6.96% 0.71% 1.12%
JANUARY 1, 1996(9) TO SEPTEMBER 30, 1996..... 0 $ 9.73 5.60% 0.76% 1.21%
JANUARY 1, 1995 TO DECEMBER 31, 1995......... 0 $ 10.00 5.64% 0.71% 1.67%
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 9.44 4.89% 1.69% 1.96%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 9.74 4.95% 1.66% 1.99%
JUNE 15, 1998(4) TO JUNE 30, 1998............ 0 $ 9.97 5.08% 1.66% 1.97%
INSTITUTIONAL SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 9.26 5.87% 0.72% 0.90%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 9.55 5.72% 0.91% 1.08%
APRIL 1, 1998(7) TO JUNE 30, 1998............ 0 $ 9.78 5.44% 0.91% 1.08%
APRIL 1, 1997 TO MARCH 31, 1998.............. 0 $ 9.76 5.28% 0.69% 1.07%
OCTOBER 1, 1996(8) TO MARCH 31, 1997......... 0 $ 9.45 7.01% 0.65% 1.02%
SEPTEMBER 6, 1996(4) TO SEPTEMBER 30, 1996... 0 $ 9.54 5.14% 0.59% 0.84%
STABLE INCOME FUND
------------------------------------------------------------------------------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 10.15 5.29% 0.79%(5) 0.96%(5)
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 10.26 5.11% 0.65%(5) 0.95%(5)
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 10.31 5.74% 0.65%(5) 0.91%(5)
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 10.24 5.69% 0.65% 0.87%
MAY 2, 1996(4) TO MAY 31, 1996............... 0 $ 10.20 5.77% 0.70% 2.22%
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 10.14 4.54% 1.54%(5) 1.95%(5)
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 10.26 4.34% 1.40%(5) 2.15%(5)
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 10.30 4.94% 1.40%(5) 2.31%(5)
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 10.24 4.96% 1.39% 2.89%
MAY 17, 1996(4) TO MAY 31, 1996.............. 0 $ 10.20 5.02% 1.42% 3.07%
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 0 $ 10.15 5.44% 0.65%(5) 0.77%(5)
JUNE 1, 1998 TO MAY 31, 1999................. 0 $ 10.27 5.10% 0.65%(5) 0.76%(5)
JUNE 1, 1997 TO MAY 31, 1998................. 0 $ 10.30 5.69% 0.65%(5) 0.76%(5)
JUNE 1, 1996 TO MAY 31, 1997................. 0 $ 10.24 5.73% 0.65% 0.79%
NOVEMBER 1, 1995 TO MAY 31, 1996............. 0 $ 10.20 5.74% 0.65% 0.92%
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... 0 $ 10.72 5.91% 0.65% 0.98%
VARIABLE RATE GOVERNMENT FUND
------------------------------------------------------------------------------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 0 $ 8.90 5.06% 0.78% 1.09%
JULY 1, 1998 TO JUNE 30, 1999................ 0 $ 8.96 4.71% 0.78% 1.13%
JANUARY 1, 1998(11) TO JUNE 30, 1998......... 0 $ 9.19 5.21% 0.78% 1.11%
JANUARY 1, 1997 TO DECEMBER 31, 1997......... 0 $ 9.23 5.55% 0.81% 1.09%
JANUARY 1, 1996 TO DECEMBER 31, 1996......... (0.04) $ 9.25 5.36% 0.88% 0.98%
JANUARY 1, 1995 TO DECEMBER 31, 1995......... 0 $ 9.35 5.71% 0.84% 0.96%
<CAPTION>
PORTFOLIO NET ASSETS AT
TOTAL TURNOVER END OF PERIOD
RETURN(2) RATE (000'S OMITTED)
<S> <C> <C> <C>
---------------------------------------------
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 1.06% 139% $ 51,495
JUNE 1, 1998 TO MAY 31, 1999................. 3.53% 124% $ 8,540
JUNE 1, 1997 TO MAY 31, 1998................. 9.38% 97% $ 8,277
JUNE 1, 1996 TO MAY 31, 1997................. 5.51% 183% $ 8,970
MAY 17, 1996(4) TO MAY 31, 1996.............. (0.49)% 75% $ 10,682
C SHARES
NOVEMBER 8, 1999(4) TO MAY 31, 2000.......... 1.07% 139% $ 4,348
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 1.94% 139% $ 385,299
JUNE 1, 1998 TO MAY 31, 1999................. 4.30% 124% $ 420,305
JUNE 1, 1997 TO MAY 31, 1998................. 10.19% 97% $ 400,346
JUNE 1, 1996 TO MAY 31, 1997................. 6.36% 183% $ 371,278
NOVEMBER 1, 1995 TO MAY 31, 1996............. 0.60% 75% $ 399,324
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... 11.58% 241% $ 50,213
LIMITED TERM GOVERNMENT INCOME FUND
---------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 2.08% 80% $ 29,928
JULY 1, 1998 TO JUNE 30, 1999................ 3.37% 116% $ 42,956
APRIL 1, 1998(7) TO JUNE 30, 1998............ 1.54% 12% $ 38,149
APRIL 1, 1997 TO MARCH 31, 1998.............. 8.69% 48% $ 29,694
OCTOBER 1, 1996(8) TO MARCH 31, 1997......... 2.57% 52% $ 33,920
JANUARY 1, 1996(9) TO SEPTEMBER 30, 1996..... 1.34% 389% $ 37,465
JANUARY 1, 1995 TO DECEMBER 31, 1995......... 12.67% 472% $ 39,928
B SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 1.39% 80% $ 8,864
JULY 1, 1998 TO JUNE 30, 1999................ 2.65% 116% $ 9,643
JUNE 15, 1998(4) TO JUNE 30, 1998............ (0.38)% 12% $ 7,514
INSTITUTIONAL SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 2.34% 80% $ 127,344
JULY 1, 1998 TO JUNE 30, 1999................ 3.38% 116% $ 79,789
APRIL 1, 1998(7) TO JUNE 30, 1998............ 1.56% 12% $ 90,146
APRIL 1, 1997 TO MARCH 31, 1998.............. 8.85% 48% $ 51,973
OCTOBER 1, 1996(8) TO MARCH 31, 1997......... 2.58% 52% $ 60,150
SEPTEMBER 6, 1996(4) TO SEPTEMBER 30, 1996... 1.08% 389% $ 73,637
STABLE INCOME FUND
---------------------------------------------
A SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 4.28% 40%(10) $ 8,912
JUNE 1, 1998 TO MAY 31, 1999................. 4.74% 29%(10) $ 8,559
JUNE 1, 1997 TO MAY 31, 1998................. 6.38% 37%(10) $ 8,561
JUNE 1, 1996 TO MAY 31, 1997................. 6.24% 41% $ 12,451
MAY 2, 1996(4) TO MAY 31, 1996............... 0.23% 110% $ 16,256
B SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 3.40% 40%(10) $ 2,449
JUNE 1, 1998 TO MAY 31, 1999................. 4.07% 29%(10) $ 2,387
JUNE 1, 1997 TO MAY 31, 1998................. 5.50% 37%(10) $ 1,817
JUNE 1, 1996 TO MAY 31, 1997................. 5.43% 41% $ 1,056
MAY 17, 1996(4) TO MAY 31, 1996.............. 0.12% 110% $ 867
INSTITUTIONAL SHARES
JUNE 1, 1999 TO MAY 31, 2000................. 4.32% 40%(10) $ 191,358
JUNE 1, 1998 TO MAY 31, 1999................. 4.95% 29%(10) $ 179,201
JUNE 1, 1997 TO MAY 31, 1998................. 6.28% 37%(10) $ 144,215
JUNE 1, 1996 TO MAY 31, 1997................. 6.24% 41% $ 111,030
NOVEMBER 1, 1995 TO MAY 31, 1996............. 2.97% 110% $ 83,404
NOVEMBER 11, 1994(4) TO OCTOBER 31, 1995..... 7.20% 116% $ 48,087
VARIABLE RATE GOVERNMENT FUND
---------------------------------------------
A SHARES
JULY 1, 1999(3) TO MAY 31, 2000.............. 4.09% 36% $ 69,799
JULY 1, 1998 TO JUNE 30, 1999................ 2.17% 80% $ 108,203
JANUARY 1, 1998(11) TO JUNE 30, 1998......... 2.16% 45% $ 164,994
JANUARY 1, 1997 TO DECEMBER 31, 1997......... 5.43% 92% $ 227,353
JANUARY 1, 1996 TO DECEMBER 31, 1996......... 4.41% 277% $ 393,948
JANUARY 1, 1995 TO DECEMBER 31, 1995......... 7.69% 317% $ 653,897
</TABLE>
55
<PAGE>
INCOME FUNDS NOTES TO FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(1) During each period, various fees and expenses were waived and reimbursed.
The ratio of Gross Expenses to Average Net Assets reflects the expense
ratio in the absence of any waivers and reimbursements (Note 9).
(2) Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown.
(3) The Fund changed its fiscal year-end from June 30 to May 31.
(4) Commencement of operations.
(5) Includes expenses allocated from the Portfolio(s) in which the Fund
invests.
(6) The Fund changed its fiscal year-end from October 31 to May 31.
(7) The Fund changed its fiscal year-end from March 31 to June 30.
(8) The Fund changed its fiscal year-end from September 30 to March 31.
(9) The Fund changed its fiscal year-end from December 31 to September 30.
(10) Portfolio turnover rate represents the activity from the Funds' investment
in a core portfolio.
(11) The Fund changed its fiscal year-end from December 31 to June 30.
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS INCOME FUNDS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION
Wells Fargo Funds Trust (the "Trust") was organized on March 10, 1999 and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust
commenced operations on November 8, 1999, and is currently comprised of 61
separate series. These financial statements represent Corporate Bond,
Diversified Bond, Income, Income Plus, Intermediate Government Income, Limited
Term Government Income, Stable Income, and Variable Rate Government Funds
(each, a "Fund", collectively, the "Funds"), each a diversified series of the
Company.
Concurrent with the establishment of the Trust, the Board of Trustees of the
Stagecoach Family of Funds and the Board of Trustees of the Norwest Advantage
Funds approved a consolidation agreement providing for the acquisition of the
assets and assumption of liabilities of certain Stagecoach and Norwest
Advantage Funds into the Wells Fargo Funds Trust. Effective on the close of
business November 5, 1999, the Stagecoach and/or Norwest Advantage Funds were
consolidated into the Wells Fargo Funds Trust through a tax-free exchange of
shares as follows:
<TABLE>
<CAPTION>
Stagecoach Fund Norwest Advantage Fund Wells Fargo Fund
<S> <C> <C>
CORPORATE BOND* CORPORATE BOND
DIVERSIFIED BOND* DIVERSIFIED BOND
INCOME* INCOME
TOTAL RETURN BOND
PERFORMA STRATEGIC VALUE BOND
STRATEGIC INCOME* INCOME PLUS
U.S. GOVERNMENT INCOME INTERMEDIATE GOVERNMENT INCOME* INTERMEDIATE GOVERNMENT INCOME
U.S. GOVERNMENT ALLOCATION
SHORT INTERMEDIATE U.S. GOVERNMENT LIMITED TERM GOVERNMENT INCOME LIMITED TERM GOVERNMENT INCOME
INCOME*
STABLE INCOME* STABLE INCOME
VARIABLE RATE GOVERNMENT* VARIABLE RATE GOVERNMENT
</TABLE>
* ACCOUNTING SURVIVOR
In the consolidation, the Wells Fargo Income Fund acquired all of the net
assets of the Norwest Advantage Income Fund, Norwest Advantage Total Return
Bond Fund and the Norwest Performa Strategic Value Bond Fund. The Norwest
Advantage Total Return Bond Fund exchanged its 9,588,086 shares (valued at
$85,860,625) for 9,292,139 shares of the Wells Fargo Income Fund. The net
assets of the Norwest Advantage Total Return Bond Fund included unrealized
depreciation of $5,059,279. The Norwest Performa Strategic Value Bond Fund
exchanged its 902,531 shares (valued at $8,786,406) for 950,910 shares of the
Wells Fargo Income Fund. The net assets of the Norwest Performa Strategic
Value Bond Fund included unrealized depreciation of $384,481.
In the consolidation, the Wells Fargo Intermediate Government Income Fund
acquired all of the net assets of the Stagecoach U.S Government Income Fund,
Stagecoach U.S. Government Allocation Fund and Norwest Advantage Intermediate
Government Income Fund. The Stagecoach U.S. Government Income Fund exchanged
its 18,071,925 shares (valued at $192,419,559) for 17,705,242 shares of the
Wells Fargo Intermediate Government Income Fund. The net assets of the
Stagecoach U.S. Government Income Fund included unrealized depreciation of
$6,051,065. The Stagecoach U.S. Government Allocation Fund exchanged its
5,877,554 shares (valued at $78,929,490) for 7,262,670 shares of the Wells
Fargo Intermediate Government Income Fund. The net assets of the Stagecoach
U.S. Government Allocation Fund included unrealized depreciation of $913,575.
In the consolidation, the Wells Fargo Limited Term Government Income Fund
acquired all of the net assets of the Stagecoach Short Intermediate U.S
Government Income Fund and Norwest Advantage Limited Term Government Income
Fund. The Norwest Advantage Limited Term Government Income Fund exchanged its
8,190,601 shares (valued at $78,780,293) for 8,292,662 shares of the Wells
Fargo Limited
57
<PAGE>
INCOME FUNDS NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Term Government Income Fund. The net assets of the Stagecoach U.S. Government
Income Fund included unrealized depreciation of $1,224,961.
The Corporate Bond, Income Plus, and Intermediate Government Income Funds
offer Class A, Class B, and Class C shares. In addition, the Intermediate
Government Income Fund also offers Institutional Class shares. The Income,
Limited Term Government Income, and Stable Income Funds offer Class A,
Class B, and Institutional Class shares. The Diversified Bond Fund only offers
Institutional Class shares and the Variable Rate Government Fund only offers
Class A shares. Prior to July 13, 1998, the Variable Rate Government Fund also
offered Class C shares. Effective at the close of business on July 12, 1998,
the Class C shares of the Variable Rate Government Fund were converted into
Class A shares of the same Fund. The separate classes of shares differ
principally in the applicable sales charges (if any), distribution fees,
shareholder servicing fees and transfer agency fees. Shareholders of each
class may also bear certain expenses that pertain to that particular class.
All shareholders bear the common expenses of the Fund and earn income from the
portfolio pro rata based on the average daily net assets of each class,
without distinction between share classes. Dividends are determined separately
for each class based on income and expenses allocable to each class. Realized
gains are allocated to each class pro rata based on the net assets of each
class on the date realized. No class has preferential dividend rights.
Differences in per share dividend rates generally result from the relative
weightings of pro rata income and from differences in separate class expenses,
including distribution, shareholder servicing and transfer agency fees.
