<PAGE>
[Graphic]
STAGECOACH FUNDS-Registered Trademark-
Annual Report
INCOME Funds
Corporate Bond Fund
Short-Intermediate U.S. Government
Income Fund
Short-Term Government-Corporate
Income Fund
U.S. Government Income Fund
Variable Rate Government Fund
June 30, 1998
<PAGE>
Income Funds TABLE OF CONTENTS
- ------------------------------------------------------------------------
LETTER TO SHAREHOLDERS...........................................1
INVESTMENT ADVISOR COMMENTARY AND
PERFORMANCE AT A GLANCE
Corporate Bond Fund..........................................3
Short-Intermediate U.S. Government Income Fund..............11
Short-Term Government-Corporate Income Fund.................18
U.S. Government Income Fund.................................25
Variable Rate Government Fund...............................32
PORTFOLIOS OF INVESTMENTS
Corporate Bond Fund.........................................38
Short-Intermediate U.S. Government Income Fund..............42
Short-Term Government-Corporate Income Fund.................46
U.S. Government Income Fund.................................48
Variable Rate Government Fund...............................53
INCOME FUNDS
Statement of Assets and Liabilities.........................56
Statements of Operations....................................58
Statement of Changes in Net Assets..........................60
Financial Highlights........................................64
Notes to Financial Statements...............................74
Independent Auditors' Report................................93
PROXY VOTING RESULTS............................................94
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
i
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ii
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LETTER TO SHAREHOLDERS Income Funds
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TO OUR SHAREHOLDERS
Thank you for your investment in the Stagecoach Funds.
We are pleased to present this Annual Report to you for the period ended June
30, 1998. The purpose of the Annual Report is to provide important information
and an in-depth review of your investment. Three major topics are highlighted,
including a performance summary, portfolio review, and strategic outlook for
each Fund. Due to a change in the fiscal year-end for the income funds, this
report includes information for both three-month and six-month reporting
periods, where applicable.
For the twelve-month period ended June 30, 1998 there were continued positive
earnings for most domestic long-term investors. Stocks, as measured by the S&P
500 Index,(1) returned 30.17% as a result of strong corporate earnings and low
inflation. Government bonds also performed well, with returns of 19.67% as
measured by the Lehman Brothers Long Government Bond Index.(2)
During the period, the biggest event impacting the financial markets and U.S.
economy was the economic crisis in Asia. The crisis began to unfold in late 1997
as Asian companies and governments could not afford to pay for excessive
borrowing that had accumulated over several years. In addition, Asian currencies
began to lose value, negatively affecting businesses within the region. These
factors combined to create a destabilizing effect on markets throughout Asia.
Lack of confidence in Asian markets prompted Asian investors to take a "flight
to quality" by investing in U.S. Treasury securities, which increased U.S.
Treasury security prices.
The challenges of investing in today's markets make mutual funds one of the
most popular investment vehicles. Investors poured more than $461 billion into
mutual funds for the twelve-month period ended May 31, 1998, according to
Strategic Insight, an industry research firm. We understand that you have a
variety of investment options and appreciate your confidence in selecting us to
manage your money.
1
<PAGE>
Income Funds LETTER TO SHAREHOLDERS
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Over the years, the Stagecoach Funds have built a reputation for innovation,
leadership, and commitment to investors. In addition to our income funds, we are
proud to lead the industry by offering eight innovative asset allocation funds.
Each Fund offers a comprehensive asset allocation strategy that can provide a
solid foundation for any investment portfolio.
As part of our commitment to investor education, we completely redesigned and
restructured our prospectuses to make investing as simple and as informative as
possible. You will find that our marketing materials and shareholder
correspondence are designed to help you better understand your investment.
We encourage you to review this Annual Report. We hope that you will find it
useful and informative. We also recommend that you continually review your
investment portfolio with a financial consultant to determine an appropriate mix
of investments to meet your ongoing needs. Thank you for your continued
investment with the Stagecoach Funds.
Sincerely,
[SIGNATURE]
Michael J. Hogan
Senior Vice President
Wells Fargo Bank,
Mutual Fund Group
[SIGNATURE]
R. Greg Feltus
Chairman and President of
Stagecoach Funds
1 The "S&P 500 Index" is a trademark of Standard and Poor's Corporation. The S&P
500 Index is an unmanaged index of 500 widely held common stocks representing,
among others, industrial, financial, utility and transportation companies
listed or traded on national exchanges or over-the-counter markets.
2 The Lehman Brothers Long Government Bond Index is an unmanaged index composed
of U.S. Treasury bonds with 20-year or longer maturities.
2
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INVESTMENT ADVISOR COMMENTARY Corporate Bond Fund
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CORPORATE BOND FUND
The Stagecoach Corporate Bond Fund (the "Fund") seeks to provide investors
with a high level of current income consistent with prudent risk, by investing
primarily in corporate debt securities and U.S. government obligations. The
portfolio managers apply detailed research of credit quality, call protection
and maturity. Managing primarily for income, they can invest in securities of
any maturity in the corporate bond market.
The Fund is managed by a team of three portfolio managers -- Graham Allen,
Jaqueline Flippin, and Scott Smith. Specializing in global, high yield, and
equity securities, Mr. Allen is a Fellow Chartered Accountant and has over 22
years of experience in the securities industry. Ms. Flippin specializes in
long-term investment grade corporate and mortgage-backed securities and has an
MBA in finance from New York University. Mr. Smith, a Chartered Financial
Analyst, specializes in intermediate corporate and government bonds. Together,
they bring a specialized and unique discipline to the Fund.
PERFORMANCE SUMMARY
The Stagecoach Corporate Bond Fund began operation on April 1, 1998. During
this reporting period, the Class A net asset value increased from $10.00 on
April 1, 1998 to $10.03 on June 30, 1998. The Fund distributed $0.166 per share
in dividend income, and no capital gains were distributed from the Fund. Keep in
mind that past distributions are not predictive of future trends as
distributions will vary based on Fund portfolio earnings.
The Fund's distribution rate for the three-month period ending June 30, 1998
for Class A shares was 6.11%, based on an annualization of June's monthly
dividend of $0.053 per share and the maximum offering price of $10.50 on June
30, 1998.
3
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Corporate Bond Fund INVESTMENT ADVISOR COMMENTARY
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PORTFOLIO DATA(1) (as of June 30, 1998)
<TABLE>
<S> <C>
NUMBER OF ISSUES 41
PORTFOLIO TURNOVER RATIO 33%
WEIGHTED AVERAGE COUPON 7.81%
WEIGHTED AVERAGE MATURITY 14.12 years
AVERAGE CREDIT QUALITY Baa2
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 10.03 10.03 10.03
DISTRIBUTION RATE 6.11% 5.58% 5.64%
SEC YIELD 5.94% 5.29% 5.40%
Please refer to important disclosures on pages 6 and 7.
</TABLE>
For the three-month period ended June 30, 1998, the Fund posted a 1.98%
cumulative total return for Class A shares, exclusive of sales charge. In
comparison, the Lehman Brothers Corporate Long Bond Index returned 3.54% for the
same period. The Fund underperformed the benchmark for two primary reasons.
First, the average duration of the Fund's investments is shorter than the
benchmark's average duration. In a low-interest rate environment, a higher
duration can help capture higher returns. The shorter duration of the Fund
negatively contributed to the Fund's performance, as compared to the benchmark.
In addition, the high yield component of the Fund, which represents more than
15% of the portfolio, showed moderate performance for the three-month period.
Overall, we attempted to lessen the impact of the Asian market crisis by heavily
weighting the Fund in sectors not affected by the Asian markets. The Fund will
continue to focus on the fundamentals of bonds with strong value over the
long-term.
CREDIT QUALITY2
(as of June 30, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 9.50%
AA 1.00%
A 30.00%
BBB 41.00%
BB/Ba 17.00%
Cash 1.50%
</TABLE>
PORTFOLIO REVIEW
The Fund is managed with a top-down strategy involving both a global overview
followed by a domestic one. Research is focused on how global events affect the
U.S. economy and how these factors affect the different sectors within the
corporate bond market.
4
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INVESTMENT ADVISOR COMMENTARY Corporate Bond Fund
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PORTFOLIO ALLOCATION
(as of June 30, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Corporate Bonds 78%
Treasury Bonds 14%
Foreign Bonds 7%
Cash 1%
</TABLE>
On June 30, 1998, 78% of the Fund's portfolio was invested in corporate bonds.
This allows the Fund to capture opportunities for high yields. This allocation
could change, however, depending on the extent of the effect the Asian markets
have on U.S. corporate profits. If we see indications that the Asian markets
will have a negative impact on corporate profitability, we will decrease our
corporate bond holdings.
The Fund invests in a broad range of corporate securities providing
diversification that may reduce the impact a single bond or sector's performance
may have on the Fund. The Fund's top ten holdings represent corporate securities
issued by well-known, established companies. When selecting new issues for the
Fund, we look at the secondary market and screen the credit as well as the
relative and potential values, including earnings growth. We specifically screen
for improving growth and earnings while carefully reviewing maturity, credit and
high yield potential.
Many of our top ten holdings are found in the telecommunications,
transportation, and bank and finance sectors. We have structured the portfolio
in this configuration to limit Asian exposure, selecting securities that are not
affected by the Asian market's impact on profitability in the U.S. Recently, we
have been invested in cable bonds. The takeover of TCI by AT&T, for example, has
prompted strong performance within this sector with tightening spreads
throughout the entire cable industry. Overall, we view these bonds as core
holdings and have attempted to get a good spread among different sectors.