The Diversified Bond and Stable Income Funds are Funds which each seek to
achieve its investment objective by investing all investable assets in one or
more separate diversified portfolio ("Portfolio") of Core Trust ("Core Trust")
a registered, open-end management investment company, which has the same
investment objectives and substantially similar investment policies as the
Fund. Each Portfolio directly acquires portfolio securities, and a Fund
investing in a Portfolio acquires an indirect interest in those securities.
The Funds account for their investment in the Portfolios as partnership
investments and record daily their share of the Portfolio's income, expenses
and realized and unrealized gain and loss. These are commonly referred to as
master-feeder arrangements. The financial statements of the Portfolios are in
this report and should be read in conjunction with the Funds' financial
statements.
As of May 31, 2000, the Diversified Bond Fund owned 19.8% of the Managed
Fixed Income Portfolio, 20.9% of Positive Return Bond Portfolio, and 18.8% of
the Strategic Value Bond Portfolio. The Stable Income Fund owned 60% of the
Stable Income Portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies which are consistently followed
by the Company in the preparation of its financial statements are in
conformity with generally accepted accounting principles ("GAAP") for
investment companies.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
SECURITY VALUATION
Investments in securities are valued each business day as of the close of
regular trading on the New York Stock Exchange which is usually 1:00 p.m.
(Pacific Time) 3:00 p.m. (Central Time). Securities which are traded on a
national or foreign securities exchange or the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market are valued
at the last reported sales price. In the absence of any sale of such
securities, and in the case of other securities, including U.S. Government
obligations, but excluding debt securities maturing in 60 days or less, the
valuations are based on the latest quoted bid prices. Securities denominated
in foreign currencies are translated into U.S. dollars using the closing rates
of exchange in effect on the day of valuation. Securities for which quotations
are not readily available are valued at fair value as determined by policies
set by the Trust's Board of Trustees.
Debt securities maturing in 60 days or less are valued at amortized cost
pursuant to Rule 2a-7. The amortized cost method involves valuing a security
at its cost, plus accretion of discount or minus amortization of premium over
the period until maturity, which approximates market value.
Securities held in the Portfolios are valued at their net asset value at the
close of business each day as discussed in the Notes to Financial Statements
of the Portfolios, which are included elsewhere in this report.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS INCOME FUNDS
--------------------------------------------------------------------------------
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Securities transactions are recorded on a trade date basis. Realized gains or
losses are reported on the basis of identified cost of securities delivered.
Interest income is accrued daily.
Dividend income is recognized on the ex-dividend date (except for certain
dividends from foreign securities which are recorded as soon as the Fund is
informed of the ex-dividend date.) Dividend income from foreign securities is
recorded net of foreign taxes withheld where recovery of such taxes is not
assured.
REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements and may participate in pooled
repurchase agreement transactions with other funds advised by Wells Fargo
Bank, N.A. ("WFB"). The repurchase agreements must be fully collateralized
based on values that are marked to market daily. The collateral may be held by
an agent bank under a tri-party agreement. It is the Funds' custodian's
responsibility to value collateral daily and to take action to obtain
additional collateral as necessary to maintain market value equal to or
greater than the resale price. The repurchase agreements held by the Funds are
collateralized by instruments such as U.S. Treasury, federal agency, or
high-grade corporate obligations.
FOREIGN CURRENCY CONTRACTS
The Corporate Bond and Income Plus Fund have entered into foreign currency
contracts to hedge its exposure to fluctuations in foreign currencies. A
forward contract is an agreement between two counterparties for future
delivery receipt at a specified price. Realized gains or losses are recognized
when the transaction is completed. Risks of entering into forward contracts
include certain market risks and the potential inability of the counterparty
to meet the terms of the contract. As of May 31, 2000, the terms were as
follow:
<TABLE>
<CAPTION>
Currency Currency Net Unrealized
Amount Settle Amount Appreciation/
Fund To Be Delivered Type Date To Be Received (Depreciation)
<S> <C> <C> <C> <C> <C>
CORPORATE BOND 307,000 EURO DOLLAR 8/14/00 $286,096 $ (8,982)
INCOME PLUS 264,000 AUSTRALIAN DOLLAR 6/16/00 150,641 10,578
330,000 CANADIAN DOLLAR 8/16/00 220,730 (1,023)
1,311,000 DANISH KRONE 8/23/00 163,586 (5,634)
337,000 EURO DOLLAR 7/26/00 313,656 4,455
331,000 EURO DOLLAR 8/10/00 308,379 13,058
977,000 EURO DOLLAR 8/14/00 910,476 (28,587)
337,000 EURO DOLLAR 9/14/00 314,690 (7,717)
149,000 BRITISH POUND 6/12/00 222,755 11,905
1,164,000 SWEDISH KRONA 8/23/00 129,972 (2,060)
</TABLE>
SECURITY LOANS
The Funds may loan securities in return for securities and cash collateral
which is invested in various short-term fixed income securities. The Funds may
receive compensation for lending securities in the form of fees or by
retaining a portion of interest on the investment securities or cash received
as collateral. A Fund also continues to receive interest or dividends on the
securities loaned. Security loans are secured at all times by collateral. The
collateral is equal to at least 102% of the market value of the securities
loaned plus accrued interest when the transaction is entered in to, if the
collateral falls to 100% it will be brought back to 102%. Gain or loss in the
market price of the securities loaned that may occur during the term of the
loan is reflected in the value of the Fund. The risks to the Fund from
securities lending are that the borrower may not provide additional collateral
when required or return the securities when due or when called for by the
Fund. WFB receives 40% of income on security lending activities and covers the
expenses associated with securities lending activities.
59
<PAGE>
INCOME FUNDS NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
As of May 31, 2000 the value of securities on loan and the value of the
related collateral was as follows:
<TABLE>
<CAPTION>
Securities Collateral
<S> <C> <C>
CORPORATE BOND FUND $ 2,884,838 $ 2,977,886
INCOME FUND 172,918,032 177,507,117
INCOME PLUS FUND 11,162,419 11,443,138
INTERMEDIATE GOVERNMENT INCOME FUND 135,341,064 142,006,261
LIMITED TERM GOVERNMENT INCOME FUND 7,886,448 8,284,167
</TABLE>
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment income, if any, are declared
daily and distributed monthly, with the exception of the Income Plus,
Intermediate Government Income, and Stable Income Funds for which dividends
from net investment income are declared and distributed monthly, and the
Diversified Bond Fund for which dividends from net investment income are
declared and distributed annually. Distributions to shareholders from net
realized capital gains, if any, are declared and distributed at least
annually.
Distributions are based on amounts calculated in accordance with the
applicable federal income tax regulations, which may differ from generally
accepted accounting principles. The timing and character of distributions made
during the period from net investment income or net realized gains may also
differ from their ultimate characterization for federal income tax purposes.
The differences between the income or gains distributed on a book versus tax
basis are shown as excess distributions of net investment income and net
realized gain on sales of investments in the accompanying Statements of
Changes in Net Assets. To the extent that these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassifications.
RECLASSIFICATION OF CAPITAL ACCOUNTS
On the Statement of Assets and Liabilities, as a result of permanent
book-to-tax and merger-related differences, reclassification adjustments were
made as follows (Increase (Decrease)):
<TABLE>
<CAPTION>
Undistributed Net
Undistributed Net Realized Gain/ Paid-in
Investment Income (Loss) Capital
<S> <C> <C> <C>
CORPORATE BOND FUND $ 55,026 $ (24,740) $ (30,286)
DIVERSIFIED BOND FUND (17,407) 527 16,880
INCOME FUND 37,867 (1,370,289) 1,332,422
INCOME PLUS FUND 254,128 (248,447) (5,681)
INTERMEDIATE GOVERNMENT INCOME FUND 4,115 (29,793,551) 29,789,436
LIMITED TERM GOVERNMENT INCOME FUND 8,350 354,852 (363,202)
STABLE INCOME FUND (9,736) 11,802 (2,066)
VARIABLE RATE GOVERNMENT FUND (69,757) 14,889,546 (14,819,789)
</TABLE>
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for federal income tax purposes. It
is the policy of each Fund of the Trust to continue to qualify as a regulated
investment company by complying with the provisions applicable to regulated
investment companies, as defined in the Code, and to make distributions of
substantially all of its investment company taxable income and any net
realized capital gains (after reduction for capital loss carryforwards)
sufficient to relieve it from all, or substantially all, federal income taxes.
Accordingly, no provision for federal income taxes was required at May 31,
2000.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS INCOME FUNDS
--------------------------------------------------------------------------------
The following Funds had estimated net capital loss carryforwards at May 31,
2000, which are available to offset future net realized capital gains:
<TABLE>
<CAPTION>
Capital Loss
Fund Year Expires Carryforwards
<S> <C> <C>
CORPORATE BOND FUND 2007 $ 232,343
2008 881,276
DIVERSIFIED BOND FUND 2008 1,028,635
INCOME FUND 2004 8,539,713
2006 109,461
2007 10,845,768
2008 11,139,881
INCOME PLUS FUND 2007 31,798
2008 1,142,744
INTERMEDIATE GOVERNMENT INCOME FUND 2001 208,402
2002 22,395,004
2003 7,955,237
2004 12,665,649
2005 1,603,624
2007 8,447,151
2008 17,842,339
LIMITED TERM GOVERNMENT INCOME FUND 2001 125,690
2002 6,807,249
2003 7,074,103
2004 753,400
2007 2,040,910
2008 1,334,044
STABLE INCOME FUND 2002 3,902,184
2003 2,790,993
2004 208,200
2005 16,722
2008 129,707
VARIABLE RATE GOVERNMENT FUND 2001 2,818,401
2002 119,628,012
2003 4,546,666
2004 2,482,931
2007 1,835,884
2008 606,287
</TABLE>
For tax purposes, the Diversified Bond Fund, the Income Plus Fund and the
Stable Income Fund have current year deferred post-October capital losses of
$1,545,847, $2,597,871 and $579,301, respectively. These losses will be
realized for tax purposes on the first day of the succeeding year.
As a result of the reorganization, the Income Fund, the Intermediate
Government Income Fund and the Limited Term Government Income Fund have an
annual capital loss carryforward limitation of $25,492,500, $39,422,441, and
$10,618,519, respectively.
61
<PAGE>
INCOME FUNDS NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. ADVISORY FEES
The Trust has entered into separate advisory contracts on behalf of the Funds
and the Portfolios with WFB. Pursuant to the contracts, WFB has agreed to
provide the following Funds with daily portfolio management, for which, WFB is
entitled to be paid a monthly advisory fee at the following annual rates:
<TABLE>
<CAPTION>
Fund % of Average Daily Net Assets
<S> <C>
CORPORATE BOND FUND 0.50
INCOME FUND 0.50
INCOME PLUS FUND 0.60
INTERMEDIATE GOVERNMENT INCOME FUND 0.50
LIMITED TERM GOVERNMENT INCOME FUND 0.50
VARIABLE RATE GOVERNMENT FUND 0.50
</TABLE>
The Diversified Bond Fund is invested in various Core Portfolios. WFB is
entitled to receive an investment advisory fee of 0.25% of the Diversified
Bond Fund's average daily net assets for providing advisory services including
the determination of the asset allocation of the Fund's investments in the
various Core Portfolios. WFB also acts as advisor to the Stable Income Fund,
and is entitled to receive a fee from each Core Portfolio, with the amount
dependent on the allocation of assets among the various portfolios.
Wells Capital Management Incorporated ("WCM"), a wholly-owned subsidiary of
WFB, acts as investment sub-advisor to the Corporate Bond Income Plus,
Intermediate Government Income, Limited Term Government Income and Variable
Rate Government Funds. WCM is entitled to receive from WFB, as compensation
for its sub-advisory services, a monthly fee at the annual rate of 0.15% of
each Fund's average daily net assets up to $400 million, 0.125% for the next
$400 million and 0.10% of the Fund's average daily net assets in excess of
$800 million. For the Income Fund, WCM is entitled to receive from WFB, as
compensation for its sub-advisory services, a monthly fee at the annual rate
of 0.20% of the Funds average daily net assets up to $400 million, 0.175% for
the next $400 million and 0.15% of the Funds average daily net assets in
excess of $800 million.
Prior to November 8, 1999, the Trust had entered into separate advisory
contracts on behalf of the Funds with WFB. Pursuant to the contracts, WFB had
agreed to provide the Funds with daily portfolio management. The Corporate
Bond, Diversified Bond, Income, Income Plus, Limited Term Government Income
Fund, Stable Income, and Variable Rate Government Funds rates remain
unchanged.
Each Fund that invests its assets in one or more of the Portfolios may
withdraw its investments from its corresponding Portfolio(s) at any time if
the Board of Trustees determines that is in the best interests of the Fund to
do so. Upon such redemption and subsequent investment in a portfolio of
securities, WFB (and the corresponding sub-advisor) may receive an investment
fee for the management of those assets. If the redeemed assets are invested in
one or more Core Portfolios, WFB (and the corresponding sub-advisor) does not
receive any compensation.
4. DISTRIBUTION FEES
The Trust has adopted a Distribution Plan ("Plan") for Class B and C shares
of the Funds pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are
charged to the Class B and C shares and paid to Stephens, Inc. ("Stephens") at
a rate of 0.75% of average daily net assets. There are no distribution fees
for the Funds Class A shares. The distribution fees paid on behalf of the
Funds for the period ended May 31, 2000 are disclosed on the Statement of
Operations.
Prior to November 8, 1999, the former Plan for the Class A shares of the
Corporate Bond and Income Plus Funds provided that it may pay to Stephens, as
compensation for distribution-related services or as reimbursement for
distribution-related expenses, up to 0.05% of the average daily net assets
attributable to its Class A shares.
The former Plan for Class A shares of the Limited Term Government Income Fund
provided that the Fund may defray all or part of the cost of preparing,
printing and distributing prospectuses and other promotional materials by
paying for costs incurred on an annual basis of up to 0.05% of the average
daily net assets attributable to its Class A shares.
The former Plan for Class A shares of the Variable Rate Government Fund
provided that the Fund may pay to Stephens up to 0.25% of its average daily
net assets attributable to the Class A shares as compensation for
distribution-related services or as reimbursement for distribution-related
expenses.
62
<PAGE>
NOTES TO FINANCIAL STATEMENTS INCOME FUNDS
--------------------------------------------------------------------------------
5. ADMINISTRATION
The Trust has entered into an administration agreements on behalf of the
Funds with WFB whereby WFB is entitled to receive monthly fees at the annual
rates of 0.15% of each Fund's average daily net assets.
Prior to November 8, 1999 the Corporate Bond, Income Plus, Limited Term
Government Income and Variable Rate Government Funds were charged the same fee
for the above services. The Diversified Bond, Income, Intermediate Government
Income, and Stable Income Funds were charged monthly fees at the annual rates
of 0.10% of each Fund's average daily net assets.
6. TRANSFER AGENT
The Trust has entered into a transfer agency contract on behalf of the Funds
with Boston Financial Data Services, Inc. ("BFDS") to replace WFB as the
transfer agent for the Trust. Under the transfer agency contract, BFDS is
entitled to receive, on a monthly basis, transfer agency fees based on the
number of accounts and transactions of each Fund. WFB will continue to provide
sub-transfer agency services to the Funds. Prior to November 8, 1999, the
Corporate Bond, Income Plus, Limited Term Government Income, and Variable Rate
Government Funds were charged on a monthly basis, transfer agency fees based
on the number of accounts and transactions of each Fund. For the Diversified
Bond, Income, Intermediate Government Income, and Stable Income Funds, Norwest
served as the Trust's transfer agent. For these services, Norwest received a
fee at an annual rate of 0.25% of the average daily net assets attributable to
each class of each Fund's share.
Prior to July 17, 1999, the Stagecoach Funds had entered into a contract on
behalf of the Funds with WFB, whereby WFB provided transfer agency services
for the Corporate Bond, Income Plus, Limited Term Government Income, and
Variable Rate Government Funds, which were charged at an annual rate of 0.14%
of the average daily net assets of the Funds. With the exception of the
Institutional class of the Limited Term Government Income Fund which was
charged 0.06% of its average daily net assets.
7. SHAREHOLDER SERVICING
The Trust has also entered into contracts on behalf of the Funds with
numerous shareholder servicing agents, whereby the Funds are charged 0.25% of
average daily net assets for Class A, Class B, and Class C for these services.
No fee is charged for Institutional Class shares except prior to November 8,
1999, the Institutional Shares of Limited Term Government Income Fund were
charged 0.25%. Also, prior to November 8, 1999, the shareholder servicing fees
for the other share classes were charged to the funds at the same rate listed
above, with the exception of the Variable Rate Government fund which
previously charged either 12b-1 fees or shareholder servicing fees at a annual
rate of 0.25% of average daily net assets. In no case would the fund be
charged both 12b-1 and shareholder servicing fees.
The shareholder servicing fees paid on behalf of the Funds for the period
ended May 31, 2000 were as follows:
<TABLE>
<CAPTION>
Institutional
Fund Class A Class B Class C Class
<S> <C> <C> <C> <C>
CORPORATE BOND FUND $ 13,023 $24,899 $3,526 N/A
DIVERSIFIED BOND FUND N/A N/A N/A 0
INCOME FUND 23,796 12,906 N/A 0
INCOME PLUS FUND 21,911 75,718 6,623 N/A
INTERMEDIATE GOVERNMENT INCOME
FUND 290,276 75,639 6,333 0
LIMITED TERM GOVERNMENT INCOME
FUND 86,637 22,033 N/A 66,887
STABLE INCOME FUND 12,850 3,589 N/A 0
VARIABLE RATE GOVERNMENT 169,337 N/A N/A N/A
</TABLE>
8. OTHER FEES AND TRANSACTIONS WITH AFFILIATES
Forum Accounting Services, LLC provides portfolio accounting services to each
Fund. For these services Forum is entitled to receive a fixed monthly per fund
fee, a basis point fee of 0.0025% of the average daily net assets of each
Fund, and will be reimbursed for all out of pocket expenses reasonably
incurred in providing these services. Prior to November 8, 1999, the Company
entered into contracts on behalf of the Corporate Bond, Income Plus, Limited
Term Government Income, and Variable Rate Government Funds with WFB, whereby
WFB was responsible for providing portfolio accounting services for the Funds.
63
<PAGE>
INCOME FUNDS NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Pursuant to the contract, WFB was entitled to a monthly base fee from each
Fund of $2,000 plus an annual fee of 0.07% of the first $50 million of each
Fund's average daily net assets, 0.045% of the next $50 million, and 0.02% of
each Fund's average daily net assets in excess of $100 million. For the
Diversified Bond, Income, Intermediate Government Income, and Stable Income
Funds, portfolio accounting services were provided by Forum Accounting
Services.
The Trust has entered into contracts on behalf of each Fund with Norwest Bank
Minnesota, N.A. ("Norwest"), and now known as Wells Fargo Bank Minnesota,
N.A., an affiliated party, whereby Norwest is responsible for providing
custody services for the Funds. Pursuant to the contracts, Norwest is entitled
to certain transaction charges plus a monthly fee for custody services at the
annual rate of 0.02% of the average daily net assets of each Fund. Prior to
November 5, 1999 the Stagecoach Funds had the above service performed for fee
at an annual rate of 0.0167% of the average daily net assets of each Fund. The
Norwest Advantage Funds had Norwest serve as the custodian. For its custody
services Norwest was entitled to receive a fee at an annual rate of 0.02% for
the first $100 million of average net assets of each Fund, declining to 0.01%
of the average net assets of each Fund in excess of $200 million.
Certain officers of the Trust were also officers of Stephens for a portion of
the period. As of May 31, 2000 Stephens owned 18 shares of the Corporate Bond
Fund, no shares of the Diversified Bond Fund, no shares of the Income Fund, 18
shares of the Income Plus Fund, 3690 shares of the Intermediate Government
Income Fund, 3781 shares of the Limited Term Government Income Fund, no shares
of the Stable Income Fund, and 16,903 shares of the Variable Rate Government
Fund.
Stephens has retained $3,758,275 as sales charges from the proceeds of
Class A shares sold, $51,338 from the proceeds of Class B shares redeemed and
$121,684 from the proceeds of Class C shares redeemed by the Trust for the
year ended May 31, 2000. A third party financing agent has retained
approximately $5,371,179 from the proceeds of Class B shares redeemed by the
Company for the year ended May 31, 2000. Wells Fargo Securities Inc., a
subsidiary of WFB, received $2,488,122 as sales charges from the proceeds of
Class A shares sold, $410,374 from the proceeds of Class B shares redeemed and
$0 from the proceeds of Class C shares redeemed by the Company for the year
ended May 31, 2000. Forum Financial Group., former distributor, received
$76,807 as sales charges from the proceeds of Class A shares sold, $523,334
from the proceeds of Class B shares redeemed and $2,859 from the proceeds of
Class C shares redeemed by the Trust for the year ended May 31, 2000.
9. WAIVED FEES AND REIMBURSED EXPENSES
All amounts shown as waived fees or reimbursed expenses on the Statement of
Operations, for the period ended May 31, 2000, were waived by WFB.
10. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities
(securities with maturities of one year or less at purchase date) for each
Fund for the period ended May 31, 2000, were as follows:
<TABLE>
<CAPTION>
AGGREGATE PURCHASES AND SALES
Fund Purchases at Cost Sales Proceeds
<S> <C> <C>
CORPORATE BOND FUND $ 17,913,014 $ 19,035,761
DIVERSIFIED BOND FUND N/A N/A
INCOME FUND 482,802,339 512,991,622
INCOME PLUS FUND 40,264,271 44,864,967
INTERMEDIATE GOVERNMENT INCOME FUND 997,154,447 763,472,117
LIMITED TERM GOVERNMENT INCOME FUND 159,867,003 119,778,508
STABLE INCOME FUND N/A N/A
VARIABLE RATE GOVERNMENT 296,001 34,069,976
</TABLE>
64
<PAGE>
INDEPENDENT AUDITORS' REPORT INCOME FUNDS
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
WELLS FARGO FUNDS TRUST:
We have audited the accompanying statements of assets and liabilities of
Corporate Bond Fund, Diversified Bond Fund, Income Fund, Income Plus Fund,
Intermediate Government Income Fund, Limited Term Government Income Fund,
Stable Income Fund, and Variable Rate Government Fund, eight funds of Wells
Fargo Funds Trust (collectively the "Funds") including the portfolios of
investments as of May 31, 2000, and the related statements of operations,
statements of changes in net assets and financial highlights for the periods
presented on pages 42 through 56. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of May 31, 2000,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds of Wells Fargo Funds Trust as of May 31, 2000, the
results of their operations, changes in their net assets and their financial
highlights for the periods indicated above in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
San Francisco, California
July 10, 2000
65
<PAGE>
INCOME FUNDS TAX INFORMATION (UNAUDITED)
--------------------------------------------------------------------------------
For the tax period from July 1, 1999 through May 31, 2000, the Income Plus
Fund designates 4.08% of its net investment income distributions paid during
the period as qualifying for the corporate dividends-received deduction,
pursuant to Section 854(b)(2) of the Internal Revenue Code.
For the tax year from June 1, 1999 through May 31, 2000, the Diversified Bond
Fund designates 100% of its distribution paid during the year from net
realized gains as a long-term capital gain distribution, pursuant to
Section 853(b)(3) of the Internal Revenue Code.
66
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES - 10.60%
$ 4,600,000 AESOP FUNDING+ 6.40% 08/01/02 $ 4,501,192
3,500,000 CHASE CREDIT CARD MASTER TRUST
SERIES 1999-3 A+ 6.66 01/15/07 3,388,140
4,000,000 CHEVY CHASE MASTER CREDIT CARD
TRUST SERIES 1998 CLASS A+ 6.92 07/10/03 4,016,680
1,800,000 CONTIMORTGAGE HOME EQUITY LOAN
TRUST SERIES 1997-4 6.63 08/29/04 1,682,928
2,441,000 EQCC HOME EQUITY LOAN TRUST
SERIES 1996-2 A4 7.50 06/15/21 2,424,059
4,900,000 EQCC HOME EQUITY LOAN TRUST
SERIES 1997-2 A9 6.81 07/15/28 4,761,624
1,000,000 GE CAPITAL MORTGAGE SERVICES
INCORPORATED SERIES 1997 HE-2
CLASS A7 7.12 10/17/03 977,300
4,422,505 GREEN TREE FINANCIAL
CORPORATION SERIES 1997-7 A8 6.86 07/15/29 3,958,231
23,057 KEYSTONE HOME IMPROVEMENT LOAN
TRUST SERIES 1997-P2
CLASS IA3 6.99 06/14/00 22,950
1,864,583 KEYSTONE/LEHMAN TITLE I LOAN
TRUST 1996-2 7.45 11/25/10 1,855,037
3,300,000 LOOP FUNDING MASTER TRUST
SERIES 1997-A144 CLASS B1+ 7.19 08/19/01 3,283,500
5,000,000 MBNA MASTER CREDIT CARD TRUST
SERIES 2000-A CLASS A 7.35 02/06/05 4,962,850
1,134,146 NIAGARA MOHAWK POWER 7.63 10/01/05 1,080,274
5,518,000 RENTAL CAR FINANCE CORPORATION
SERIES 1997-1 B3+ 6.70 09/25/07 5,190,893
6,500,000 VAN KAMPEN CLO-I+ 6.57 10/08/07 6,532,084
48,637,742
TOTAL ASSET BACKED SECURITIES (COST
$49,949,991)
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.43%
907,763 AMERICAN HOUSING TRUST
SERIES VI CLASS I-I 9.15 05/25/20 933,198
1,500,000 ASSET SECURITIZATION
CORPORATION SERIES 1997-D4
CLASS A1C 7.42 04/14/27 1,473,735
838,834 CMC SECURITIES CORPORATION II
SERIES 1993-2I A2+ 7.61 09/25/23 829,197
5,333,000 COUNTRYWIDE MORTGAGE BACKED
SECURITIES INCORPORATED 6.50 01/25/24 4,950,037
932,181 FIRST PLUS HOME LOAN TRUST
SERIES 1996-2 A6 7.85 08/20/13 929,757
644,522 INDEPENDENT NATIONAL MORTGAGE
CORPORATION SERIES 1994 V
CLASS M+ 8.84 12/25/24 666,352
822,451 L.F. ROTHSCHILD MORTGAGE TRUST
SERIES 2 CLASS Z 9.95 08/01/17 862,661
225,246 MERRILL LYNCH MORTGAGE
INVESTORS INCORPORATED
SERIES 1994-I+ 8.20 07/30/05 224,910
5,000,000 MERRILL LYNCH MORTGAGE
INVESTORS INCORPORATED
SERIES 1997 CLASS A3 7.12 01/04/07 4,793,450
6,000,000 PRUDENTIAL HOME MORTGAGE
SECURITIES SERIES 1993-57
CLASS A9 6.50 12/25/23 5,583,480
797,733 RTC SERIES 1995-1 CLASS A2D 7.50 10/25/28 793,535
413,882 RTC SERIES 1995-2 A1C 7.45 05/25/29 412,177
4,377,489 VENDEE MORTGAGE TRUST
SERIES 1992-2 CLASS G 7.25 02/15/19 4,255,707
2,395,042 VENDEE MORTGAGE TRUST
SERIES 1995-1C CLASS 3E 8.00 07/15/18 2,404,358
5,500,000 VENDEE MORTGAGE TRUST