5
<PAGE>
Corporate Bond Fund INVESTMENT ADVISOR COMMENTARY
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TOP 10 HOLDINGS (as of June 30, 1998)
<TABLE>
<CAPTION>
NAME/COUPON % OF PORTFOLIO
<S> <C>
U.S. T-BOND, 6.13% 11.5%
OCCIDENTAL PETROLEUM CORP., 10.13% 4.4%
J.C. PENNEY & CO., 7.65% 4.3%
NATIONSBANK CORP., 7.25% 4.2%
KN ENERGY INC., 6.80% 4.0%
CITICORP CAPITAL II, 8.02% 3.3%
CONTINENTAL CABLEVISION, 8.30% 3.2%
TIME WARNER INC., 8.11% 3.2%
CHRYSLER CORP., 7.45% 3.2%
CABLE & WIRELESS COMMUNICATION, 6.75% 3.0%
</TABLE>
STRATEGIC OUTLOOK
While the nation's economy continues to be healthy, we believe that it may
weaken over time due to the events in Asia. We believe that the crisis in Asia
could last up to five years. We believe that the U.S. dollar will continue to be
strong and inflation will remain at stable to low levels. Given this, we feel
that interest rates may drift lower and short-term rates will remain very stable
without much action from the Federal Reserve Board.
We continue to see great opportunity in the corporate bond universe. Our
management strategy is based on sector rotation, which means that we move among
the sectors within the corporate bond market that present attractive
opportunities for high income. We intend to continue purchasing bonds within
corporate sectors that show the most potential for high current income.
Should the Asian markets have a negative impact on corporate profitability, we
will decrease our corporate bond exposure and shift assets to sectors that are
less affected by the events in Asia. We will also continue our practice of
performing detailed research of credit quality, call protection and maturity,
which is especially important given the current economic conditions.
1 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 use a uniform method to obtain yield
6
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INVESTMENT ADVISOR COMMENTARY Corporate Bond Fund
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figures 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.
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.
2 The average credit rating 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, endorsed, sold or promoted by these rating agencies and these
rating agencies make no representation regarding the advisability of investing
in the Fund.
7
<PAGE>
Corporate Bond Fund PERFORMANCE AT A GLANCE
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CORPORATE BOND FUND
GROWTH OF A $10,000 INVESTMENT
Class A shares
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH CORPORATE BOND FUND CLASS A SHARES LEHMAN BROTHERS CORPORATE LONG BOND INDEX
<S> <C> <C>
4/1/98 $9,550 $10,000
Apr-98 $9,548 $10,073
May-98 $9,649 $10,246
Jun-98 $9,739 $10,354
</TABLE>
THE RETURNS FOR CLASS B AND CLASS C SHARES OF THE CORPORATE BOND FUND WILL VARY
FROM THE RESULTS SHOWN DUE TO DIFFERENT EXPENSES AND LOAD STRUCTURES.
The accompanying chart compares the performance of the Stagecoach Corporate Bond
Fund Class A shares since inception with the Lehman Brothers Corporate Long Bond
Index. The chart assumes a hypothetical $10,000 initial 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. The Index
presented here does not incur expenses and is not available directly for
investment. Had this Index incurred operating expenses, its performance would
have been lower.
8
<PAGE>
PERFORMANCE AT A GLANCE Corporate Bond Fund
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AVERAGE ANNUAL RETURNS (as of June 30, 1998)
EXCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE 4/1/98
INCEPTION
<S> <C>
CLASS A 1.98
CLASS B 1.81
CLASS C 1.78
</TABLE>
INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE 4/1/98
INCEPTION
<S> <C>
CLASS A (2.60)
CLASS B (3.19)
CLASS C 0.78
</TABLE>
Average annual returns represent the average annual change in value of an
investment over the indicated periods assuming reinvestment of dividends and
capital gains distributions. 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. Figures quoted represent past
performance, which is no guarantee of future results.
The Fund's manager has voluntarily waived all or a portion of its management
fees or assumed responsibility for other expenses, which reduces operating
expenses and increases total return to shareholders. Without these reductions
the Fund's returns would have been lower. There is no guarantee that these
reductions will continue.
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
contingent deferred sales charge for Class C shares is 1.00%. Class B and Class
C share performance with sales charge assumes the maximum contingent deferred
sales charge for the corresponding time period.
9
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10
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INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
The Stagecoach Short-Intermediate U.S. Government Income Fund (the "Fund")
seeks to provide investors with current income while preserving capital by
investing primarily in a portfolio consisting of short- to intermediate-term
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities. Targeting bonds within this range helps to maximize the
Fund's income potential by investing in short- to intermediate- bonds with an
average maturity between two and five years.
Please note that we have changed the Fund's fiscal year-end to June 30 from
March 31. We have made this change to improve our reporting process. This change
will not impact the performance or objective of your investment. Because of the
new year-end, this report is the second annual report we have sent you over the
last three months. Our discussions will focus on the most recent period,
although we may also comment on longer-term performance.
On June 12, 1998, the Stagecoach Intermediate Bond Fund was merged into the
Short-Intermediate U.S. Government Income Fund. The investment objective and the
investment policies for the Short-Intermediate U.S. Government Income Fund did
not change. However, the consolidation of the two funds did create Class B
shares for the Short-Intermediate U.S. Government Income Fund.
The Fund is managed by Madeline Gish, who leads the taxable short-duration
team. Her eight-year investment career includes specialization in managing
short-duration taxable portfolios and taxable money market mutual funds.
PERFORMANCE SUMMARY
During the three-month reporting period, the Stagecoach Short-Intermediate
U.S. Government Income Fund's Class A net asset value increased from $9.95 on
March 31, 1998, to $9.97 on June 30, 1998. The Fund distributed $0.13 per share
in dividend income and no capital gains were distributed during this period.
Keep in
11
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Short-Intermediate U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
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mind that past distributions are not predictive of future trends as
distributions will vary based on Fund portfolio earnings.
The Fund's distribution rate was 5.22% for Class A shares, based on an
annualization of June's monthly dividend of $0.045 per share and the maximum
offering price of $10.28 on June 30, 1998.
PORTFOLIO DATA(1) (as of June 30, 1998)
<TABLE>
<S> <C>
NUMBER OF ISSUES 51
PORTFOLIO TURNOVER RATIO 12%
WEIGHTED AVERAGE COUPON 6.87%
WEIGHTED AVERAGE MATURITY 4.91 years
AVERAGE CREDIT QUALITY AA1
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
NAV 9.97 9.97
DISTRIBUTION RATE 5.22% 5.01%
SEC YIELD 5.55% 5.10%
Please refer to important disclosures on page 15.
</TABLE>
For the three-month period ended June 30, 1998, the Class A shares of the
Short-Intermediate U.S. Government Income Fund returned 1.54%, excluding sales
charges. For the same time period, the Fund's Institutional class returned
1.56%. Overall, we remained very competitive with our benchmark, the Lehman
Brothers Treasury Note Index, which returned 1.54% in the same period. The
competitive performance of the Fund was due to several steps taken to implement
our total return strategy. We decreased our mortgage exposure to maintain income
for the Fund. This was a result of the current interest rate environment, where
we've seen an increased prepayment risk in the mortgage-backed securities sector
as prepayment occurred when homeowners refinanced out of their existing
mortgages into ones with lower interest rates. In addition, as corporate spreads
widened compared to treasuries, we maintained our
12
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
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exposure to higher yielding bonds, particularly corporate bonds. Keep in mind
that past performance is no guarantee of future results.
PORTFOLIO ALLOCATION
(as of June 30, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 45%
Corporate Bonds 32%
Treasury Notes 16%
Cash 3%
Foreign Bonds 2%
Treasury Bonds 2%
</TABLE>
PORTFOLIO REVIEW
The Fund is managed with a total return strategy that attempts to balance
reasonable risk with competitive income and capital appreciation. Investment
quality, maturity and duration are carefully examined as the Fund's managers
employ a top-down approach. This approach involves analysis of historical
interest rate shifts in an attempt to predict changes in Federal Reserve policy,
which would ultimately affect the strategy of the Fund.
As of June 30, 1998, the Fund held 45% of the portfolio in federal agency
securities. This allocation helped to maintain a degree of stability and credit
quality for the Fund. Some of these securities are backed by the full faith and
credit of the United States, which has never defaulted on interest or principal
payments. As with all mutual funds, the Fund is guaranteed neither by the U.S.
Government nor any of its agencies.
With 32% of the portfolio invested in corporate bonds on June 30, 1998, we
attempted to gain potential income and capital appreciation by maintaining a
high level of corporate exposure. On a similar note, we slightly lowered our
exposure to mortgage-backed securities due to the increased prepayment risk
associated with the flat interest rate environment.
To maintain liquidity, we held 16% of the portfolio in U.S. Treasury notes at
the end of the three month reporting period. In this interest rate environment,
we determined it prudent to use these liquid assets to alter the Fund's
duration. This strategy allowed the Fund to capture increased current income
while preserving capital.
The majority of the securities in the top ten holdings were acquired during
the Fund's growth phase and contributed to its growth. Some are higher yielding
corporate bonds that contribute to the Fund's income level. Overall, these bonds
have longer durations, which helps
13
<PAGE>
Short-Intermediate U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
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to maximize the Fund's income potential but also increases the Fund's volatility
in a changing interest rate environment.
Assets in the Short-Intermediate U.S. Government Income Fund increased due to
its consolidation with the Intermediate Bond Fund, which added over $57.7
million in assets. The number of issues in the Fund also grew from 28 bonds and
notes on March 31, 1998 to 51 on June 30, 1998. The additional assets have been
diversified according to the investment policies of the Fund, and should provide
current income for the portfolio.
TOP 10 HOLDINGS (as of June 30, 1998)
<TABLE>
<CAPTION>
NAME/COUPON % OF PORTFOLIO
<S> <C>
FHLB, 5.53% 5.9%
PACIFIC GAS & ELECTRIC, 7.88% 3.9%
FHLMC, 6.79% 3.9%
FHLMC, 7.01% 3.8%
FIRST BANK CORP., 6.40% 3.8%
FNMA, 6.16% 3.8%
U.S. T-NOTE, 5.88% 3.8%
FNMA, 6.18% 3.7%
U.S. T-NOTE, 5.88% 3.6%
U.S. T-NOTE, 7.88% 3.3%
</TABLE>
STRATEGIC OUTLOOK
The nation's economy continues to be healthy but we believe that it may weaken
over time. The Asian crisis may cause further effects such as increasing the
strength of the U.S. dollar and slowing inflation. Given these views, we do not
feel that the Federal Reserve Board will raise interest rates in the near
future. We feel that long-term interest rates may drift lower and short-term
rates will remain stable.
Based on this outlook, we intend to position the Fund with a longer duration
to capture the potential for income and capital appreciation. Our management
team has extensive experience in the bond market, enabling us
14
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INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
to respond quickly to economic conditions and market events. We will continue to
watch the events in Asia and monitor the region's impact on corporate
profitability. This will help us remain sensitive to the performance of the
Fund's corporate bond holdings. While we intend to maintain our corporate bond
exposure, we may decrease it slightly if the U.S. economy experiences a dramatic
slowdown as a result of the events overseas. As always, we will continue our
focus on providing investors with current income and preservation of capital.
1 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 use a uniform method to obtain yield figures 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.
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.
Past performance is no guarantee of future results.
15
<PAGE>
Short-Intermediate U.S. Government Income Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
GROWTH OF A $10,000 INVESTMENT
Class A and Institutional Class shares
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUND CLASS A SHARES LEHMAN BROTHERS TREASURY NOTE INDEX
<S> <C> <C>
Oct-93 $9,700 $10,000
Nov-93 $9,715 $9,950
Dec-93 $9,745 $9,991
Jan-94 $9,807 $10,090
Feb-94 $9,748 $9,948
Mar-94 $9,695 $9,804
Apr-94 $9,661 $9,741
May-94 $9,689 $9,748
Jun-94 $9,697 $9,750
Jul-94 $9,756 $9,877
Aug-94 $9,753 $9,906
Sep-94 $9,632 $9,824
Oct-94 $9,626 $9,827
Nov-94 $9,570 $9,782
Dec-94 $9,608 $9,813
Jan-95 $9,759 $9,973
Feb-95 $9,937 $10,163
Mar-95 $9,988 $10,219
Apr-95 $10,074 $10,337
May-95 $10,300 $10,629
Jun-95 $10,361 $10,699
Jul-95 $10,364 $10,704
Aug-95 $10,434 $10,790
Sep-95 $10,495 $10,862
Oct-95 $10,597 $10,983
Nov-95 $10,710 $11,117
Dec-95 $10,825 $11,228
Jan-96 $10,919 $11,325
Feb-96 $10,825 $11,204
Mar-96 $10,762 $11,149
Apr-96 $10,720 $11,117
May-96 $10,695 $11,111
Jun-96 $10,796 $11,221
Jul-96 $10,825 $11,255
Aug-96 $10,823 $11,269
Sep-96 $10,971 $11,414
Oct-96 $11,108 $11,600
Nov-96 $11,265 $11,739
Dec-96 $11,216 $11,675
Jan-97 $11,288 $11,719
Feb-97 $11,327 $11,736
Mar-97 $11,253 $11,667
Apr-97 $11,382 $11,798
May-97 $11,456 $11,890
Jun-97 $11,549 $11,991
Jul-97 $11,764 $12,215
Aug-97 $11,707 $12,166
Sep-97 $11,825 $12,299
Oct-97 $11,950 $12,443
Nov-97 $11,970 $12,471
Dec-97 $12,065 $12,573
Jan-98 $12,229 $12,742
Feb-98 $12,204 $12,725
Mar-98 $12,230 $12,764
Apr-98 $12,284 $12,824
May-98 $12,376 $12,912
Jun-98 $12,419 $12,999
<CAPTION>
STAGECOACH SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUND INSTITUTIONAL CLASS SHARES
<S> <C>
Oct-93 $10,000
Nov-93 $10,015
Dec-93 $10,047
Jan-94 $10,110
Feb-94 $10,050
Mar-94 $9,995
Apr-94 $9,960
May-94 $9,989
Jun-94 $9,997
Jul-94 $10,058
Aug-94 $10,055
Sep-94 $9,930
Oct-94 $9,924
Nov-94 $9,866
Dec-94 $9,905
Jan-95 $10,061
Feb-95 $10,244
Mar-95 $10,297
Apr-95 $10,385
May-95 $10,619
Jun-95 $10,681
Jul-95 $10,684
Aug-95 $10,756
Sep-95 $10,819
Oct-95 $10,924
Nov-95 $11,041
Dec-95 $11,160
Jan-96 $11,257
Feb-96 $11,160
Mar-96 $11,095
Apr-96 $11,052
May-96 $11,026
Jun-96 $11,130
Jul-96 $11,159
Aug-96 $11,158
Sep-96 $11,301
Oct-96 $11,445
Nov-96 $11,609
Dec-96 $11,557
Jan-97 $11,631
Feb-97 $11,672
Mar-97 $11,593
Apr-97 $11,740
May-97 $11,818
Jun-97 $11,915
Jul-97 $12,128
Aug-97 $12,068
Sep-97 $12,192
Oct-97 $12,322
Nov-97 $12,344
Dec-97 $12,444
Jan-98 $12,619
Feb-98 $12,591
Mar-98 $12,619
Apr-98 $12,674
May-98 $12,771
Jun-98 $12,815
</TABLE>
THE RETURNS OF CLASS B SHARES OF THE FUND WILL VARY FROM THE RESULTS SHOWN DUE
TO THE DIFFERENT EXPENSES AND LOAD STRUCTURE.
The accompanying chart compares the performance of the Stagecoach
Short-Intermediate U.S. Government Income Fund Class A and Institutional Class
shares since inception with the Lehman Brothers Treasury Note Index. The chart
assumes a hypothetical $10,000 initial 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 3.00%. The Lehman Brothers Treasury
Note Index is an unmanaged index of U.S. Treasury 2-10 year notes. The Fund is a
professionally managed mutual fund. The Index presented here does not incur
expenses and is not available directly for investment. Had this Index incurred
operating expenses, its performance would have been lower.
16
<PAGE>
PERFORMANCE AT A GLANCE Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (as of June 30, 1998)
EXCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE
YEAR-TO- 1- 3- 10/27/93
DATE YEAR YEAR INCEPTION
<S> <C> <C> <C> <C>
CLASS A 2.93 7.53 6.22 5.44
CLASS B 2.69 6.95 5.60 4.80
INSTITUTIONAL
CLASS 2.99 7.55 6.26 5.46
</TABLE>
INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE
YEAR-TO- 1- 3- 10/27/93
DATE YEAR YEAR INCEPTION
<S> <C> <C> <C> <C>
CLASS A (0.18) 4.32 5.17 4.75
CLASS B (2.31) 1.95 4.69 4.43
INSTITUTIONAL
CLASS N/A N/A N/A N/A
</TABLE>
Average annual returns represent the average annual change in value of an
investment over the indicated periods assuming reinvestment of dividends and
capital gains distributions. 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. Figures quoted represent past
performance, which is no guarantee of future results. The Fund's manager has
voluntarily waived all or a portion of its management fees or assumed
responsibility for other expenses, which reduces operating expenses and
increases total return to shareholders. Without these reductions the Fund's
returns would have been lower. There is no guarantee that these reductions will
continue.
For Class A shares, the maximum front-end sales charge is 3.00%. The maximum
contingent deferred sales charge for Class B shares is 5.00%. Class B share
performance including sales charge assumes the maximum contingent deferred sales
charge for the corresponding time period.
17
<PAGE>
Short-Term Government-Corporate Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND
The Stagecoach Short-Term Government-Corporate Income Fund seeks to provide
investors with current income while preserving capital by investing primarily in
a portfolio consisting of short-term U.S. government securities and corporate
bonds.
Please note that on May 1, 1998, the Fund was closed to new investors and
additional purchases. We also have changed the Fund's fiscal year-end to June 30
from December 31. Our discussions will focus on the most recent period, although
we may also comment on longer-term performance.
Madeline Gish and Jeffrey Weaver are co-portfolio managers of the Short-Term
Government-Corporate Income Fund. A chartered financial analyst, Ms. Gish
specializes in short-duration taxable portfolios and taxable money market mutual
funds. Mr. Weaver's fixed income experience includes a concentration in short-
duration taxable portfolios and money market funds.
PERFORMANCE SUMMARY
During the six-month reporting period, the Stagecoach Short-Term
Government-Corporate Income Fund's net asset value decreased from $4.98 on
December 31, 1997, to $4.97 on June 30, 1998. The Fund distributed $0.14 per
share in dividend income and no capital gains were paid out by the Fund.
The Fund's distribution rate for the period ended June 30, 1998 was 5.46%,
based on an annualization of June's monthly dividend of $0.0233 and the maximum
offering price of $5.12 on June 30, 1998. Keep in mind that past performance is
no guarantee of future results.
18
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Term Government-Corporate Income Fund
- ------------------------------------------------------------------------
PORTFOLIO DATA(1) (as of June 30, 1998)
<TABLE>
<S> <C>
NUMBER OF ISSUES 18
PORTFOLIO TURNOVER RATIO 73%
WEIGHTED AVERAGE COUPON 6.13%
WEIGHTED AVERAGE MATURITY 1.11 years
AVERAGE CREDIT QUALITY AA1
</TABLE>
<TABLE>
<CAPTION>
CLASS A
<S> <C>
NAV 4.97
DISTRIBUTION RATE 5.46%
SEC YIELD 5.28%
Please refer to important disclosures on page 21.
</TABLE>
During the six-months ended June 30, 1998, the Fund reported a 2.64%
cumulative total return, exclusive of sales load. The benchmark for the Fund,
the Merrill Lynch One Year U.S. Treasury Bill Index, returned 2.80% for the same
time period. Overall, the Fund slightly underperformed its benchmark, however,
we are pleased with this performance in a flat interest rate environment. We
shifted portfolio allocation to corporate bonds and lengthened the average
portfolio duration of the Fund to take advantage of higher income, which
contributed to the Fund's performance.