SERIES 1996-2 CLASS 1E 6.75 05/15/20 5,318,720
2,726,356 VENDEE MORTGAGE TRUST
SERIES 1997-1 CLASS 2C 7.50 09/15/17 2,728,348
1,500,000 VENDEE MORTGAGE TRUST
SERIES 1997-1 CLASS 2D 7.50 01/15/19 1,490,340
38,649,962
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $40,227,667)
------------
CORPORATE BONDS & NOTES - 29.33%
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS - 0.88%
2,665,000 LEVI STRAUSS & COMPANY 6.80 11/01/03 2,025,400
2,650,000 TOMMY HILFIGER 6.50 06/01/03 2,000,750
4,026,150
------------
BANKS - 0.19%
885,000 UNITED MISSOURI BANCSHARES 7.30 02/24/03 870,619
------------
BUSINESS SERVICES - 1.24%
2,500,000 FIRST DATA CORPORATION 5.80 12/15/08 2,187,500
</TABLE>
67
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
BUSINESS SERVICES (continued)
$ 3,635,000 ORACLE CORPORATION 6.72% 02/15/04 $ 3,507,775
5,695,275
------------
COMMUNICATIONS - 2.23%
2,500,000 SPRINT CAPITAL CORPORATION 5.70 11/15/03 2,343,750
2,500,000 TURNER BROADCASTING 7.40 02/01/04 2,459,375
3,495,000 US WEST CAPITAL FUNDING
INCORPORATED 6.25 07/15/05 3,245,980
2,250,000 VODAFONE AIRTOUCH PLC 7.75 02/15/10 2,182,500
10,231,605
------------
DEPOSITORY INSTITUTIONS - 5.45%
5,000,000 BANKAMERICA CORPORATION+(::) 6.85 01/15/27 4,806,314
5,000,000 CHASE CAPITAL+ 7.02 08/01/28 4,679,550
3,400,000 CITICORP(::) 9.50 02/01/02 3,510,500
2,175,000 CORESTATES CAPITAL CORPORATION 5.88 10/15/03 2,041,781
750,000 CORESTATES CAPITAL
CORPORATION+ 6.93 01/15/27 728,485
3,200,000 DEPOSIT GUARANTY CORPORATION 7.25 05/01/06 3,080,000
200,000 FIRST BANK N.A. 6.00 10/15/03 187,500
2,500,000 FIRST BANK SYSTEMS
INCORPORATED 8.00 07/02/04 2,509,375
1,875,000 FIRST BANK SYSTEMS
INCORPORATED 7.63 05/01/05 1,846,875
1,750,000 OLD KENT FINANCIAL CORPORATION 6.63 11/15/05 1,627,500
25,017,880
------------
ELECTRIC, GAS & SANITARY SERVICES - 0.22%
1,000,000 EL PASO NATURAL GAS 7.75 01/15/02 997,500
------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT - 0.90%
1,700,000 HYUNDAI SEMICONDUCTOR 8.25 05/15/04 1,515,125
2,709,000 PHILIPS ELECTRONICS 6.75 08/15/03 2,614,185
4,129,310
------------
FINANCIAL SERVICES - 0.64%
3,000,000 FLORIDA RESIDENTIAL
PROPERTY & CASUALTY 7.25 07/01/02 2,943,750
------------
FOOD & KINDRED PRODUCTS - 0.73%
1,060,000 NABISCO INCORPORATED 6.00 02/15/11 1,038,800
2,350,000 WHITMAN CORPORATION 7.50 02/01/03 2,326,500
3,365,300
------------
GENERAL MERCHANDISE STORES - 0.65%
3,000,000 TARGET CORPORATION 7.50 02/15/05 2,988,750
------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT - 1.56%
600,000 APPLIED MATERIALS INCORPORATED 6.70 09/06/05 562,500
3,000,000 APPLIED MATERIALS INCORPORATED 7.00 09/06/05 2,861,250
1,400,000 SOLECTRON CORPORATION 7.38 03/01/06 1,320,721
2,500,000 TYCO INTERNATIONAL LIMITED 6.38 01/15/04 2,403,125
7,147,596
------------
INDUSTRIAL SERVICES - 0.52%
2,500,000 REYNOLDS & REYNOLDS 7.00 12/15/06 2,368,750
------------
</TABLE>
68
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
INSURANCE CARRIERS - 3.52%
$ 3,000,000 LINCOLN NATIONAL CORPORATION 7.25% 05/15/05 $ 2,887,500
2,450,000 PRUDENTIAL INSURANCE COMPANY 7.65 07/01/07 2,385,688
5,200,000 REINSURANCE GROUP OF AMERICA
INCORPORATED 7.25 04/01/06 4,868,500
4,000,000 RELIASTAR FINANCIAL
CORPORATION 7.13 03/01/03 3,905,000
2,200,000 TERRA NOVA (U.K.) HOLDINGS 7.20 08/15/07 2,081,750
16,128,438
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL & OPTICAL GOODS -
0.36%
1,700,000 BAUSCH & LOMB INCORPORATED 6.56 08/12/26 1,659,625
------------
NONDEPOSITORY CREDIT INSTITUTIONS - 1.99%
3,600,000 CARGILL INCORPORATED 8.35 02/12/11 3,640,500
2,500,000 FORD MOTOR CREDIT COMPANY(::) 7.50 03/15/05 2,450,000
3,000,000 MELLON FINANCIAL COMPANY(::) 9.75 06/15/01 3,060,000
9,150,500
------------
OIL & GAS EXTRACTION - 1.01%
1,500,000 LUCKY GOLDSTAR-CALTEX OIL 7.88 07/01/06 1,411,875
1,225,000 PHILLIPS PETROLEUM COMPANY 8.50 05/25/05 1,240,313
2,000,000 R&B FALCON CORPORATION 6.75 04/15/05 1,740,000
250,000 VASTAR RESOURCES INCORPORATED 6.95 11/08/06 237,500
4,629,688
------------
PAPER & ALLIED PRODUCTS - 0.23%
1,100,000 FORT JAMES CORPORATION 6.70 11/15/03 1,053,250
------------
PETROLEUM REFINING & RELATED INDUSTRIES - 0.60%
1,500,000 COLONIAL PIPELINE 7.13 08/15/02 1,490,625
1,305,000 PETROLIAM NASIONAL BERHAD 6.63 10/18/01 1,277,269
2,767,894
------------
PRINTING, PUBLISHING & ALLIED INDUSTRIES - 0.70%
3,325,000 SCHOLASTIC CORPORATION 7.00 12/15/03 3,221,094
------------
REAL ESTATE - 0.58%
3,000,000 SUSA PARTNERSHIP LP 8.20 06/01/17 2,640,000
------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES - 2.39%
700,000 CHARLES SCHWAB CORPORATION 7.19 05/31/01 696,500
2,000,000 CHARLES SCHWAB CORPORATION 6.25 01/23/03 1,922,500
2,000,000 CHARLES SCHWAB CORPORATION 6.88 09/02/03 1,947,500
2,750,000 MORGAN STANLEY GROUP
INCORPORATED 7.13 01/15/03 2,708,750
1,250,000 PAINE WEBBER GROUP
INCORPORATED 6.90 08/15/03 1,198,438
2,650,000 PAINE WEBBER GROUP
INCORPORATED 6.45 12/01/03 2,500,937
10,974,625
------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS - 0.47%
2,337,044 MINNESOTA MINING &
MANUFACTURING 5.62 07/15/09 2,148,468
------------
TRANSPORTATION BY AIR - 1.68%
2,161,744 CONTINENTAL AIRLINES 6.80 07/02/07 2,022,550
2,172,662 CONTINENTAL AIRLINES
SERIES 972A 7.15 06/30/07 2,074,088
2,851,460 FEDERAL EXPRESS SERIES 97-B 7.52 01/15/18 2,725,141
</TABLE>
69
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
TRANSPORTATION BY AIR (continued)
$ 985,006 NORTHWEST AIRLINES CORPORATION 6.81% 02/01/20 $ 865,318
7,687,097
------------
WATER TRANSPORTATION - 0.37%
1,750,000 ROYAL CARRIBBEAN CRUISES 7.13 09/18/02 1,675,625
------------
WHOLESALE TRADE-NONDURABLE GOODS - 0.22%
1,000,000 UNIVERSAL CORPORATION 9.25 02/15/01 1,011,250
------------
134,530,039
TOTAL CORPORATE BONDS & NOTES (COST
$142,166,724)
------------
MUNICIPAL BONDS & NOTES - 4.66%
3,500,000 DENVER CO CITY & COUNTY SD #1
EDUCATIONAL FACILITIES RV
TAXABLE PENSION SCHOOL
FACILITIES LEASE AMBAC INSURED 6.67 12/15/04 3,391,115
3,805,000 HUDSON COUNTY NJ IMPORT
AUTHORITY FACILITIES LEASING
RV FSA INSURED 7.40 12/01/25 3,533,475
7,500,000 NEW YORK STATE GO BONDS
SERIES B 6.13 03/15/07 6,887,100
4,450,000 PHILADELPHIA PA IDR PENSION
FUNDING RETIREMENT SYSTEM
SERIES A MBIA INSURED 5.69 04/15/07 3,981,237
3,725,000 WASHINGTON STATE GO BONDS 6.50 01/01/05 3,590,788
21,383,715
TOTAL MUNICIPAL BONDS & NOTES (COST
$23,026,749)
------------
U.S. GOVERNMENT AGENCY SECURITIES - 39.99%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.52%
2,500,000 FHLMC 7.00 03/15/10 2,415,125
101,760 FHLMC+ 7.36 11/01/26 103,477
750,000 FHLMC #1832 D 6.50 06/15/08 736,763
193,582 FHLMC #410425+ 6.94 09/01/26 197,453
811,346 FHLMC #606279+ 6.43 03/28/08 810,835
4,593,042 FHLMC #786702+ 5.78 06/01/29 4,495,439
468,329 FHLMC #846367+ 7.52 04/01/29 479,452
2,500,000 FHLMC SERIES T-20 CLASS A6 7.49 02/24/06 2,431,900
5,000,000 FHLMC SERIES 2146 VB 6.00 12/15/14 4,467,600
16,138,044
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 30.89%
8,500,000 FNMA(::) 5.13 02/13/04 7,877,205
7,000,000 FNMA(::) 7.13 01/15/30 6,802,670
21,500,000 FNMA(::) 7.25 05/15/30 21,204,375
10,000,000 FNMA (TBA)+ 8.00 09/21/09 9,923,438
4,647,869 FNMA #252494 6.00 06/01/14 4,322,518
5,808,627 FNMA #252632 6.00 07/01/06 5,507,844
4,041,748 FNMA #252634 6.00 08/01/06 3,832,458
4,528,658 FNMA #253101 6.00 01/01/07 4,294,155
101,500 FNMA #342042+ 7.46 06/01/25 103,276
295,615 FNMA #344689+ 7.25 11/01/25 301,158
270,963 FNMA #344692+ 7.10 10/01/25 274,179
150,187 FNMA #347712+ 6.75 06/01/26 153,847
4,864,727 FNMA #375168 7.13 06/01/04 4,743,002
4,902,063 FNMA #380581 6.17 08/01/08 4,489,824
4,725,706 FNMA #408118 6.50 01/01/28 4,371,278
4,270,003 FNMA #415414 6.50 02/01/28 3,949,752
7,721,555 FNMA #415714 6.00 04/01/28 6,930,096
</TABLE>
70
<PAGE>
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--------------------------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (continued)
$ 3,827,421 FNMA #417648 6.00% 02/01/13 $ 3,559,502
8,369,610 FNMA #446118 6.00 12/01/28 7,511,725
2,303,177 FNMA #482516 6.00 01/01/14 2,141,955
4,760,540 FNMA #483920 6.00 02/01/29 4,272,585
8,955,290 FNMA #484776 6.00 03/01/14 8,328,419
12,065,772 FNMA #486524 6.50 02/01/29 11,160,839
1,747,896 FNMA #489807 6.00 04/10/06 1,625,544
4,698,494 FNMA #502906 6.00 06/01/14 4,369,599
898,378 FNMA #519987 6.00 07/18/06 835,491
2,353,726 FNMA #535302 6.00 03/26/06 2,188,965
1,429,501 FNMA #73272 6.48 12/01/05 1,351,321
3,387,768 FNMA #73919 6.80 01/01/04 3,278,675
173,306 FNMA SERIES 1988-5 Z 9.20 03/25/18 178,435
2,000,000 FNMA SERIES 1998-M6 CLASS A2+ 6.32 08/15/08 1,843,660
141,727,790
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.58%
15,000,000 GNMA (TBA) 8.00 03/24/10 15,030,469
16 GNMA #665 7.50 10/20/00 16
388 GNMA #2218 6.50 05/16/01 363
2,328,268 GNMA #473917 7.00 04/15/28 2,234,392
8,683,967 GNMA #780626(::) 7.00 08/15/27 8,339,300
25,604,540
------------
183,470,374
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $191,046,812)
------------
U.S. TREASURY SECURITIES - 7.36%
32,050,000 U.S. TREASURY BONDS(::) 6.75 08/15/26 33,779,098
------------
33,779,098
TOTAL U.S. TREASURY SECURITIES (COST
$34,838,645)
------------
SHORT-TERM INVESTMENTS - 3.93%
18,029,027 BANC OF AMERICA SECURITIES LLC
POOLED REPURCHASE AGREEMENT -
102% COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.58 06/01/00 18,029,027
------------
18,029,027
TOTAL SHORT-TERM INVESTMENTS (COST
$18,029,027)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $499,285,615)* 104.30% $478,479,957
OTHER ASSETS AND LIABILITIES, NET (4.30) (19,733,516)
------- ------------
TOTAL NET ASSETS 100.00% $458,746,441
------- ------------
</TABLE>
+ VARIABLE RATE SECURITIES.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $499,659,313 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 823,151
GROSS UNREALIZED DEPRECIATION (22,002,507)
-----------
NET UNREALIZED DEPRECIATION ($21,179,356)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
71
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
POSITIVE RETURN BOND PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 12.04%
FEDERAL HOME LOAN BANK - 3.35%
$10,375,000 FHLB 6.62%{::} 08/02/00 $ 10,258,592
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.34%
7,225,000 FHLMC 6.55{::} 07/17/00 7,165,610
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.35%
19,775,000 FNMA 6.74{::} 08/24/00 19,474,618
------------
36,898,820
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $36,900,723)
------------
U.S. TREASURY SECURITIES - 70.02%
57,300,000 U.S. TREASURY BONDS(::) 6.63 02/15/27 59,572,518
45,550,000 U.S. TREASURY BONDS(::) 6.38 08/15/27 45,898,458
60,250,000 U.S. TREASURY BONDS(::) 6.13 11/15/27 58,917,270
31,450,000 U.S. TREASURY BONDS(::) 5.50 08/15/28 28,241,471
25,350,000 U.S. TREASURY BONDS(::) 5.25 11/15/28 21,980,985
214,610,702
TOTAL U.S. TREASURY SECURITIES (COST
$207,217,254)
------------
SHORT-TERM INVESTMENTS - 17.09%
52,372,461 BANC OF AMERICA SECURITIES LLC
POOLED REPURCHASE AGREEMENT -
102% COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.58 06/01/00 52,372,461
------------
52,372,461
TOTAL SHORT-TERM INVESTMENTS (COST
$52,372,461)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $296,490,438)* 99.15% $303,881,983
OTHER ASSETS AND LIABILITIES, NET 0.85 2,619,032
------- ------------
TOTAL NET ASSETS 100.00% $306,501,015
------- ------------
</TABLE>
{::} YIELD TO MATURITY.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL STATEMENT
PURPOSES AND NET UNREALIZED APPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $8,353,835