The flat interest rate environment caused price appreciation to become less of
a factor in overall performance, making income more important. As a result, we
applied strategies to maintain high income within the Fund. For example, as
corporate bond interest rate spreads widened compared to treasuries interest
rate spreads, we increased our exposure to higher yielding bonds, particularly
corporate bonds.
PORTFOLIO REVIEW
The Fund is managed with a total return strategy that attempts to balance
reasonable risk with competitive income and capital appreciation. Investment
quality, maturity and duration are carefully examined as the Fund's managers
employ a top-down approach. This approach involves analyzing factors such as
where inter-
19
<PAGE>
Short-Term Government-Corporate Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
est rates are headed and what moves the Federal Reserve Board might make. The
Fund's management team has extensive experience in the bond market and is able
to respond quickly to economic conditions and market events, allowing the Fund
to capture current income consistent with prudent risk.
PORTFOLIO ALLOCATION
(as of June 30, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash 7%
Treasury Notes 14%
Federal Agencies 39%
Corporate Bonds 40%
</TABLE>
Currently, 40% of the portfolio is invested in corporate bonds in an attempt
to capture higher yields and capital appreciation. In addition, we allocated 14%
to U.S. Treasury notes in order to maintain liquidity for Fund redemptions and
portfolio changes.
Many of the securities in the top ten holdings were acquired during the Fund's
growth phase and contributed to its growth. First Chicago Corporation is an
example of a higher yielding corporate bond that contributed to the Fund's
income level. Overall, these bonds have longer durations, which helps to
maximize the Fund's income potential but which also increases the Fund's
volatility in a changing interest rate environment.
TOP 10 HOLDINGS (as of June 30, 1998)
<TABLE>
<CAPTION>
NAME/COUPON % OF PORTFOLIO
<S> <C>
FNMA, 5.83% 15.8%
U.S. T-NOTE, 5.63% 10.3%
FHLB, 5.81% 7.9%
FNMA, 5.71% 7.9%
FNMA, 5.43% 7.9%
FIRST CHICAGO CORP., 9.88% 4.1%
DONNELLEY & SONS, 7.96% 4.1%
ASSOCIATES CORP., 8.00% 4.1%
SEARS ROEBUCK CO., 8.45% 4.0%
SOCIETE GENERALE, 5.92% 4.0%
</TABLE>
We extended the Fund's duration slightly. This positioning kept the Fund
competitive and provided consistent income and a strong performance.
As the Fund is closed to new purchases, we thank you for your investment in
the Stagecoach Short-Term Government-Corporate Income Fund and hope you have
20
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Term Government-Corporate Income Fund
- ------------------------------------------------------------------------
found an alternative investment within the Stagecoach Family of Funds.
Currently, we offer over 30 mutual funds and we are confident that your
financial consultant can assist you in selecting a Stagecoach Fund to meet your
investment needs.
1 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 use a uniform method to obtain yield figures for their non-money
market Fund's 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.
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.
21
<PAGE>
Short-Term Government-Corporate Income Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND
GROWTH OF A $10,000 INVESTMENT
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MERRILL LYNCH ONE YEAR U.S. TREASURY BILL
STAGECOACH SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND INDEX
<S> <C> <C>
Inception $9,700 $10,000
Sep-94 $9,714 $10,015
Oct-94 $9,744 $10,054
Nov-94 $9,696 $10,049
Dec-94 $9,727 $10,083
Jan-95 $9,837 $10,184
Feb-95 $9,962 $10,273
Mar-95 $9,995 $10,333
Apr-95 $10,059 $10,392
May-95 $10,129 $10,485
Jun-95 $10,181 $10,545
Jul-95 $10,229 $10,597
Aug-95 $10,279 $10,648
Sep-95 $10,311 $10,692
Oct-95 $10,384 $10,756
Nov-95 $10,457 $10,820
Dec-95 $10,510 $10,881
Jan-96 $10,602 $10,950
Feb-96 $10,585 $10,963
Mar-96 $10,592 $10,993
Apr-96 $10,619 $11,031
May-96 $10,648 $11,071
Jun-96 $10,696 $11,130
Jul-96 $10,746 $11,172
Aug-96 $10,774 $11,224
Sep-96 $10,844 $11,301
Oct-96 $10,939 $11,384
Nov-96 $10,989 $11,440
Dec-96 $11,018 $11,479
Jan-97 $11,070 $11,536
Feb-97 $11,118 $11,578
Mar-97 $11,129 $11,607
Apr-97 $11,206 $11,676
May-97 $11,284 $11,748
Jun-97 $11,338 $11,817
Jul-97 $11,417 $11,902
Aug-97 $11,427 $11,939
Sep-97 $11,504 $12,003
Oct-97 $11,582 $12,069
Nov-97 $11,612 $12,105
Dec-97 $11,669 $12,162
Jan-98 $11,748 $12,241
Feb-98 $11,776 $12,272
Mar-98 $11,809 $12,335
Apr-98 $11,864 $12,393
May-98 $11,921 $12,443
Jun-98 $11,977 $12,503
</TABLE>
The accompanying chart compares the performance of the Stagecoach Short-Term
Government-Corporate Income Fund since inception with the Merrill Lynch One Year
U.S. Treasury Bill Index. The chart assumes a hypothetical $10,000 initial
investment and reflects all operating expenses and assumes the maximum initial
sales charge of 3.00%. The Merrill Lynch One Year U.S. Treasury Bill Index is an
unmanaged index while the Fund is a professionally managed mutual fund. The
Index presented here does not incur expenses and is not available directly for
investment. Had this Index incurred operating expenses, its performance would
have been lower.
22
<PAGE>
PERFORMANCE AT A GLANCE Short-Term Government-Corporate Income Fund
- ------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (AS OF JUNE 30, 1998)
EXCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE
YEAR-TO- 1- 3- 9/19/94
DATE YEAR YEAR INCEPTION
<S> <C> <C> <C> <C>
CLASS A 2.64 5.64 5.56 5.72
</TABLE>
INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE
YEAR-TO- 1- 3- 9/19/94
DATE YEAR YEAR INCEPTION
<S> <C> <C> <C> <C>
CLASS A (0.36) 2.55 4.53 4.90
</TABLE>
Performance shown for the Short-Term Government-Corporate Income Fund reflects
performance of the shares of the Overland Short-Term Government-Corporate Income
Fund, a predecessor portfolio with the same investment objective and policies as
the Stagecoach Fund.
Average annual returns represent the average annual change in value of an
investment over the indicated periods assuming reinvestment of dividends and
capital gains distributions. 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. Figures quoted represent past
performance, which is no guarantee of future results.
The Fund's manager has voluntarily waived all or a portion of its management
fees or assumed responsibility for other expenses, which reduces operating
expenses and increases total return to shareholders. Without these reductions
the Fund's returns would have been lower. There is no guarantee that these
reductions will continue.
The maximum front-end sales charge is 3.00%.
23
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
24
<PAGE>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND
The Stagecoach U.S. Government Income Fund (the "Fund") seeks to achieve a
long-term rate of total return through preserving capital and earning high
interest income. The Fund has the ability to invest in mortgage-backed
securities guaranteed by the U.S. Government, providing the stability of a high
credit quality portfolio.
Please note that we have changed the Fund's fiscal year-end to June 30 from
December 31. We have made this change to improve our reporting process. This
change will not impact the performance or objective of your investment. Because
of the new year-end, this report is the second annual report we have sent you
over the last six months. Our discussions will focus on the most recent period,
although we may also comment on longer-term performance.
Paul Single and Scott Smith are co-managers of the U.S. Government Income
Fund. Managing fixed income portfolios for Wells Fargo Bank since 1988, Mr.
Single specializes in asset-backed securities and fixed income investing. Mr.
Smith has 12 years of experience in the securities industry with a specialty in
intermediate corporate and government bonds. Together, they bring fixed income
expertise to the Fund.
PERFORMANCE SUMMARY
During the six-month reporting period, the Stagecoach U.S. Government Income
Fund's Class A net asset value increased from $10.88 on December 31, 1997, to
$10.93 on June 30, 1998. The Fund distributed $0.30 per share in dividend income
and no capital gains have been distributed by the Fund. Keep in mind that past
distributions are not predictive of future trends as distributions will vary
based on Fund portfolio earnings.
The Fund's distribution rate for the period ending June 30, 1998 was 5.24%,
based on an annualization of June's monthly dividend of $0.050 per share and the
maximum offering price of $11.45 on June 30, 1998. Past performance is no
guarantee of future results.
25
<PAGE>
U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
PORTFOLIO DATA(1) (as of June 30, 1998)
<TABLE>
<S> <C>
NUMBER OF ISSUES 77
PORTFOLIO TURNOVER RATIO 245%
WEIGHTED AVERAGE COUPON 7.15%
WEIGHTED AVERAGE MATURITY 22.00 years
AVERAGE CREDIT QUALITY AAA
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 10.93 10.76 10.76
DISTRIBUTION RATE 5.24% 4.80% 4.80%
SEC YIELD 5.18% 4.72% 4.73%
Please refer to important disclosures on pages 28 and 29.
</TABLE>
For the six months ended June 30, 1998, the Fund reported Class A share
returns of 3.23%, exclusive of sales charges, and the Institutional Class shares
returned 3.32%. The Fund underperformed its benchmark, the Lehman Brothers U.S.
Government Long Bond Index. This index returned 6.25% over the same period.
Compared to the benchmark index, we extended the Fund's duration due to the flat
interest rate environment. As the yield curve flattened, the Fund's long-term
Treasuries offered some gains for the Fund. In an attempt to manage prepayment
risk, we added longer Treasuries and purchased lower coupon mortgages, which
were less susceptible to refinancing. These strategic moves contributed to the
Fund's performance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 87%
U.S. Treasury Bonds 7%
U.S. Treasury Notes 2%
Cash 4%
</TABLE>
PORTFOLIO REVIEW
The Fund is managed with a total return strategy that balances reasonable risk
with competitive income and capital preservation. The Fund's portfolio managers
carefully review investment quality, maturity and duration in an attempt to
provide consistent income and strong performance over time. With an expertise in
the economic factors that can affect mortgage-backed securities, the Fund's
portfolio managers employ a top-down approach and closely manage duration to
provide stability and high-interest income for the Fund.
26
<PAGE>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
Overall, we have taken a conservative approach to the Fund's portfolio, which
is part of our total return strategy. As of June 30, 1998, the Fund had invested
87% of its assets in federal agency securities, some of which are backed by the
full faith and credit of the U.S. Government, which has never defaulted on
interest or principal payments. As with all mutual funds, the Fund is neither
insured nor guaranteed by the U.S. Government or any of its agencies. This
investment-grade portfolio helps the Fund provide regular income, preserve
capital and maintain liquidity.
In addition, the Fund does not own any exotic securities, such as
interest-only and principal-only bonds, as these types of bonds tend to exhibit
increased price volatility. The Fund is managed with a total return strategy
that balances reasonable risk with competitive income, capital preservation, as
well as the potential for capital appreciation, and these securities do not meet
our standards. We attempt to purchase higher quality issues to better maintain
the Fund's share price stability.
As of June 30, 1998, the portfolio was heavily weighted in mortgage-backed
securities, which represented 73% of the Fund's assets. This allocation could
change, however, depending on the direction of the U.S. economy, specifically
interest rates. Based on our management style, we search for bonds based on
their value and expected performance. In addition, we continually examine our
mortgage-backed and Treasury exposure. For example, if we think that interest
rates will decline, we will reduce our exposure to mortgage-backed bonds and
increase our Treasury exposure. This is done primarily to manage prepayment risk
and lengthen the Fund's duration by purchasing longer Treasuries.
Given the low interest rate environment, we positioned the Fund with a
slightly longer duration than the benchmark. We have also maintained the average
coupon of mortgage-backed securities at 6 7/8% to capture opportunities for high
income. The addition of Treasuries with longer durations also helped the Fund's
performance by adding the potential for capital
27
<PAGE>
U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
appreciation within this interest rate environment. Longer durations also,
however, increase the Fund's volatility in a changing interest rate environment.
TOP 10 HOLDINGS (as of June 30, 1998)
<TABLE>
<CAPTION>
NAME/COUPON % OF PORTFOLIO
<S> <C>
FNMA, 5.75% 6.0%
U.S. T-BOND, 10.38% 5.4%
GNMA POOL #467791, 7.50% 4.1%
FNMA TBA, 7.00% 4.1%
FNMA POOL #251615, 7.50% 4.1%
FNMA POOL #251700, 6.50% 4.1%
FNMA POOL #430194, 7.00% 4.1%
FNMA, 5.63% 4.0%
FNMA POOL #251759, 6.00% 4.0%
FNMA POOL #430040, 6.50% 4.0%
</TABLE>
STRATEGIC OUTLOOK
The Asian crisis may cause further effects such as a growing strength of the
U.S. dollar and a slowing of inflation. As a result, we believe that while the
nation's economy continues to be healthy, it may eventually weaken over time. We
also feel that interest rates may drift lower and short-term rates will remain
stable without much interference this year from the Federal Reserve Board.
As a result, we intend to maintain the Fund at its current positioning with a
bias toward longer duration. This will help us continue to capture the potential
for income and capital appreciation. Should interest rates continue to drop, we
will also increase our exposure to U.S. Treasury securities and decrease our
exposure to mortgage-backed securities. As always, we will closely monitor the
Fund's NAV as we seek to ensure a balance between income, stability and price
appreciation.
1 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 use a uniform method to obtain yield
28
<PAGE>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
figures 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.
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.
Past performance is no guarantee of future results.
29
<PAGE>
U.S. Government Income Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND
GROWTH OF A $10,000 INVESTMENT
Class A and Institutional Class shares
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH U.S. GOVERNMENT LEHMAN BROTHERS U.S. GOVERNMENT STAGECOACH U.S. GOVERNMENT
INCOME FUND CLASS A SHARES LONG BOND INDEX INCOME FUND INSTITUTIONAL CLASS SHARES
<S> <C> <C> <C>
Inception $9,550 $10,000 $10,000
Apr-88 $9,550 $9,820 $10,000
May-88 $9,499 $9,669 $9,947
Jun-88 $9,716 $10,079 $10,174
Jul-88 $9,691 $9,877 $10,148
Aug-88 $9,696 $9,919 $10,153
Sep-88 $9,945 $10,291 $10,414
Oct-88 $10,065 $10,605 $10,540
Nov-88 $9,920 $10,367 $10,387
Dec-88 $9,860 $10,503 $10,324
Jan-89 $10,036 $10,727 $10,509
Feb-89 $9,960 $10,506 $10,429
Mar-89 $9,965 $10,619 $10,435
Apr-89 $10,146 $10,890 $10,624
May-89 $10,463 $11,293 $10,956
Jun-89 $10,772 $11,942 $11,279
Jul-89 $10,987 $12,224 $11,504
Aug-89 $10,800 $11,896 $11,309
Sep-89 $10,879 $11,931 $11,392
Oct-89 $11,174 $12,411 $11,701
Nov-89 $11,287 $12,526 $11,819
Dec-89 $11,321 $12,502 $11,854
Jan-90 $11,206 $12,047 $11,734
Feb-90 $11,257 $12,011 $11,788
Mar-90 $11,286 $11,959 $11,818
Apr-90 $11,169 $11,666 $11,695
May-90 $11,564 $12,214 $12,109
Jun-90 $11,755 $12,499 $12,309
Jul-90 $11,889 $12,616 $12,449
Aug-90 $11,557 $12,076 $12,102
Sep-90 $11,689 $12,215 $12,240
Oct-90 $11,893 $12,499 $12,454
Nov-90 $12,242 $13,026 $12,819
Dec-90 $12,473 $13,285 $13,060
Jan-91 $12,681 $13,445 $13,279
Feb-91 $12,744 $13,509 $13,345
Mar-91 $12,759 $13,562 $13,360
Apr-91 $12,910 $13,734 $13,518
May-91 $12,937 $13,723 $13,547
Jun-91 $12,865 $13,620 $13,471
Jul-91 $13,094 $13,834 $13,711
Aug-91 $13,491 $14,314 $14,127
Sep-91 $13,878 $14,766 $14,532
Oct-91 $13,893 $14,790 $14,548
Nov-91 $13,922 $14,870 $14,578
Dec-91 $14,728 $15,770 $15,422
Jan-92 $14,327 $15,274 $15,003
Feb-92 $14,357 $15,368 $15,034
Mar-92 $14,244 $15,202 $14,915
Apr-92 $14,240 $15,185 $14,911
May-92 $14,622 $15,616 $15,311
Jun-92 $14,812 $15,836 $15,510
Jul-92 $15,255 $16,500 $15,973
Aug-92 $15,370 $16,614 $16,094
Sep-92 $15,528 $16,865 $16,260
Oct-92 $15,275 $16,510 $15,995
Nov-92 $15,364 $16,586 $16,088
Dec-92 $15,650 $17,046 $16,388
Jan-93 $15,935 $17,532 $16,686
Feb-93 $16,236 $18,128 $17,001
Mar-93 $16,284 $18,171 $17,051
Apr-93 $16,377 $18,306 $17,149
May-93 $16,411 $18,366 $17,184
Jun-93 $16,841 $19,148 $17,634
Jul-93 $16,951 $19,470 $17,750
Aug-93 $17,355 $20,270 $18,173
Sep-93 $17,452 $20,337 $18,274
Oct-93 $17,502 $20,488 $18,326
Nov-93 $17,238 $19,957 $18,050
Dec-93 $17,319 $20,019 $18,136
Jan-94 $17,546 $20,497 $18,372
Feb-94 $17,196 $19,657 $18,007
Mar-94 $16,755 $18,792 $17,544
Apr-94 $16,602 $18,569 $17,385
May-94 $16,580 $18,440 $17,361
Jun-94 $16,491 $18,260 $17,268
Jul-94 $16,814 $18,884 $17,606
Aug-94 $16,807 $18,739 $17,599
Sep-94 $16,473 $18,147 $17,249
Oct-94 $16,387 $18,079 $17,159
Nov-94 $16,335 $18,193 $17,105
Dec-94 $16,486 $18,472 $17,263
Jan-95 $16,808 $18,952 $17,600
Feb-95 $17,184 $19,494 $17,994
Mar-95 $17,252 $19,663 $18,065
Apr-95 $17,493 $20,011 $18,318
May-95 $18,243 $21,554 $19,103
Jun-95 $18,470 $21,806 $19,340
Jul-95 $18,327 $21,452 $19,190
Aug-95 $18,569 $21,932 $19,444
Sep-95 $18,778 $22,340 $19,663
Oct-95 $19,072 $22,963 $19,971
Nov-95 $19,387 $23,552 $20,301
Dec-95 $19,671 $24,180 $20,598
Jan-96 $19,806 $24,173 $20,740
Feb-96 $19,148 $23,001 $20,050
Mar-96 $18,934 $22,547 $19,826
Apr-96 $18,716 $22,169 $19,598
May-96 $18,654 $22,053 $19,533
Jun-96 $18,840 $22,527 $19,728
Jul-96 $18,887 $22,539 $19,777
Aug-96 $18,880 $22,252 $19,770
Sep-96 $19,127 $22,873 $20,028
Oct-96 $19,549 $23,775 $20,470
Nov-96 $19,880 $24,573 $20,817
Dec-96 $19,650 $23,979 $20,576
Jan-97 $19,718 $23,806 $20,648
Feb-97 $19,716 $23,820 $20,646
Mar-97 $19,494 $23,213 $20,413
Apr-97 $19,766 $23,777 $20,697
May-97 $19,948 $24,043 $20,888
Jun-97 $20,170 $24,510 $21,120
Jul-97 $20,596 $25,951 $21,566
Aug-97 $20,483 $25,235 $21,448
Sep-97 $20,765 $25,921 $21,743
Oct-97 $21,032 $26,792 $22,023
Nov-97 $21,081 $27,151 $22,074
Dec-97 $21,364 $27,604 $22,365
Jan-98 $21,610 $28,159 $22,623
Feb-98 $21,582 $27,962 $22,589
Mar-98 $21,641 $28,021 $22,650
Apr-98 $21,697 $28,127 $22,723
May-98 $21,914 $28,665 $22,942
Jun-98 $22,055 $29,330 $23,106
</TABLE>
THE RETURNS FOR CLASS B AND CLASS C SHARES OF THE U.S. GOVERNMENT INCOME FUND
WILL VARY FROM THE RESULTS SHOWN DUE TO DIFFERENT EXPENSES AND LOAD STRUCTURES.