GROSS UNREALIZED DEPRECIATION (962,290)
----------
NET UNREALIZED APPRECIATION $7,391,545
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
72
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
STABLE INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES - 19.47%
$ 2,916,667 AESOP FUNDING II LLC
SERIES 1997-1 A1+ 6.22% 10/20/01 $ 2,913,983
212,291 AFC HOME EQUITY LOAN TRUST
SERIES 1995-2 A1+ 6.75 07/25/26 211,484
2,975,000 CAPITAL AUTO RECEIVABLES ASSET
TRUST SERIES 1999-2 A4+ 6.30 05/15/04 2,930,345
5,000,000 CHASE CREDIT CARD MASTER TRUST
SERIES 1998-6 A+ 6.78 09/15/04 5,015,950
5,000,000 CHEVY CHASE MASTER CREDIT CARD
TRUST SERIES 1998 CLASS A+ 6.92 10/16/06 5,020,850
2,500,000 DISCOVER MASTER CARD TRUST I
SERIES 1997-4+ 6.59 04/16/03 2,499,875
1,256,310 EQCC HOME EQUITY LOAN TRUST
SERIES 1995-3 A4 7.10 02/15/12 1,248,195
3,637,029 EQCC HOME EQUITY LOAN TRUST
SERIES 1998-4 A1F+ 6.57 01/15/29 3,665,943
203,700 FIRST MERCHANTS GRANTOR TRUST
SERIES 1996-2 A 6.85 11/15/01 203,644
5,000,000 FIRST USA CREDIT CARD MASTER
TRUST SERIES 1995-5 A+ 6.73 04/15/03 5,001,350
5,000,000 FIRST USA CREDIT CARD MASTER
TRUST SERIES 1999-1 B+ 7.01 10/19/06 4,984,450
4,100,000 FLEET CREDIT CARD MASTER TRUST
SERIES 1996-C CLASS A+ 6.27 11/15/03 4,100,000
3,505,280 HOUSEHOLD CONSUMER LOAN TRUST
SERIES 1997-1 CLASS A3+ 6.87 03/15/07 3,503,948
4,690,590 HOUSEHOLD CONSUMER LOAN TRUST
SERIES 1997-2 CLASS A3+ 6.53 11/15/07 4,661,086
18,446 KEYSTONE HOME IMPROVEMENT LOAN
TRUST SERIES 1997-P2
CLASS IA3 6.99 04/25/14 18,361
750,000 LOOP FUNDING MASTER TRUST I
SERIES 1997-AER CLASS B1+ 7.19 12/26/07 746,250
4,500,000 LOOP FUNDING MASTER TRUST
SERIES 1997-A144 CLASS B1+ 7.19 12/26/07 4,477,500
5,500,000 MBNA MASTER CREDIT CARD TRUST
SERIES 1998-I CLASS A+ 6.81 10/15/03 5,513,090
4,000,000 PREMIER AUTO TRUST
SERIES 1997-1 CLASS B 6.55 09/06/03 3,975,640
3,800,000 RENTAL CAR FINANCE CORPORATION
SERIES 1997-1 A2 6.45 08/25/05 3,676,500
1,925,524 SEQUOIA MORTGAGE TRUST
SERIES 2 CLASS A1+ 6.15 10/25/24 1,927,330
66,295,774
TOTAL ASSET BACKED SECURITIES (COST
$66,473,164)
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 10.29%
726,333 COMMERCIAL LOAN FUNDING TRUST
SERIES I CLASS A+ 6.92 08/15/05 722,701
21,211 DLJ MORTGAGE ACCEPTANCE
CORPORATION SERIES 1998-STF1
CLASS A1+ 6.41 02/08/00 21,209
2,826,922 GMAC #1996 C1 A1+ 6.91 02/15/06 2,818,611
362,043 INDEPENDENT NATIONAL MORTGAGE
CORPORATION SERIES 1994 V
CLASS M+ 8.84 12/25/24 374,305
1,038,977 INDEPENDENT NATIONAL MORTGAGE
CORPORATION SERIES 1994 X
CLASS A2+ 8.72 01/25/25 1,077,230
2,854,149 INDEPENDENT NATIONAL MORTGAGE
CORPORATION SERIES 1995 E
CLASS A1+ 7.34 04/25/25 2,863,711
3,500,000 MALL OF AMERICA CAPITAL
COMPANY LLC SERIES 200-1 A+ 6.30 03/12/05 3,500,000
1,720,967 MERRILL LYNCH MORTGAGE
INVESTORS INCORPORATED+ 6.83 06/15/18 1,719,022
2,942,888 MERRILL LYNCH MORTGAGE
INVESTORS INCORPORATED
SERIES 1993-F A3+ 6.75 09/15/23 2,940,504
183,534 MERRILL LYNCH MORTGAGE
INVESTORS INCORPORATED
SERIES 1994-I+ 8.20 01/25/05 183,260
2,086,234 MLCC MORTGAGE INVESTORS
INCORPORATED SERIES 1994 A
CLASS A3+ 6.93 07/15/19 2,086,749
3,910,058 NATIONSLINK FUNDING+ 6.48 09/10/07 3,909,003
108,873 RESIDENTIAL FUNDING MORTGAGE
SECURITY SERIES 1991 21 BA+ 6.94 08/25/21 108,972
16,421 RTC SERIES 1991 M6 A3+ 8.56 06/25/21 16,345
189,611 RTC SERIES 1991-6 E+ 11.61 05/25/24 188,789
1,039,562 RTC SERIES 1992-18P A4+ 7.58 04/25/28 1,039,887
4,277,556 RTC SERIES 1994-1 CLASS A5+ 7.28 09/25/29 4,283,759
781,589 RTC SERIES 1995-1 A3+ 7.06 10/25/28 782,714
2,479,123 SASCO 99-C3 A+ 7.01 10/21/13 2,482,886
3,927,198 VENDEE MORTGAGE TRUST SERIES
1993-1 CLASS E 7.00 01/15/16 3,916,516
35,036,173
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $35,111,225)
------------
</TABLE>
73
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
STABLE INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS & NOTES - 32.26%
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS - 1.02%
$ 3,400,000 V.F. CORPORATION 9.50% 05/01/01 $ 3,463,750
------------
BUSINESS SERVICES - 1.47%
3,250,000 FIRST DATA CORPORATION 6.82 09/18/01 3,221,562
1,825,000 SUN MICROSYSTEMS INCORPORATED 7.00 08/15/02 1,797,625
5,019,187
------------
CHEMICALS & ALLIED PRODUCTS - 0.89%
3,100,000 MONSANTO COMPANY 5.38 12/01/01 3,017,317
------------
COMMUNICATIONS - 2.77%
2,500,000 BELL ATLANTIC FINANCIAL+ 6.30 03/21/02 2,497,783
2,000,000 COX COMMUNICATIONS
INCORPORATED 7.00 08/15/01 1,977,500
1,000,000 SPRINT CORPORATION 8.13 07/15/02 1,008,750
2,000,000 VIACOM INCORPORATED 6.75 01/15/03 1,945,000
2,000,000 WORLDCOM INCORPORATED+ 7.05 11/26/01 1,997,500
9,426,533
------------
DEPOSITORY INSTITUTIONS - 7.22%
4,000,000 BANKAMERICA CORPORATION(::) 8.13 02/01/02 4,025,000
4,037,000 CHASE MANHATTAN
CORPORATION(::) 10.13 11/01/00 4,087,462
2,490,000 CITICORP(::) 9.50 02/01/02 2,570,925
2,500,000 CORESTATES CAPITAL CORPORATION 9.63 02/15/01 2,540,625
2,735,000 FIRSTAR BANK MILWAUKEE 6.25 12/01/02 2,639,275
2,000,000 FLEETBOSTON FINANCIAL GROUP+ 6.46 03/27/03 1,995,000
4,000,000 MELLON FINANCIAL COMPANY(::) 9.75 06/15/01 4,080,000
2,650,000 US BANK NA NORTH DAKOTA+ 6.58 06/20/01 2,644,594
24,582,881
------------
EATING & DRINKING PLACES - 1.14%
4,000,000 MCDONALD'S CORPORATION 6.00 06/23/02 3,880,000
------------
ELECTRIC, GAS & SANITARY SERVICES - 0.59%
2,000,000 EL PASO NATURAL GAS 7.75 01/15/02 1,995,000
------------
FOOD & KINDRED PRODUCTS - 1.56%
5,350,000 WHITMAN CORPORATION 7.50 08/15/01 5,329,937
------------
FOOD STORES - 0.98%
3,350,000 KROGER COMPANY+ 7.13 10/01/00 3,348,191
------------
HOLDING & OTHER INVESTMENT OFFICES - 1.47%
5,000,000 MAIN PLACE REAL ESTATE
INVESTMENT+ 6.94 05/28/02 4,989,500
------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT - 0.70%
2,400,000 TYCO INTERNATIONAL LIMITED 6.50 11/01/01 2,373,000
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL & OPTICAL
GOODS - 0.46%
1,600,000 BAUSCH & LOMB INCORPORATED+ 6.15 08/01/01 1,564,000
------------
MISCELLANEOUS RETAIL - 0.70%
2,900,000 RITE AID CORPORATION 6.70 12/15/01 2,378,000
------------
</TABLE>
74
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
STABLE INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
NONDEPOSITORY CREDIT INSTITUTIONS - 4.73%
$ 3,850,000 CATERPILLAR FINANCIAL
SERVICES+ 6.69% 08/01/02 $ 3,850,193
3,900,000 FORD CAPITAL BV 9.38 05/15/01 3,958,500
3,200,000 GENERAL ELECTRIC CAPITAL
CORPORATION 6.29 12/15/01 3,152,000
1,500,000 TRANSAMERICA FINANCIAL 6.41 06/20/00 1,499,565
1,000,000 TRANSAMERICA FINANCIAL 6.36 06/26/00 1,000,000
2,700,000 USAA CAPITAL CORPORATION 6.90 11/01/02 2,656,125
16,116,383
------------
OIL & GAS EXPLORATION - 0.60%
2,000,000 ENRON CORPORATION 9.13 04/01/03 2,050,000
------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES - 2.08%
2,000,000 CHARLES SCHWAB CORPORATION 7.36 04/25/02 1,985,000
2,750,000 MERRILL LYNCH & COMPANY
INCORPORATED+ 6.70 05/30/01 2,749,725
2,375,000 PAINE WEBBER GROUP
INCORPORATED+ 6.36 06/26/01 2,364,384
7,099,109
------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS - 1.02%
3,475,000 NEWELL COMPANY 6.18 07/11/00 3,475,000
------------
TRANSPORTATION BY AIR - 1.20%
4,000,000 SOUTHWEST AIRLINES COMPANY 9.40 07/01/01 4,080,000
------------
TRANSPORTATION SERVICES - 1.16%
4,000,000 DAIMLER CHRYSLER 6.67 09/25/01 3,945,000
------------
WHOLESALE TRADE-NONDURABLE GOODS - 0.50%
1,750,000 SAFEWAY INCORPORATED 7.00 09/15/02 1,717,188
------------
109,849,976
TOTAL CORPORATE BONDS & NOTES (COST
$111,685,871)
------------
MUNICIPAL BONDS & NOTES - 8.19%
3,300,000 CONNECTICUT STATE GO BONDS
TAXABLE SERIES A 5.70 01/15/01 3,271,587
2,215,000 COW CREEK BANK UMPQUA TRIBE OF
INDIANS AMBAC INSURED 6.20 07/01/03 2,134,706
3,145,000 DENVER CO CITY AND COUNTY SD
#1 EDUCATIONAL FACILITIES RV
TAXABLE PENSION SCHOOL
FACILITIES LEASE AMBAC INSURED 6.34 12/15/00 3,131,948
2,000,000 HUDSON COUNTY NJ GO BONDS FSA
INSURED 6.09 09/01/05 1,928,581
2,005,000 MICHIGAN STATE TAXABLE-CLEAN
INITIATIVE GO BONDS SERIES B 6.75 11/01/02 1,988,579
5,000,000 NEW YORK NY GO BONDS 6.10 08/01/01 4,904,200
4,000,000 NEW YORK STATE GO BONDS
SERIES C 6.13 03/01/02 3,917,800
2,200,000 NORTH CAROLINA STATE
TAXABLE-PUBLIC IMPROVEMENT GO
BONDS SERIES B 6.70 03/01/01 2,188,934
2,590,000 SEATTLE WA GO BONDS SERIES B 7.10 01/15/04 2,570,549
1,870,000 WASHINGTON STATE GO BONDS
STATE HOUSING TRUST FUND
SERIES T 6.60 01/01/01 1,864,184
27,901,068
TOTAL MUNICIPAL BONDS & NOTES (COST
$28,284,926)
------------
U.S. GOVERNMENT AGENCY SECURITIES - 27.04%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.71%
4,000,000 FHLMC #1192 7.50 01/15/07 3,994,560
5,000,000 FHLMC #2091 NA 5.50 03/15/04 4,937,000
5,000,000 FHLMC #2091 PC 6.00 06/15/16 4,792,950
82,548 FHLMC #410220+ 7.20 10/01/25 83,477
</TABLE>
75
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
STABLE INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (continued)
$ 3,634,244 FHLMC #786614+ 6.08% 08/01/25 $ 3,491,127
5,010,591 FHLMC #786702+ 5.78 06/01/29 4,904,116
486,465 FHLMC #845151+ 7.03 06/01/22 495,888
156,110 FHLMC #846367+ 7.52 04/01/29 159,817
22,858,935
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 16.41%
15,000,000 FNMA(::) 5.38 03/15/02 14,539,305
6,229,218 FNMA #1991-146 CLASS Z 8.00 10/25/06 6,271,514
1,610,707 FNMA #1994 M2 A 6.63 02/25/01 1,601,080
7,100,000 FNMA #1999-19 LA 6.50 09/25/08 7,023,178
6,200,000 FNMA #1999-19 PB 6.00 06/25/08 6,093,608
1,023,656 FNMA #155506+ 8.18 04/01/22 1,046,043
1,892,422 FNMA #190815+ 6.21 07/01/17 1,840,381
202,072 FNMA #220706+ 6.61 06/01/23 203,966
179,413 FNMA #318464+ 7.49 04/01/25 182,104
503,860 FNMA #321051+ 6.97 08/01/25 513,308
152,556 FNMA #331866+ 7.54 12/01/25 155,320
187,994 FNMA #46698+ 6.89 12/01/15 188,699
2,480,699 FNMA #519047+ 5.93 09/01/29 2,487,729
14,501,968 FNMA #535236 6.00 09/01/06 13,751,027
55,897,262
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.25%
4,352,987 GNMA #780533(::) 7.00 07/15/08 4,242,769
------------
SMALL BUSINESS ADMINISTRATION - 1.80%
53,747 SBA #500025+ 8.88 12/25/10 56,335
49,301 SBA #500276+ 10.88 05/25/07 52,896
108,576 SBA #500299+ 10.88 06/25/07 116,592
77,634 SBA #500569+ 10.88 06/25/08 83,821
316,411 SBA #500664+ 8.88 03/25/04 323,590
283,387 SBA #500957+ 9.25 07/25/14 300,455
278,475 SBA #501224+ 7.75 06/25/15 286,383
30,161 SBA #501973+ 10.63 12/25/01 30,644
64,327 SBA #502083+ 8.88 11/25/04 66,053
87,512 SBA #502241+ 8.88 04/25/03 88,998
162,768 SBA #502583+ 10.23 09/25/03 168,490
74,710 SBA #502966+ 10.23 05/25/15 81,334
54,548 SBA #502974+ 9.63 01/25/10 57,795
527,338 SBA #503405+ 9.38 05/25/13 562,281
1,707,666 SBA #503611+ 8.88 12/25/21 1,806,952
1,043,433 SBA #503658+ 10.13 09/25/10 1,119,946
855,700 SBA #503664+ 9.47 01/25/13 909,891
6,112,456
------------
TENNESSEE VALLEY AUTHORITY - 0.87%
3,020,000 TVA 6.24 07/15/45 2,978,475
------------
92,089,897
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $93,457,365)
------------
</TABLE>
76
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
STABLE INCOME PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS - 1.62%
$ 5,508,943 BANC OF AMERICA SECURITIES LLC
POOLED REPURCHASE AGREEMENT -
102% COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.58% 06/01/00 $ 5,508,943
------------
5,508,943
TOTAL SHORT-TERM INVESTMENTS (COST
$5,508,943)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $340,521,494)* 98.87% $336,681,831
OTHER ASSETS AND LIABILITIES, NET 1.13 3,864,367
------- ------------
TOTAL NET ASSETS 100.00% $340,546,198
------- ------------
</TABLE>