The accompanying chart compares the performance of the Stagecoach U.S.
Government Income Fund Class A and Institutional Class shares since inception
with the Lehman Brothers U.S. Government Long Bond Index. The chart assumes a
hypothetical $10,000 initial 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 Lehman Brothers U.S. Government Long
Bond Index is comprised of publicly issued long-term government debt securities
and has an average maturity of 23-25 years while the Fund is a professionally
managed mutual fund. The Index presented here does not incur expenses and is not
available directly for investment. Had this Index incurred operating expenses,
its performance would have been lower.
30
<PAGE>
PERFORMANCE AT A GLANCE U.S. Government Income Fund
- ------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (as of June 30, 1998)
EXCLUDING SALES CHARGE
<TABLE>
<CAPTION>
YEAR-TO- 1- 5- 10-
DATE YEAR YEAR YEAR
<S> <C> <C> <C> <C>
CLASS A 3.23 9.35 5.54 8.54
CLASS B 2.98 8.33 4.70 7.83
CLASS C 2.88 8.33 4.70 7.83
INSTITUTIONAL
CLASS 3.32 9.40 5.55 8.55
</TABLE>
INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
YEAR-TO- 1- 5- 10-
DATE YEAR YEAR YEAR
<S> <C> <C> <C> <C>
CLASS A (1.39) 4.48 4.57 8.05
CLASS B (2.02) 3.33 4.41 7.83
CLASS C 1.88 7.33 4.70 7.83
INSTITUTIONAL
CLASS N/A N/A N/A N/A
</TABLE>
Performance shown for the Class A, Class B, Class C and Institutional Class
shares of certain of the Stagecoach Funds reflects performance of a class of
shares of a predecessor fund. Complete historical information about any
Stagecoach Fund can be found in such Fund's prospectus and statement of
additional information.
The Fund's manager has voluntarily waived all or a portion of its management
fees or assumed responsibility for other expenses, which reduces operating
expenses and increases total return to shareholders. Without these reductions
the Fund's returns would have been lower. There is no guarantee that these
reductions will continue.
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
contingent deferred sales charge for Class C shares is 1.00%. Class B and Class
C share performance with sales charge assumes the maximum contingent deferred
sales charge for the corresponding time period.
31
<PAGE>
Variable Rate Government Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
The Stagecoach Variable Rate Government Fund (the "Fund") seeks to earn a high
level of current income, while reducing principal volatility by investing
primarily in adjustable rate mortgage securities (ARMs) issued or guaranteed by
the U.S. Government, its instrumentalities or agencies. The Fund is managed to
achieve high monthly income while reducing principal volatility.
Please note that we have changed the Fund's fiscal year-end to June 30 from
December 31. We have made this change to improve our reporting process. This
change will not impact the performance or objective of your investment. Because
of the new year-end, this report is the second annual report we have sent you
over the last six months. Our discussions will focus on the most recent period,
although we may also comment on longer-term performance.
Paul Single and Scott Smith are co-managers of the Variable Rate Government
Fund. Managing fixed income portfolios for Wells Fargo Bank since 1988, Mr.
Single specializes in asset-backed securities and fixed income investing. Mr.
Smith has 12 years of experience in the securities industry with a specialty in
intermediate corporate and government bonds. Together, they bring fixed income
expertise to the Fund.
PERFORMANCE SUMMARY
During the six-month reporting period, the Stagecoach Variable Rate Government
Fund's Class A share net asset value decreased from $9.23 on December 31, 1997,
to $9.19 on June 30, 1998. The Fund distributed $0.24 per share in dividend
income, and no capital gains were distributed from the Fund. Keep in mind that
past distributions are not predictive of future trends as distributions will
vary based on Fund portfolio earnings.
The Fund's distribution rate for the period ending June 30, 1998 for Class A
shares was 4.84%, based on an annualization of June's monthly dividend of
$0.0382 per share and the maximum offering price of $9.47 on June 30, 1998.
32
<PAGE>
INVESTMENT ADVISOR COMMENTARY Variable Rate Government Fund
- ------------------------------------------------------------------------
PORTFOLIO DATA(1) (as of June 30, 1998)
<TABLE>
<S> <C>
NUMBER OF ISSUES 27
PORTFOLIO TURNOVER RATIO 45%
WEIGHTED AVERAGE COUPON 6.99%
WEIGHTED AVERAGE MATURITY 21.07 years
AVERAGE CREDIT QUALITY AG4
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS C
<S> <C> <C>
NAV 9.19 13.79
DISTRIBUTION RATE 4.84% 4.50%
SEC YIELD 5.23% 4.89%
Please refer to important disclosures on page 35.
</TABLE>
During the six months ended June 30, 1998, Class A shares of the Fund returned
2.16%, exclusive of sales charges. The Fund lagged its benchmark, the Lehman
Brothers ARMs Index, which returned 3.94% for the same time period. The
performance of the ARM Index was largely driven by the performance of a
particular sector called the 11th District Cost of Funds Index (COFI) sector. We
chose to be underweighted in this sector due to significant illiquidity and
uncertainty regarding the future of the index. The 11th District COFI is the
funding cost of all savings and loans in the 11th District, which is comprised
of Arizona, California, and Nevada. Since most of the larger savings and loans
in this district have been bought by savings and loans in other districts, there
is significant uncertainty regarding the future of this benchmark. As a result,
the ARM's tied to this index have substantially reduced liquidity.
PORTFOLIO REVIEW
The Fund's managers employ a top-down strategy, examining overall economic
conditions and interest rate movements. Utilizing this information, the Fund's
portfolio allocation and duration is managed on an ongoing basis. The Fund's
management team has extensive experience in the ARMs market and is able to
quickly respond to economic conditions and market events.
With our extensive experience in the ARMs market, we were able to respond
quickly to the economic
33
<PAGE>
Variable Rate Government Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
changes and interest rate environment, allowing the Fund to capture income
consistent with prudent risk. As of June 30, 1998, we decreased overall exposure
to ARMs within the portfolio to 74.9%, due to the current low-interest rate
environment. In this environment, ARMs have a significant amount of prepayment
risk. As a defensive measure, we maintained a significant portion of seasoned
ARMs. These are older ARMs, which although they experience periods of lower
interest rates, did not have a high rate of prepayment. While this allocation
may slightly reduce income, the steps we have taken should help to maintain
overall stability during this period of low interest rates.
PORTFOLIO ALLOCATION
(as of June 30, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
ARMS: FNMA 22.1%
FHLMC 21.6%
GNMA 31.2%
CMOs: FHLMC 8.6%
Treasury Notes 16.0%
Cash Equivalent 0.5%
</TABLE>
The bonds selected in the top ten holdings help maintain our strategy to
manage prepayment risk. Overall, these securities have minimal prepayment risk
and provide solid diversification, which may help to reduce principal volatility
and maximize the Fund's income potential. We have the ability to invest in a
broad range of mortgage securities, which provide additional diversification
within the ARMs market.
TOP 10 HOLDINGS (as of June 30, 1998)
<TABLE>
<CAPTION>
NAME/COUPON % OF PORTFOLIO
<S> <C>
FHLMC POOL #846150, 7.75% 7.4%
FNMA POOL #323186, 7.73% 7.0%
GNMA II #8121, 6.87% 6.5%
FHLMC REMIC, 6.50% 6.1%
FHLMC POOL #846569, 7.27% 6.1%
FNMA POOL #66397, 6.27% 5.5%
FHLMC POOL #610303, 7.71% 5.2%
GNMA II POOL #8076, 7.00% 5.0%
U.S. T-BOND, 5.50% 4.8%
GNMA II POOL #8303, 7.00% 4.7%
</TABLE>
STRATEGIC OUTLOOK
The Asian crisis may cause further effects such as a growing strength of the
U.S. dollar and a slowing of inflation. As a result, we may continue to see
cheaper
34
<PAGE>
INVESTMENT ADVISOR COMMENTARY Variable Rate Government Fund
- ------------------------------------------------------------------------
imports, which will contribute further to lower inflation. Given this, we
believe that while the nation's economy continues to be healthy, it may
eventually weaken over time with interest rates drifting lower and short-term
rates remaining stable. Based on this outlook, we will continue our strategy of
managing prepayment risk by further reducing the Fund's exposure to ARMs. Should
interest rates remain low or continue to drift lower, we will continue these
steps to help reduce principal volatility and maximize the Fund's income
potential.
1 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 use a uniform method to obtain yield figures 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.
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.
35
<PAGE>
Variable Rate Government Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
GROWTH OF A $10,000 INVESTMENT
Class A Shares
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH VARIABLE RATE LEHMAN BROTHERS
GOVERNMENT FUND CLASS A SHARES ARMS INDEX
<S> <C> <C>
Inception $9,700 $10,000
Nov-90 $9,878 $10,086
Dec-90 $9,967 $10,197
Jan-91 $10,085 $10,291
Feb-91 $10,184 $10,360
Mar-91 $10,220 $10,432
Apr-91 $10,271 $10,527
May-91 $10,384 $10,587
Jun-91 $10,395 $10,635
Jul-91 $10,454 $10,719
Aug-91 $10,533 $10,847
Sep-91 $10,620 $10,947
Oct-91 $10,675 $11,057
Nov-91 $10,739 $11,163
Dec-91 $10,825 $11,309
Jan-92 $10,876 $11,381
Feb-92 $10,916 $11,409
Mar-92 $10,933 $11,364
Apr-92 $10,993 $11,487
May-92 $11,061 $11,590
Jun-92 $11,128 $11,711
Jul-92 $11,192 $11,762
Aug-92 $11,245 $11,862
Sep-92 $11,273 $11,927
Oct-92 $11,232 $11,829
Nov-92 $11,259 $11,846
Dec-92 $11,282 $11,958
Jan-93 $11,337 $12,080
Feb-93 $11,413 $12,186
Mar-93 $11,465 $12,241
Apr-93 $11,508 $12,313
May-93 $11,539 $12,343
Jun-93 $11,628 $12,472
Jul-93 $11,695 $12,530
Aug-93 $11,759 $12,605
Sep-93 $11,790 $12,607
Oct-93 $11,797 $12,612
Nov-93 $11,779 $12,578
Dec-93 $11,831 $12,673
Jan-94 $11,896 $12,758
Feb-94 $11,876 $12,717
Mar-94 $11,797 $12,616
Apr-94 $11,729 $12,549
May-94 $11,636 $12,539
Jun-94 $11,652 $12,567
Jul-94 $11,645 $12,644
Aug-94 $11,677 $12,706
Sep-94 $11,623 $12,654
Oct-94 $11,586 $12,643
Nov-94 $11,440 $12,608
Dec-94 $11,380 $12,674
Jan-95 $11,482 $12,884
Feb-95 $11,587 $13,143
Mar-95 $11,673 $13,206
Apr-95 $11,739 $13,346
May-95 $11,847 $13,562
Jun-95 $11,871 $13,618
Jul-95 $11,937 $13,667
Aug-95 $11,994 $13,676
Sep-95 $12,039 $13,773
Oct-95 $12,108 $13,859
Nov-95 $12,215 $13,977
Dec-95 $12,255 $14,083
Jan-96 $12,348 $14,181
Feb-96 $12,335 $14,213
Mar-96 $12,308 $14,238
Apr-96 $12,332 $14,257
May-96 $12,359 $14,298
Jun-96 $12,440 $14,400
Jul-96 $12,470 $14,470
Aug-96 $12,527 $14,557
Sep-96 $12,623 $14,669
Oct-96 $12,672 $14,836
Nov-96 $12,747 $14,979
Dec-96 $12,796 $15,027
Jan-97 $12,857 $15,114
Feb-97 $12,917 $15,198
Mar-97 $12,968 $15,227
Apr-97 $13,071 $15,346
May-97 $13,148 $15,441
Jun-97 $13,224 $15,543
Jul-97 $13,272 $15,677
Aug-97 $12,272 $15,718
Sep-97 $13,341 $15,847
Oct-97 $13,413 $15,951
Nov-97 $13,429 $15,956
Dec-97 $13,491 $16,064
Jan-98 $13,522 $16,172
Feb-98 $13,563 $16,208
Mar-98 $13,626 $16,316
Apr-98 $13,671 $16,386
May-98 $13,741 $16,465
Jun-98 $13,783 $16,547
</TABLE>
THE RETURN FOR CLASS C SHARES OF THE VARIABLE RATE GOVERNMENT FUND WILL VARY
FROM THE RESULTS SHOWN DUE TO DIFFERENT EXPENSES AND SALES CHARGE.
The accompanying chart compares the performance of the Stagecoach Variable Rate
Government Fund Class A shares since inception with the Lehman Brothers ARMs
Index. The chart assumes a hypothetical $10,000 initial investment in Class A
shares and reflects all operating expenses and assumes the maximum initial sales
charge of 4.50%. The Lehman Brothers ARMs Index is an unmanaged index comprised
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.
The Index presented here does not incur expenses and is not available directly
for investment. Had this Index incurred operating expenses, its performance
would have been lower.
36
<PAGE>
PERFORMANCE AT A GLANCE Variable Rate Government Fund
- ------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS (as of June 30, 1998)
EXCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE
YEAR-TO- 1- 5- 11/1/90
DATE YEAR YEAR INCEPTION
<S> <C> <C> <C> <C>
CLASS A 2.16 4.22 3.46 4.69
CLASS C 1.76 4.08 2.99 4.22
</TABLE>
INCLUDING SALES CHARGE
<TABLE>
<CAPTION>
SINCE
YEAR-TO- 1- 5- 11/1/90
DATE YEAR YEAR INCEPTION
<S> <C> <C> <C> <C>
CLASS A (0.95) 1.07 2.83 4.27
CLASS C 0.77 3.09 2.99 4.22
</TABLE>
Performance shown for the Class A and Class C shares of the Stagecoach Variable
Rate Government Fund reflects performance of a predecessor portfolio with the
same investment objective and policies as the Stagecoach Variable Rate
Government Fund. Complete historical information about any Stagecoach Fund can
be found in such Fund's prospectus and statement of additional information. The
average credit rating 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,
endorsed, sold or promoted by these rating agencies and these rating agencies
make no representation regarding the advisability of investing in the Fund.
Average annual returns represent the average annual change in value of an
investment over the indicated periods assuming reinvestment of dividends and
capital gains distributions. 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. Figures quoted represent past
performance, which is no guarantee of future results.
The Fund's manager has voluntarily waived all or a portion of its management
fees or assumed responsibility for other expenses, which reduces operating
expenses and increases total return to shareholders. Without these reductions
the Fund's returns would have been lower.
For Class A shares, the maximum front-end sales charge is 4.50%. The maximum
contingent deferred sales charge for Class C shares is 1.00%. Class C share
performance with sales charge assumes the maximum contingent deferred sales
charge for the corresponding time period.
37
<PAGE>
Corporate Bond Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 6.57%
FOREIGN GOVERNMENTS - 6.57%
$ 100,000 Quebec Province 8.80 % 04/15/03 $ 110,438
130,000 Republic of Argentina 11.00 10/09/06 137,962
290,000 Republic of Poland++ 7.13 07/01/04 299,425
140,000 United Mexican States 8.63 03/12/08 135,275
--------------
TOTAL FOREIGN GOVERNMENTS $ 683,100
(Cost $691,800)
CORPORATE BONDS & NOTES - 76.70%
BANK & FINANCE - 22.08%
$ 300,000 American Telephone & Telegraph Capital
Corporation 6.60 % 05/15/05 $ 302,250
100,000 Associates Corporation of North America 6.73 09/30/02 103,045
300,000 Citicorp Capital II 8.02 02/15/27 334,875
100,000 Discover Credit Corporation 9.14 03/13/12 126,321
300,000 ERP Operating Limited Partnership++ 6.63 04/13/05 302,064
300,000 Ford Motor Credit Corporation 6.00 01/14/03 298,125
100,000 General Motors Acceptance Corporation 6.13 01/22/08 98,250
300,000 Household Finance Corporation 6.40 06/17/08 297,000
400,000 Nationsbank Corporation 7.25 10/15/25 434,000
--------------
$ 2,295,930
INDUSTRIALS - 26.21%
$ 300,000 Chrysler Corporation 7.45 % 02/01/2097 $ 326,625
200,000 CSC Holdings Incorporated 9.88 05/15/06 219,500
100,000 Dayton Hudson Corporation 7.25 09/01/04 105,250
150,000 Fort James Corporation 6.88 09/15/07 153,750
200,000 Frontiervision Operating Partners++ 11.00 10/15/06 221,500
100,000 International Business Machines 8.38 11/01/19 122,750
400,000 J.C. Penny & Company 7.65 08/15/16 442,500
200,000 News America Incorporated++ 6.70 05/21/04 202,228
</TABLE>
38
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 Corporate Bond Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
$ 250,000 News American Holdings Incorporated 9.25 % 02/01/13 $ 300,625
200,000 Owens-Illinois Incorporated 7.50 05/15/10 201,250
100,000 Raytheon Corporation 6.55 03/15/10 100,250
300,000 Time Warner Incorporated 8.11 08/15/06 329,250
--------------
$ 2,725,478
TELECOMMUNICATIONS - 10.31%
$ 100,000 Adelphia Communications Corporation++ 9.88 % 03/01/07 $ 108,250
300,000 Cable & Wireless Communications 6.75 03/06/08 303,750
100,000 Century Communications Corporation 8.88 01/15/07 106,000
300,000 Continental Cablevision 8.30 05/15/06 331,500
200,000 TCI Communications Incorporated 8.65 09/15/04 222,500
--------------
$ 1,072,000
TRANSPORTATION - 2.91%
$ 300,000 Union Pacific Corporation 6.63 % 02/01/08 $ 302,625
UTILITIES - 3.92%
$ 400,000 K N Energy Incorporated 6.80 % 03/01/08 $ 407,000
ENERGY & RELATED - 5.33%
$ 100,000 Noram Energy Corporation 6.50 % 02/01/08 $ 100,875
405,000 Occidental Petroleum Corporation 10.13 11/15/01 453,600
--------------
$ 554,475
FOOD & RELATED - 4.01%
$ 200,000 Marsh Supermarkets Incorporated++ 8.88 % 08/01/07 $ 204,500
200,000 Randalls Food Markets Incorporated 9.38 07/01/07 212,000
--------------
$ 416,500
</TABLE>
39
<PAGE>
Corporate Bond Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
HEALTHCARE - 1.93%
$ 200,000 Tenet Healthcare Corporation++ 8.13 % 12/01/08 $ 201,000
--------------
TOTAL CORPORATE BONDS & NOTES $ 7,975,008
(Cost $7,936,630)
U.S. TREASURY SECURITIES - 14.08%
U.S. TREASURY BONDS - 14.08%
$ 1,100,000 U.S. Treasury Bonds 6.13 % 11/15/27 $ 1,178,716
15,000 U.S. Treasury Bonds 8.75 08/15/20 20,630
170,000 U.S. Treasury Bonds 12.50 08/15/14 264,775
--------------
TOTAL U.S. TREASURY SECURITIES $ 1,464,121
(Cost $1,453,735)
SHORT-TERM INSTRUMENTS - 1.04%
REPURCHASE AGREEMENTS - 1.04%
$ 108,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75 % 07/01/98 $ 108,000
(Cost $108,000)
</TABLE>
40
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 Corporate Bond Fund
- ------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $10,190,165)* 98.39% $ 10,230,229
(Notes 1 and 3)
Other Assets and Liabilities, Net 1.61 166,993
------ --------------
TOTAL NET ASSETS 100.00% $ 10,397,222
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
++ THESE SECURITIES ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933.