+ VARIABLE RATE SECURITIES.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL STATEMENT
PURPOSES AND NET UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 177,817
GROSS UNREALIZED DEPRECIATION (4,017,480)
----------
NET UNREALIZED DEPRECIATION $(3,839,663)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
77
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES - 7.88%
$ 1,839,000 AESOP FUNDING II LLC SERIES
1998-1 A+ 6.14% 05/20/06 $ 1,719,483
919,000 CHASE CREDIT CARD MASTER TRUST
SERIES 1999-3 A+ 6.66 01/15/07 889,629
2,145,000 CHEVY CHASE MASTER CREDIT CARD
TRUST SERIES 1998 CLASS A+ 6.92 10/16/06 2,153,944
1,500,000 EQCC HOME EQUITY LOAN TRUST
SERIES 1999-2 A6F+ 6.68 07/25/30 1,408,290
967,365 GREEN TREE FINANCIAL
CORPORATION SERIES 1997-7 A8 6.86 07/15/29 865,811
1,226,000 LOOP FUNDING MASTER TRUST I
SERIES 1997-AER CLASS B1+ 7.19 12/26/07 1,219,870
1,226,000 RENTAL CAR FINANCE CORPORATION
SERIES 1997-1 B3+ 6.70 09/25/07 1,153,323
505,588 SEQUOIA MORTGAGE TRUST SERIES
2 CLASS A1+ 6.15 10/25/24 506,062
2,145,000 VAN KAMPEN CLO-I+ 6.57 10/08/07 2,155,588
12,072,000
TOTAL ASSET BACKED SECURITIES (COST
$12,394,575)
------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 7.87%
1,250,000 COUNTRYWIDE MORTGAGE BACKED
SECURITIES INCORPORATED 6.50 01/25/24 1,160,238
2,452,000 MERRILL LYNCH MORTGAGE
INVESTORS INCORPORATED SERIES
1997 CLASS A3 7.12 06/18/29 2,350,708
2,000,000 PRUDENTIAL HOME MORTGAGE
SECURITIES SERIES 1993-57
CLASS A9 6.50 12/25/23 1,861,160
876,018 SACO I INCORPORATED SERIES
1997-2+ 7.00 08/25/36 867,668
1,073,360 VENDEE MORTGAGE TRUST SERIES
1992-2 CLASS G 7.25 02/15/19 1,043,499
2,758,000 VENDEE MORTGAGE TRUST SERIES
1994-1 CLASS 2E 6.50 01/15/17 2,692,801
2,145,000 VENDEE MORTGAGE TRUST SERIES
1996-2 CLASS 1E 6.75 05/15/20 2,074,301
12,050,375
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $12,678,756)
------------
CORPORATE BONDS & NOTES - 39.39%
AMUSEMENT & RECREATION SERVICES - 0.64%
306,000 IMAX CORPORATION 7.88 12/01/05 277,695
766,000 PREMIER PARKS INCORPORATED 9.25 04/01/06 708,550
986,245
------------
APPAREL & ACCESSORY STORES - 0.50%
826,000 KOHL'S CORPORATION 6.70 02/01/06 770,245
------------
APPAREL & OTHER FINISHED PRODUCTS MADE FROM FABRICS & SIMILAR MATERIALS - 1.03%
1,226,000 LEVI STRAUSS & COMPANY 6.80 11/01/03 931,760
859,000 TOMMY HILFIGER 6.50 06/01/03 648,545
1,580,305
------------
BUSINESS SERVICES - 1.30%
1,132,000 ORACLE CORPORATION 6.72 02/15/04 1,092,380
460,000 OUTDOOR SYSTEMS INCORPORATED 8.88 06/15/07 461,150
500,000 PSINET INCORPORATED 10.00 02/15/05 442,500
1,996,030
------------
CHEMICALS & ALLIED PRODUCTS - 0.09%
306,000 SPECIAL DEVICES INCORPORATED 11.38 12/15/08 139,230
------------
COMMUNICATIONS - 3.46%
613,000 CHARTER COMMUNICATIONS
HOLDINGS LLC(::) 8.63 04/01/09 511,855
450,000 COMCAST CABLE COMMUNICATION 6.20 11/15/08 393,187
306,000 CSC HOLDINGS INCORPORATED 7.25 07/15/08 274,253
306,000 LEVEL 3 COMMUNICATIONS
INCORPORATED(::) 9.13 05/01/08 263,160
450,000 MCLEODUSA INCORPORATED 8.13 02/15/09 399,375
500,000 NEXTEL COMMUNICATIONS(::) 9.38 11/15/09 470,000
</TABLE>
78
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
COMMUNICATIONS (continued)
$ 500,000 NEXTLINK COMMUNICATIONS
INCORPORATED 10.50% 12/01/09 $ 472,500
860,000 QWEST COMMUNICATIONS
INTERNATIONAL INCORPORATED 7.50 11/01/08 809,475
500,000 RCN CORPORPORATED 10.00 10/15/07 402,500
1,000,000 VODAFONE AIRTOUCH PLC 7.75 02/15/10 970,000
350,000 WINSTAR COMMUNICATIONS
INCORPORATED 12.50 04/15/08 327,250
5,293,555
------------
DEPOSITORY INSTITUTIONS - 5.61%
1,839,000 BANKAMERICA CAPITAL+(::) 6.85 01/15/27 1,767,763
1,839,000 CHASE CAPITAL+ 7.02 08/01/28 1,721,138
1,226,000 DEPOSIT GUARANTY CORPORATION 7.25 05/01/06 1,180,025
1,226,000 FARMERS EXCHANGE CAPITAL 7.20 07/15/48 922,565
1,242,000 FIRST BANK SYSTEMS
INCORPORATED 8.00 07/02/04 1,246,657
1,364,000 OLD KENT FINANCIAL CORPORATION 6.63 11/15/05 1,268,520
500,000 SOVEREIGN BANCORP INCORPORATED 10.25 05/15/04 492,500
8,599,168
------------
EATING & DRINKING PLACES - 1.07%
672,000 ARAMARK CORPORATED 6.75 08/01/04 624,960
1,150,000 TRICON GLOBAL RESTAURANT 7.65 05/15/08 1,017,750
1,642,710
------------
ELECTRIC, GAS & SANITARY SERVICES - 2.04%
613,000 CALENERGY COMPANY INCORPORATED 7.23 09/15/05 578,519
306,000 CALPINE CORPORATION 7.63 04/15/06 283,050
231,049 NIAGARA MOHAWK POWER 7.38 07/01/03 225,850
859,000 POTOMAC CAPITAL INVESTMENT 7.05 10/02/01 843,968
1,226,000 WILLIAMS COMPANIES
INCORPORATED 6.13 02/15/02 1,187,688
3,119,075
------------
ELECTRONIC & OTHER ELECTRICAL EQUIPMENT & COMPONENTS, EXCEPT COMPUTER EQUIPMENT - 0.36%
610,000 HYUNDAI SEMICONDUCTOR 8.25 05/15/04 543,663
------------
FOOD & KINDRED PRODUCTS - 0.84%
613,000 NABISCO INCORPORATED 6.00 02/15/11 600,740
700,000 WHITMAN CORPORATION 7.29 09/15/26 687,750
1,288,490
------------
GENERAL MERCHANDISE STORES - 0.31%
500,000 K-MART CORPORATION 8.38 12/01/04 478,125
------------
HEALTH SERVICES - 0.39%
613,000 TENET HEALTHCARE CORPORATION 7.88 01/15/03 590,779
------------
HOTELS, ROOMING HOUSES, CAMPS & OTHER LODGING PLACES - 0.18%
306,000 HMH PROPERTIES SERIES A 7.88 08/01/05 272,340
------------
INDUSTRIAL & COMMERCIAL MACHINERY & COMPUTER EQUIPMENT - 1.52%
1,150,000 AMERICAN STANDARD COMPANIES
INCORPORATED 7.13 02/15/03 1,092,500
800,000 APPLIED MATERIALS INCORPORATED 7.00 09/06/05 763,000
500,000 SOLECTRON CORPORATION 7.38 03/01/06 471,686
2,327,186
------------
</TABLE>
79
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
INSURANCE CARRIERS - 4.96%
$ 1,839,000 EQUITABLE LIFE ASSURANCE
SOCIETY 6.95% 12/01/05 $ 1,740,154
1,532,000 LINCOLN NATIONAL CORPORATION 7.25 05/15/05 1,474,550
1,532,000 REINSURANCE GROUP OF AMERICA
INCORPORATED 7.25 04/01/06 1,434,335
1,532,000 RELIASTAR FINANCIAL
CORPORATION 7.13 03/01/03 1,495,615
1,532,000 TERRA NOVA (U.K.) HOLDINGS 7.20 08/15/07 1,449,655
7,594,309
------------
MEASURING, ANALYZING, & CONTROLLING INSTRUMENTS; PHOTOGRAPHIC, MEDICAL & OPTICAL
GOODS - 1.26%
1,226,000 BAUSCH & LOMB INCORPORATED 6.75 12/15/04 1,144,778
200,000 BECKMAN INSTRUMENTS 7.45 03/04/08 178,500
613,000 MALLINCKRODT INCORPORATED 6.30 03/15/01 602,272
1,925,550
------------
MISCELLANEOUS RETAIL - 0.14%
500,000 RITE AID CORPORATION 7.13 01/15/07 217,500
------------
MOTION PICTURES - 0.16%
612,000 REGAL CINEMAS INCORPORATED(::) 9.50 06/01/08 247,860
------------
OIL & GAS EXTRACTION - 2.12%
613,000 BARRETT RESOURCES CORPORATION 7.55 02/01/07 563,193
613,000 GULF CANADA RESOURCES LIMITED 8.35 08/01/06 593,077
475,000 LOUIS DREYFUS NATURAL GAS 9.25 06/15/04 475,594
500,000 OCEAN ENERGY INCORPORATED 8.88 07/15/07 484,375
613,000 R&B FALCON CORPORATION 6.75 04/15/05 533,310
613,000 TRITON ENERGY LIMITED
CORPORATION 8.75 04/15/02 603,805
3,253,354
------------
NONDEPOSITORY CREDIT INSTITUTIONS - 0.68%
1,073,000 PRUDENTIAL INSURANCE COMPANY 7.65 07/01/07 1,044,834
------------
PAPER & ALLIED PRODUCTS - 0.19%
306,000 BUCKEYE TECHNOLOGIES
INCORPORATED 8.50 12/15/05 289,170
------------
PRIMARY METAL INDUSTRIES - 0.29%
460,000 AK STEEL CORPORATION 9.13 12/15/06 437,000
------------
REAL ESTATE - 1.05%
306,000 GOLDEN STATE HOLDINGS 7.13 08/01/05 266,985
1,532,000 SUSA PARTNERSHIP LP 8.20 06/01/17 1,348,160
1,615,145
------------
RUBBER & MISCELLANEOUS PLASTICS PRODUCTS - 0.12%
459,000 PACKAGING RESOURCES
INCORPORATED 11.63{/\} 05/01/03 183,600
------------
SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES - 1.81%
1,839,000 CHARLES SCHWAB CORPORATION 6.88 09/02/03 1,790,726
1,000,000 MORGAN STANLEY GROUP
INCORPORATED 7.13 01/15/03 985,000
2,775,726
------------
STONE, CLAY, GLASS & CONCRETE PRODUCTS - 0.56%
900,000 OWENS-ILLINOIS INCORPORATED 7.85 05/15/04 858,375
------------
</TABLE>
80
<PAGE>
PORTFOLIO OF INVESTMENTS -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
TECHNOLOGY - 1.73%
$ 2,881,000 MASSACHUSETTS INSTITUTE OF
TECHNOLOGY 7.25% 11/02/96 $ 2,650,520
------------
TRANSPORTATION BY AIR - 3.07%
613,000 ATLAS AIR INCORPORATED 9.25 04/15/08 570,090
1,590,181 CONTINENTAL AIRLINES 6.80 07/02/07 1,487,789
1,164,677 FEDERAL EXPRESS SERIES 97-B 7.52 01/15/18 1,113,082
650,000 MGM GRAND INCORPORATED 6.95 02/01/05 595,563
613,000 NORTHWEST AIRLINES
CORPORATION(::) 8.38 03/15/04 563,960
421,582 NORTHWEST AIRLINES CORPORATION 6.81 02/01/20 370,356
4,700,840
------------
TRANSPORTATION EQUIPMENT - 0.40%
460,000 BE AEROSPACE 8.00 03/01/08 370,300
306,000 FEDERAL-MOGUL CORPORATION 7.50 07/01/04 236,385
606,685
------------
WATER TRANSPORTATION - 1.51%
1,839,000 ROYAL CARRIBBEAN CRUISES 7.13 09/18/02 1,760,843
612,000 TEEKAY SHIPPING CORPORATION 8.32 02/01/08 551,565
2,312,408
------------
60,340,022
TOTAL CORPORATE BONDS & NOTES (COST
$66,153,364)
------------
INVESTMENT IN LIMITED PARTNERSHIP - 0.61%
1,000,000 PPM AMERICA COLLATERALIZED
BOND OBLIGATION II 12/18/04 929,900
------------
929,900
TOTAL INVESTMENT IN LIMITED PARTNERSHIP
(COST $1,019,820)
------------
MUNICIPAL BONDS & NOTES - 3.18%
1,226,000 HUDSON COUNTY NJ IMPORT
AUTHORITY FACILITIES LEASING
RV FSA INSURED 7.40 12/01/25 1,138,513
1,935,000 NEW YORK NY GO BONDS 6.10 08/01/01 1,897,925
640,000 WASHINGTON STATE GO BONDS
STATE HOUSING TRUST FUND
SERIES T 6.60 01/01/03 627,814
1,232,000 WESTERN MINNESOTA POWER AGENCY
RV SERIES A AMBAC INSURED 6.33 01/01/02 1,212,362
4,876,614
TOTAL MUNICIPAL BONDS & NOTES (COST
$5,077,358)
------------
U.S. GOVERNMENT AGENCY SECURITIES - 40.43%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.91%
1,463,928 FHLMC #786702+ 5.78 06/01/29 1,432,819
1,532,000 FHLMC SERIES T-20 CLASS A6 7.49 09/25/29 1,490,268
2,923,087
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 19.32%
3,389,000 FNMA(::) 7.13 01/15/30 3,293,464
7,950,000 FNMA(::) 7.25 05/15/30 7,840,687
4,000,000 FNMA FNCL (TBA) 8.00 05/18/24 3,969,375
1,192,831 FNMA #375168 7.13 06/01/04 1,162,984
1,799,925 FNMA #380268+ 6.20 05/01/05 1,690,047
1,501,992 FNMA #380581 6.17 08/01/08 1,375,682
1,053,403 FNMA #408118 6.50 01/01/28 974,398
1,362,843 FNMA #415414 6.50 02/01/28 1,260,629
2,149,105 FNMA #415714 6.00 04/01/28 1,928,822
797,635 FNMA #417648 6.00 02/01/13 741,800
</TABLE>
81
<PAGE>
CORE PORTFOLIOS PORTFOLIO OF INVESTMENTS -- MAY 31, 2000
--------------------------------------------------------------------------------
STRATEGIC VALUE BOND PORTFOLIO
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY NAME INTEREST RATE MATURITY DATE VALUE
<C> <S> <C> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (continued)
$ 2,923,765 FNMA #421825 6.00% 06/01/28 $ 2,624,079
1,717,157 FNMA #486524 6.50 02/01/29 1,588,370
1,186,687 FNMA #73919 6.80 01/01/04 1,148,473
29,598,810
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 19.20%
14,000,000 GNMA (TBA) 8.00 05/03/24 14,028,438
1,410,000 GNMA SERIES 1998-14 CLASS PD 6.00 06/20/23 1,331,054
1,428,912 GNMA #345066 6.50 10/15/23 1,336,918
1,519,930 GNMA #346960 6.50 12/15/23 1,422,076
1,335,218 GNMA #354692 6.50 11/15/23 1,249,257
1,689,982 GNMA #361398 6.50 01/15/24 1,581,181
1,698,951 GNMA #366641 6.50 11/15/23 1,589,572
1,828,401 GNMA #473918+ 7.00 04/15/28 1,754,680
5,323,030 GNMA #780626(::) 7.00 08/15/27 5,111,759
29,404,935
------------
61,926,832
TOTAL U.S. GOVERNMENT AGENCY SECURITIES
(COST $64,064,922)
------------
U.S. TREASURY SECURITIES - 5.16%
U.S. TREASURY BONDS - 5.16%
7,500,000 U.S. TREASURY BONDS(::) 6.75 08/15/26 7,904,625
------------
7,904,625
TOTAL U.S. TREASURY SECURITIES
(COST $7,674,297)
------------
SHORT-TERM INVESTMENTS - 5.99%
9,178,892 BANC OF AMERICA SECURITIES LLC
POOLED REPURCHASE AGREEMENT -
102% COLLATERALIZED BY U.S.
GOVERNMENT SECURITIES 6.58 06/01/00 9,178,892
------------
9,178,892
TOTAL SHORT-TERM INVESTMENTS (COST
$9,178,892)
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $178,241,984)* 110.51% $169,279,260
OTHER ASSETS AND LIABILITIES (10.51) (16,102,502)
------- ------------
TOTAL NET ASSETS 100.00% $153,176,758
------- ------------
</TABLE>
+ VARIABLE RATE SECURITIES.
(::) ALL OR PART OF THIS SECURITY IS ON LOAN.
{/\} THIS SECURITY IS CURRENTLY IN DEFAULT WITH RESPECT TO ITS INTEREST PAYMENT.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $178,808,425 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<CAPTION>
<S> <C>
GROSS UNREALIZED APPRECIATION $ 426,586
GROSS UNREALIZED DEPRECIATION (9,955,751)
-----------
NET UNREALIZED DEPRECIATION $(9,529,165)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
82
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES -- MAY 31, 2000 CORE PORTFOLIOS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED POSITIVE RETURN STRATEGIC
FIXED INCOME BOND STABLE INCOME VALUE BOND
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS:
INVESTMENTS AT COST......... $499,285,615 $296,490,438 $340,521,494 $178,241,984
NET UNREALIZED APPRECIATION
(DEPRECIATION)............ (20,805,658) 7,391,545 (3,839,663) (8,962,724)
------------ ------------ ------------ ------------
TOTAL INVESTMENTS AT VALUE.... 478,479,957 303,881,983 336,681,831 169,279,260
------------ ------------ ------------ ------------
COLLATERAL FOR SECURITIES
LOANED.................... 90,333,250 158,095,193 27,128,743 27,776,207
RECEIVABLE FOR DIVIDENDS,
INTEREST AND OTHER
RECEIVABLES............... 5,792,214 2,719,493 4,023,426 2,108,907
PREPAID EXPENSES AND OTHER
ASSETS.................... 0 0 0 15,549
------------ ------------ ------------ ------------
TOTAL ASSETS.................. 574,605,421 464,696,669 367,834,000 199,179,923
------------ ------------ ------------ ------------
LIABILITIES
PAYABLE FOR SECURITIES
LOANED.................... 90,333,250 158,095,193 27,128,743 27,776,207
PAYABLE FOR INVESTMENTS
PURCHASED ON A WHEN-ISSUED
BASIS..................... 25,035,035 0 0 18,031,695
PAYABLE FOR INTEREST RATE
SWAPS..................... 354,600 0 0 118,200
PAYABLE TO INVESTMENT
ADVISOR AND AFFILIATES.... 123,135 81,884 148,952 65,798
PAYABLE TO ADMINISTRATOR.... 9,370 9,931 10,107 0
ACCRUED EXPENSES AND OTHER
LIABILITIES............... 3,590 8,646 0 11,265
------------ ------------ ------------ ------------
TOTAL LIABILITIES............. 115,858,980 158,195,654 27,287,802 46,003,165
------------ ------------ ------------ ------------
TOTAL NET ASSETS.............. $458,746,441 $306,501,015 $340,546,198 $153,176,758
------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
83
<PAGE>
CORE PORTFOLIOS STATEMENTS OF OPERATIONS -- FOR THE YEAR ENDED MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED FIXED INCOME POSITIVE RETURN BOND STABLE INCOME STRATEGIC VALUE BOND
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INTEREST.................... $ 30,792,575 $ 17,140,678 $ 20,760,215 $ 13,497,873
SECURITIES LENDING.......... 128,136 93,348 26,104 47,079
-------------------- -------------------- ------------- --------------------
TOTAL INVESTMENT INCOME....... 30,920,711 17,234,026 20,786,319 13,544,952
-------------------- -------------------- ------------- --------------------
EXPENSES
ADVISORY FEES............... 1,965,288 1,310,074 1,415,363 964,676
ADMINISTRATION FEES......... 96,373 64,212 71,543 53,358
CUSTODY..................... 77,459 53,824 57,132 34,473
ACCOUNTING.................. 94,003 81,060 94,702 63,936
SHAREHOLDER REPORTS......... 30 20 22 17
LEGAL....................... 3,477 1,930 1,655 319
AUDIT....................... 9,914 9,914 9,914 9,914
DIRECTORS' FEES............. 3,484 3,382 3,400 3,352
PRICING..................... 2,919 448 2,296 2,343
MISCELLANEOUS............... 3,427 7,278 7,135 1,822
-------------------- -------------------- ------------- --------------------
TOTAL EXPENSES................ 2,256,374 1,532,142 1,663,162 1,134,210
LESS:
WAIVED FEES AND REIMBURSED
EXPENSES.................. (612,643) (408,448) (71,543) (58,451)
-------------------- -------------------- ------------- --------------------
NET EXPENSES................ 1,643,731 1,123,694 1,591,619 1,075,759
-------------------- -------------------- ------------- --------------------
NET INVESTMENT INCOME......... 29,276,980 16,110,332 19,194,700 12,469,193
-------------------- -------------------- ------------- --------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
---------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) FROM
INVESTMENTS................. (9,084,540) (1,465,597) (1,165,359) (3,533,384)
NET CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)
OF INVESTMENTS.............. (13,488,333) 9,370,813 (2,792,528) (6,795,671)
-------------------- -------------------- ------------- --------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS................. (22,572,873) 7,905,216 (3,957,887) (10,329,055)
-------------------- -------------------- ------------- --------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS.................. $ 6,704,107 $ 24,015,548 $ 15,236,813 $ 2,140,138
-------------------- -------------------- ------------- --------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
84
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
85
<PAGE>
CORE PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED FIXED INCOME
--------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 1999
<S> <C> <C>
-----------------------------------------------------
BEGINNING NET ASSETS..... $426,486,223 $335,663,187
------------ ------------
OPERATIONS:
NET INVESTMENT
INCOME............... 29,276,980 23,263,608
NET REALIZED GAIN
(LOSS) FROM
INVESTMENTS.......... (9,084,540) 1,034,541
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... (13,488,333) (12,930,678)
------------ ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. 6,704,107 11,367,471
------------ ------------
TRANSACTIONS IN
INVESTORS' BENEFICIAL
INTERESTS
CONTRIBUTIONS.......... 132,357,804 131,264,423
WITHDRAWALS............ (106,801,693) (51,808,858)
------------ ------------
NET INCREASE FROM
TRANSACTIONS IN
INVESTORS' BENEFICIAL
INTEREST............. 25,556,111 79,455,565
------------ ------------
------------ ------------
NET INCREASE IN NET
ASSETS................. 32,260,218 90,823,036
------------ ------------
ENDING NET ASSETS........ $458,746,441 $426,486,223
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
86
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS CORE PORTFOLIOS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIVE RETURN BOND STABLE INCOME STRATEGIC VALUE BOND
-------------------------- -------------------------- --------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 2000 MAY 31, 1999 MAY 31, 2000 MAY 31, 1999 MAY 31, 2000 MAY 31, 1999
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
BEGINNING NET ASSETS..... $284,892,223 $224,109,716 $309,264,759 $258,708,921 $242,584,514 $236,877,175
------------ ------------ ------------ ------------ ------------ ------------
OPERATIONS:
NET INVESTMENT
INCOME............... 16,110,332 12,948,302 19,194,700 15,540,651 12,469,193 14,567,818
NET REALIZED GAIN
(LOSS) FROM
INVESTMENTS.......... (1,465,597) 14,832,978 (1,165,359) 206,974 (3,533,384) 21,552
NET CHANGE IN
UNREALIZED
APPRECIATION
(DEPRECIATION) OF
INVESTMENTS.......... 9,370,813 (13,325,007) (2,792,528) (1,386,571) (6,795,671) (6,494,735)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. 24,015,548 14,456,273 15,236,813 14,361,054 2,140,138 8,094,635
------------ ------------ ------------ ------------ ------------ ------------
TRANSACTIONS IN
INVESTORS' BENEFICIAL
INTERESTS
CONTRIBUTIONS.......... 94,370,448 99,726,877 151,354,048 169,711,858 47,775,379 54,726,275
WITHDRAWALS............ (96,777,204) (53,400,643) (135,309,422) (133,517,074) (139,323,273) (57,113,571)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE FROM
TRANSACTIONS IN
INVESTORS' BENEFICIAL
INTEREST............. (2,406,756) 46,326,234 16,044,626 36,194,784 (91,547,894) (2,387,296)
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET
ASSETS................. 21,608,792 60,782,507 31,281,439 50,555,838 (89,407,756) 5,707,339
------------ ------------ ------------ ------------ ------------ ------------
ENDING NET ASSETS........ $306,501,015 $284,892,223 $340,546,198 $309,264,759 $153,176,758 $242,584,514
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
87
<PAGE>
CORE PORTFOLIOS FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO TO AVERAGE NET ASSETS(1)
------------------------------------- PORTFOLIO
NET INVESTMENT NET GROSS TURNOVER
INCOME EXPENSES EXPENSES(2) RATE
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
MANAGED FIXED INCOME PORTFOLIO
JUNE 1, 1999 TO MAY 31,
2000........................ 6.48% 0.36% 0.50% 65%
JUNE 1, 1998 TO MAY 31,
1999........................ 6.23% 0.40% 0.45% 51%
JUNE 1, 1997(3) TO MAY 31,
1998........................ 6.53% 0.41% 0.46% 92%
POSITIVE RETURN BOND PORTFOLIO
--------------------------------------------------------------------------------
JUNE 1, 1999 TO MAY 31,
2000........................ 5.35% 0.37% 0.51% 74%
JUNE 1, 1998 TO MAY 31,
1999........................ 5.20% 0.40% 0.45% 131%
JUNE 1, 1997(3) TO MAY 31,
1998........................ 5.74% 0.41% 0.47% 68%
STABLE INCOME PORTFOLIO
--------------------------------------------------------------------------------
JUNE 1, 1999 TO MAY 31,
2000........................ 5.63% 0.47% 0.49% 40%
JUNE 1, 1998 TO MAY 31,
1999........................ 5.39% 0.36% 0.41% 29%
JUNE 1, 1997(3) TO MAY 31,
1998........................ 5.96% 0.37% 0.43% 37%
STRATEGIC VALUE BOND PORTFOLIO
--------------------------------------------------------------------------------
JUNE 1, 1999 TO MAY 31,
2000........................ 6.45% 0.56% 0.59% 65%
JUNE 1, 1998 TO MAY 31,
1999........................ 6.05% 0.56% 0.61% 48%
OCTOBER 1, 1997(3) TO MAY 31,
1998........................ 6.06% 0.58% 0.62% 135%
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
(1) Ratios for periods of less than one year are annualized.
(2) During each period, various fees and expenses were waived and reimbursed.
The ratio of Gross Expenses to Average Net Assets reflects the expense
ratio in the absence of any waivers and reimbursements.
(3) Commencement of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
88
<PAGE>
NOTES TO FINANCIAL STATEMENTS CORE PORTFOLIOS
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION
Wells Fargo Core Trust ("Core Trust") was formed on March 10, 1999 and
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). Core Trust currently has 14
separate investment portfolios. These financial statements relate to the
Managed Fixed Income, Positive Return Bond, Stable Income, and Strategic Value
Bond portfolios (each a "Portfolio" and collectively the "Portfolios"), each a
diversified portfolio.
Interests in the Portfolios are sold without any sales charge in private
placement transactions to qualified investors, including open-end management
investment companies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies which are consistently followed
by the Core Trust in the preparation of its financial statements are in
conformity with generally accepted accounting principles ("GAAP") for
investment companies.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
SECURITY VALUATION
Investments in securities are valued each business day as of the close of
regular trading on the New York Stock Exchange which is usually 1:00 p.m.
(Pacific Time) 3:00 p.m. (Central Time). Securities which are traded on a
national or foreign securities exchange or the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market are valued
at the last reported sales price. In the absence of any sale of such
securities, and in the case of other securities, including U.S. Government
obligations, but excluding debt securities maturing in 60 days or less, the
valuations are based on the latest quoted bid prices. Securities denominated
in foreign currencies are translated into U.S. dollars using the closing rates
of exchange in effect on the day of valuation. Securities for which quotations
are not readily available are valued at fair value as determined by policies
set by the Board of Trustees.
Debt securities maturing in 60 days or less are valued at amortized cost. The
amortized cost method involves valuing a security at its cost, plus accretion
of discount or minus amortization of premium over the period until maturity,
which approximates market value.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Securities transactions are recorded on a trade date basis. Realized gains or
losses are reported on the basis of identified cost of securities delivered.
(Interest income is accrued daily and bond discounts are accreted and premiums
are amortized under provisions of the Internal Revenue Code of 1986, as
amended (the "Code").)
REPURCHASE AGREEMENTS
Each Portfolio may invest in repurchase agreements and may participate in
pooled repurchase agreement transactions with other Portfolios advised by
Wells Fargo Bank, N.A. ("WFB"). The repurchase agreements must be fully
collateralized based on values that are marked to market daily. The collateral
may be held by an agent bank under a tri-party agreement. It is the
Portfolios' custodian's responsibility to value collateral daily and to take
action to obtain additional collateral as necessary to maintain market value
equal to or greater than the resale price. The repurchase agreements held by
the Portfolios are collateralized by instruments such as U.S. Treasury or
federal agency obligations.
WHEN-ISSUED TRANSACTION
The Portfolios record a when-issued transaction on the trade date and will
segregate with the custodian qualifying assets having a value sufficient to
make payment for the securities purchased. Securities purchased on a when
issued basis are marked-to-market daily and the Portfolio begins earning
interest on the settlement date. Losses may arise due to changes in the market
value of the underlying securities or if the counterparty does not perform
under the contract.
89
<PAGE>
CORE PORTFOLIOS NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
SECURITY LOANS
The Portfolios may loan securities in return for securities and cash
collateral which is invested in various short-term fixed income securities.
The Portfolios may receive compensation for lending securities in the form of
fees or by retaining a portion of interest on the investment securities or
cash received as collateral. A Portfolio also continues to receive interest or
dividends on the securities loaned. Security loans are secured at all times by
collateral. The collateral is equal to at least 102% of the market value of
the securities loaned plus accrued interest when the transaction is entered
into, if the collateral falls to 100% it will be brought back to 102%. Gain or
loss in the market price of the securities loaned that may occur during the
term of the loan is reflected in the value of the Portfolio. WFB receives 40%
of income on security lending activities and covers the expenses associated
with securities lending activities.
As of May 31, 2000, the value of securities on loan and the value of the
related collateral was as follows:
<TABLE>
<CAPTION>
Portfolio Securities Collateral
<S> <C> <C>
MANAGED FIXED INCOME PORTFOLIO $ 88,391,003 $ 90,333,250
POSITIVE RETURN BOND PORTFOLIO 152,251,303 158,095,193
STABLE INCOME PORTFOLIO 26,647,304 27,128,743
STRATEGIC VALUE BOND PORTFOLIO 27,252,816 27,776,207
</TABLE>
MORTGAGE DOLLAR ROLL TRANSACTION
Each Portfolio may engage in mortgage dollar roll transactions with respect
to mortgage-backed securities issued by GNMA, FNMA and FHLMC. In a mortgage
dollar roll transaction, a Portfolio sells a mortgage-backed security to a
financial institution, such as a bank or broker/dealer and simultaneously
agrees to repurchase a substantially similar (i.e., same type, coupon and
maturity) security from the institution at a later date at an agreed upon
price. The mortgage-backed securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized by different
pools of mortgages with different pre-payment histories. During the roll
period the Portfolio forgoes principal and interest paid on the securities.
The Portfolio receives compensation from the interest earned on the cash
proceeds of the initial sale and in the form of a fee which is recorded as
deferred income and amortized to income over the roll period, or
alternatively, a lower price for the security upon its repurchase. Mortgage
dollar rolls may be renewed without physical delivery of the securities
subject to the contract.
INTEREST RATE SWAPS
To preserve a return or spread on a particular investment or portion of its
portfolio, to create synthetic adjustable-rate mortgage securities or for
other purposes, the Portfolios may enter into various hedging transactions,
such as interest rate swaps. Interest rate swaps involve the exchange of
commitments to pay or receive interest, e.g., an exchange of floating-rate
payments for fixed rate payments. The Portfolios record as an increase or
decrease to interest income, the amount due or owed by the Portfolios at
termination or settlement. Interest rate swaps are valued based on prices
quoted by independent brokers. These valuations represent the net present
value of all future cash settlement amounts based on implied forward interest
rates.
As of May 31, 2000, the following Portfolios were engaged in open interest
rate swaps. The Portfolios were exchanging a floating interest rate stream
based on the notional principal, and receiving a fixed rate income stream
based on that same principal.
<TABLE>
<CAPTION>
Net
Notional Floating Termination Unrealized
Portfolio Swap Counter Party Principal Rate Index Date Gain/Loss
<S> <C> <C> <C> <C> <C>
MANAGED FIXED INCOME MORGAN STANLEY $15,000,000 MID MARKET USD SWAP JULY 5, 2030 $(354,600)
SPREAD
STRATEGIC VALUE BOND MORGAN STANLEY 5,000,000 MID MARKET USD SWAP JULY 5, 2030 (118,200)
SPREAD
</TABLE>
FEDERAL INCOME TAXES
Each Portfolio is treated as a separate entity for federal income tax
purposes. The Portfolios are not required to pay federal income taxes on their
net investment income and net capital gain as they are treated as partnerships
for federal income tax purposes. All interest, dividends, gain and loss of the
Portfolios are
90
<PAGE>
NOTES TO FINANCIAL STATEMENTS CORE PORTFOLIOS
--------------------------------------------------------------------------------
deemed to have been "passed through" to the interestholders in proportion to
their holdings of the Portfolios regardless of whether such interest,
dividends, or gain have been distributed by the Portfolios.
The Portfolios use the "aggregate method" (as described in the applicable
regulation under the Internal Revenue Code) for allocation of capital gains
and losses to interestholders.
3. ADVISORY FEES
The Investment Advisor of each Portfolio, is WFB. WFB has retained the
services of certain of its affiliates as investment sub-advisors (Galliard
Capital Management, Inc. and Peregrine Capital Management, Inc.) on selected
Portfolios. The fees related to sub-advisory services are borne directly by
WFB and do not increase the overall fees paid by the Portfolios to WFB. The
current investment advisory fees and the associated sub-advisor and
sub-advisory fees are as follows, with the fees expressed as a percentage of
the average daily net assets.
<TABLE>
<CAPTION>
Portfolio Advisory Fee Subadvisor Sub-Advisory Fee
<S> <C> <C> <C>
MANAGED FIXED INCOME PORTFOLIO 0.50% GALLIARD CAPITAL MANAGEMENT 0-100 MILLION, 0.10%
100-200 MILLION, 0.08%
GREATER THAN 200 MILLION, 0.06%
POSITIVE RETURN BOND PORTFOLIO 0.50% PEREGRINE CAPITAL MANAGEMENT 0-10 MILLION, 0.21%
10-25 MILLION, 0.15%
GREATER THAN 25 MILLION, 0.10%
STABLE INCOME PORTFOLIO 0.50% GALLIARD CAPITAL MANAGEMENT 0-300 MILLION, 0.045%
GREATER THAN 300 MILLION, 0.04%
STRATEGIC VALUE BOND PORTFOLIO 0.50% GALLIARD CAPITAL MANAGEMENT 0-100 MILLION, 0.13%
100-200 MILLION, 0.10%
GREATER THAN 200 MILLION, 0.08%
</TABLE>
Prior to November 8, 1999, the Managed Fixed Income, Positive Return Bond,
Stable Income, and Strategic Value Bond Portfolios were charged, as a
percentage of the average daily net assets, 0.35%, 0.35%, 0.30%, and 0.50%,
respectively. The prior sub-advisors remain unchanged.
4. OTHER FEES AND TRANSACTIONS WITH AFFILIATES
Currently there are no administration fees charged to the Portfolios at the
core level. Prior to November 8, 1999, Forum Administrative Services, LLC
("FAdS") was the administrator to the Core Trust and received a fee with
respect to each Portfolio at an annual rate of 0.05% of each Portfolio's
average daily net assets.
Norwest Bank Minnesota, N.A. ("Norwest", now known as Wells Fargo Bank
Minnesota, N.A.) serves as the custodian for each Portfolio and may appoint
certain sub-custodians to custody those portfolios' foreign securities and
assets held in foreign countries. Norwest receives a fee with respect to each
Portfolio at an annual rate of 0.02% of each Portfolio's average daily net
assets. Prior to November 8, 1999, Norwest received a fee with respect to each
Portfolio at an annual rate of 0.02% for the first $100 million of each
Portfolio's average daily net assets, declining to 0.01% of the average daily
net assets of each Portfolio in excess of $200 million.
Certain officers of the Company are also officers of Stephens for a portion
of the period. As of May 31, 2000, Stephens owned 87 shares of the Managed
Fixed Income Portfolio, 79 shares of the Positive Return Bond Portfolio, 88
share of the Stable Income Portfolio, and 90 shares of the Strategic Value
Bond Portfolio.
Forum Accounting Services, LLC provides portfolio accounting services to each
Portfolio.
91
<PAGE>
CORE PORTFOLIOS NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5. WAIVED FEES AND REIMBURSED EXPENSES
For the year ended May 31, 2000, fees waived by the Portfolios' service
providers were as follows:
<TABLE>
<CAPTION>
Portfolio Fees Waived by FAdS Fees Waived by WFB Total
<S> <C> <C> <C>
MANAGED FIXED INCOME PORTFOLIO $96,373 $516,270 $612,643
POSITIVE RETURN BOND PORTFOLIO 64,212 344,236 408,448
STABLE INCOME PORTFOLIO 71,543 0 71,543
STRATEGIC VALUE BOND PORTFOLIO 53,358 5,093 58,451
</TABLE>
6. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, exclusive of short-term securities
(securities with maturities of one year or less at purchase date) for each
Portfolio for the year ended May 31, 2000, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases at Cost Sales Proceeds
<S> <C> <C>
MANAGED FIXED INCOME PORTFOLIO $370,364,042 $290,693,235
POSITIVE RETURN BOND PORTFOLIO 275,148,203 172,024,376
STABLE INCOME PORTFOLIO 209,361,576 130,608,276
STRATEGIC VALUE BOND PORTFOLIO 148,054,210 121,016,474
</TABLE>
92
<PAGE>
INDEPENDENT AUDITORS' REPORT CORE PORTFOLIOS
--------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND PARTNERS
WELLS FARGO CORE TRUST:
We have audited the accompanying statements of assets and liabilities of
Managed Fixed Income Portfolio, Positive Return Bond Portfolio, Stable Income
Portfolio, and Strategic Value Bond Portfolio, four portfolios of Wells Fargo
Core Trust (collectively the "Portfolios") including the portfolios of
investments as of May 31, 2000, and the related statements of operations for
the year then ended and the statements of changes in net assets for each of
the years in the two-year period then ended and financial highlights for the
periods presented on page 88. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of May 31, 2000,
by correspondence with the custodian. As to securities purchased but not yet
received, we performed other appropriate auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned portfolios of Wells Fargo Core Trust as of May 31, 2000,
the results of their operations, changes in their net assets and their
financial highlights for the periods indicated above, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
San Francisco, California
July 10, 2000
93
<PAGE>
INCOME FUNDS LIST OF ABBREVIATIONS
--------------------------------------------------------------------------------
The following is a list of common abbreviations for terms and entities which may
have appeared in this report.
ABAG -- ASSOCIATION OF BAY AREA GOVERNMENTS
ADR -- AMERICAN DEPOSITORY RECEIPTS
AMBAC -- AMERICAN MUNICIPAL BOND ASSURANCE CORPORATION
AMT -- ALTERNATIVE MINIMUM TAX
ARM -- ADJUSTABLE RATE MORTGAGES
BART -- BAY AREA RAPID TRANSIT
CDA -- COMMUNITY DEVELOPMENT AUTHORITY
CDSC -- CONTINGENT DEFERRED SALES CHARGE
CGIC -- CAPITAL GUARANTY INSURANCE COMPANY
CGY -- CAPITAL GUARANTY CORPORATION
CMT -- CONSTANT MATURITY TREASURY
COFI -- COST OF FUNDS INDEX
CONNIE LEE -- CONNIE LEE INSURANCE COMPANY
COP -- CERTIFICATE OF PARTICIPATION
CP -- COMMERCIAL PAPER
CTF -- COMMON TRUST FUND
DW&P -- DEPARTMENT OF WATER & POWER
DWR -- DEPARTMENT OF WATER RESOURCES
EDFA -- EDUCATION FINANCE AUTHORITY
FGIC -- FINANCIAL GUARANTY INSURANCE CORPORATION
FHA -- FEDERAL HOUSING AUTHORITY
FHLB -- FEDERAL HOME LOAN BANK
FHLMC -- FEDERAL HOME LOAN MORTGAGE CORPORATION
FNMA -- FEDERAL NATIONAL MORTGAGE ASSOCIATION
FRN -- FLOATING RATE NOTES
FSA -- FINANCIAL SECURITY ASSURANCE, INC
GNMA -- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
GO -- GENERAL OBLIGATION
HFA -- HOUSING FINANCE AUTHORITY
HFFA -- HEALTH FACILITIES FINANCING AUTHORITY
IDA -- INDUSTRIAL DEVELOPMENT AUTHORITY
LIBOR -- LONDON INTERBANK OFFERED RATE
LLC -- LIMITED LIABILITY CORPORATION
LOC -- LETTER OF CREDIT
LP -- LIMITED PARTNERSHIP
MBIA -- MUNICIPAL BOND INSURANCE ASSOCIATION
MFHR -- MULTI-FAMILY HOUSING REVENUE
MUD -- MUNICIPAL UTILITY DISTRICT
MTN -- MEDIUM TERM NOTE
PCFA -- POLLUTION CONTROL FINANCE AUTHORITY
PCR -- POLLUTION CONTROL REVENUE
PFA -- PUBLIC FINANCE AUTHORITY
PLC -- PRIVATE PLACEMENT
PSFG -- PUBLIC SCHOOL FUND GUARANTY
RAW -- REVENUE ANTICIPATION WARRANTS
RDA -- REDEVELOPMENT AUTHORITY
RDFA -- REDEVELOPMENT FINANCE AUTHORITY
R&D -- RESEARCH & DEVELOPMENT
SFMR -- SINGLE FAMILY MORTGAGE REVENUE
TBA -- TO BE ANNOUNCED (WHEN-ISSUED)
TRAN -- TAX REVENUE ANTICIPATION NOTES
USD -- UNIFIED SCHOOL DISTRICT
V/R -- VARIABLE RATE
WEBS -- WORLD EQUITY BENCHMARK SHARES
94
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
<PAGE>
Wells Fargo Bank, N.A. and certain of its affiliates provide investment
advisory, sub-advisory and/or shareholder services for the Wells Fargo
Funds. The Funds are sponsored and distributed by STEPHENS INC., Member
NYSE/ SIPC. Wells Fargo Bank, N.A. and its affiliates are not affiliated
with Stephens Inc.
This report and the financial statements contained herein are submitted for
the general information of the shareholders of the Wells Fargo Funds. If
this report is used for promotional purposes, distribution of the report
must be accompanied or preceded by a current prospectus. For a prospectus
containing more complete information, including charges and expenses, call
1-800-222-8222. Read the prospectus carefully before you invest or send
money.
DATED MATERIAL
PLEASE EXPEDITE
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P.O. Box 8266
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AR 012 (7/00)