ALL 144A PROGRAMS ARE EVALUATED FOR LIQUIDITY BASED UPON REVIEW OF THE
PROSPECTUS WHICH INDICATES THE PROBABLE REGISTRATION DATE AND WERE
DEEMED TO BE "LIQUID BY FUND MANAGEMENT." IN ADDITION, 144A SECURITIES
ARE FREQUENTLY TRADED PRIOR TO THE EFFECTIVE REGISTRATION DATE. ALL
144A SECURITIES CAN ONLY BE PURCHASED AND/OR SOLD TO QUALIFIED
INSTITUTIONAL BUYERS.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED APPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 64,890
Gross Unrealized Depreciation (24,826)
--------------
NET UNREALIZED APPRECIATION $ 40,064
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Short-Intermediate U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE
30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 2.26%
FOREIGN GOVERNMENTS - 2.26%
$ 1,300,000 Province of Ontario Global Bond 7.63 % 06/22/04 $ 1,412,125
1,500,000 Quebec Province 8.80 04/15/03 1,656,570
--------------
TOTAL FOREIGN GOVERNMENTS $ 3,068,695
(Cost $2,995,550)
CORPORATE BONDS & NOTES - 31.49%
BANK & FINANCE - 8.51%
$ 5,000,000 First Bank Corporate Card Master Trust 6.40 % 02/15/03 $ 5,133,950
500,000 First Chicago NBD Bancorp 8.10 03/01/02 531,250
1,000,000 General Motors Acceptance Corp 6.88 07/15/01 1,021,250
1,000,000 Midland Bank Plc 7.63 06/15/06 1,075,000
1,750,000 Norwest Corp 7.13 04/01/00 1,785,000
1,000,000 NYNEX Credit Co 6.25 06/13/02 1,003,790
1,000,000 Standard Credit Card Master Trust 8.35 01/07/00 1,008,850
--------------
$ 11,559,090
INDUSTRIALS - 1.87%
$ 1,000,000 Lockheed Martin Co 6.85 % 05/15/01 $ 1,020,000
1,500,000 Mobil Oil Corp 6.25 08/31/01 1,515,000
--------------
$ 2,535,000
MISCELLANEOUS BONDS - 17.21%
$ 1,675,000 American Home Products 7.70 % 02/15/00 $ 1,721,062
4,000,000 Anheuser-Busch Co 6.75 08/01/03 4,145,000
2,000,000 Cable & Wire Communications PLC 6.38 03/06/03 2,001,680
2,000,000 Continental Cablevision 8.30 05/15/06 2,210,000
2,000,000 Ford Motor Credit 8.00 06/15/02 2,132,500
4,000,000 Honeywell Inc 6.75 03/15/02 4,110,000
3,800,000 Norwest Financial Inc 6.38 09/15/02 3,838,798
2,000,000 Sears Roebuck MTN 6.36 12/04/01 2,019,340
1,150,000 Walt Disney Company 6.75 03/30/06 1,200,313
--------------
$ 23,378,693
</TABLE>
42
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 Short-Intermediate U.S. Government
Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
UTILITIES - 3.90%
$ 5,000,000 Pacific Gas & Electric Co 7.88 % 03/01/02 $ 5,300,000
--------------
TOTAL CORPORATE BONDS & NOTES $ 42,772,783
(Cost $41,937,618)
U.S. GOVERNMENT AGENCY SECURITIES - 44.58%
FEDERAL AGENCY - OTHER - 1.51%
$ 2,000,000 Tennessee Valley Authority 6.50 % 08/20/01 $ 2,046,240
FEDERAL HOME LOAN BANKS - 8.72%
$ 8,000,000 FHLB 5.53 % 01/15/03 $ 7,946,000
1,030,000 FHLB 8.45 07/26/99 1,059,437
2,760,000 FHLB 8.60 06/25/99 2,837,280
--------------
$ 11,842,717
FEDERAL HOME LOAN MORTGAGE CORPORATION - 12.48%
$ 4,000,000 FHLMC 6.49 % 07/16/02 $ 4,011,240
5,000,000 FHLMC 6.79 08/26/05 5,282,050
5,000,000 FHLMC 7.01 07/11/07 5,177,350
2,200,000 FHLMC 8.12 01/31/05 2,477,398
--------------
$ 16,948,038
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.98%
$ 2,900,000 FNMA 6.09 % 09/12/00 $ 2,898,173
5,000,000 FNMA 6.16 12/18/07 5,100,000
3,660,918 FNMA #313644+ 7.00 08/01/27 3,713,196
2,920,797 FNMA #50761 6.00 07/01/08 2,889,749
5,000,000 FNMA MTN 6.18 06/23/00 5,048,800
2,000,000 FNMA MTN 6.69 08/07/01 2,055,380
--------------
$ 21,705,298
</TABLE>
43
<PAGE>
Short-Intermediate U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE
30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.35%
$ 1,084,580 GNMA #336930+ 7.50 % 03/15/23 $ 1,116,218
1,301,695 GNMA #417389+ 7.00 05/15/26 1,322,990
1,477,364 GNMA #418261+ 6.50 04/15/26 1,474,129
1,782,716 GNMA #423779+ 7.00 05/15/26 1,811,115
171,464 GNMA II #157247+ 9.50 05/20/16 183,883
--------------
$ 5,908,335
REAL ESTATE MORTGAGE INVESTMENT CONDUITS - 0.07%
$ 87,203 FNMA 1993-G19+ 7.25 % 04/25/23 $ 92,298
FEDERAL FARM CREDIT BANK - 1.47%
$ 2,000,000 Federal Farm Credit Bank 5.75 % 02/09/05 $ 1,997,500
--------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 60,540,426
(Cost $60,174,296)
U.S. TREASURY SECURITIES - 18.25%
U.S. TREASURY BONDS - 2.47%
$ 2,500,000 U.S. Treasury Bonds 10.38 % 11/15/12 $ 3,347,650
U.S. TREASURY NOTES - 15.78%
$ 1,000,000 U.S. Treasury Notes 5.75 % 08/15/03 $ 1,010,620
4,750,000 U.S. Treasury Notes 5.88 09/30/02 4,809,375
5,000,000 U.S. Treasury Notes 5.88 11/15/05 5,095,300
2,250,000 U.S. Treasury Notes 6.75 04/30/00 2,297,452
4,000,000 U.S. Treasury Notes 7.88 11/15/04 4,492,480
3,500,000 U.S. Treasury Notes 8.50 11/15/00 3,728,585
--------------
$ 21,433,812
TOTAL U.S. TREASURY SECURITIES $ 24,781,462
(Cost $24,226,509)
</TABLE>
44
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 Short-Intermediate U.S. Government
Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 2.77%
REPURCHASE AGREEMENTS - 2.77%
$ 3,737,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75 % 07/01/98 $ 3,737,000
23,000 JP Morgan Securities Inc Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.65 07/01/98 23,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 3,760,000
(Cost $3,760,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $133,093,973)* 99.35% $ 134,923,366
(Notes 1 and 3)
Other Assets and Liabilities, Net 0.65 885,217
------ --------------
TOTAL NET ASSETS 100.00% $ 135,808,583
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
+ THESE VARIABLE RATE SECURITIES ARE SUBJECT TO A DEMAND FEATURE WHICH
REDUCES THE REMAINING MATURITY.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED APPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 2,261,133
Gross Unrealized Depreciation (431,740)
--------------
NET UNREALIZED APPRECIATION $ 1,829,393
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Short-Term Government-Corporate Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30,
1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES - 39.64%
BANK & FINANCE - 23.66%
$ 500,000 Associates Corporation North America 8.00 % 10/27/99 $ 512,205
500,000 Chase Manhattan Bank 5.88 08/04/99 500,000
500,000 GMAC 5.70 01/10/00 498,125
500,000 Morgan Stanley Guaranty 5.75 10/08/99 499,375
500,000 Societe Generale NY 5.92 10/16/98 500,100
500,000 Wachovia Bank NC 4.90 09/19/98 498,890
--------------
$ 3,008,695
MISCELLANEOUS BONDS - 15.98%
$ 500,000 Donnelley & Sons 7.96 % 11/08/99 $ 512,500
500,000 First Chicago Corporation 9.88 07/01/99 518,125
500,000 Sears Roebuck Co 8.45 11/01/98 503,760
500,000 Walt Disney Company 5.60 01/13/00 498,125
--------------
$ 2,032,510
TOTAL CORPORATE BONDS & NOTES $ 5,041,205
(Cost $5,076,935)
U.S. GOVERNMENT AGENCY SECURITIES - 39.33%
FEDERAL HOME LOAN BANKS - 7.87%
$ 1,000,000 FHLB 5.81 % 11/04/98 $ 1,000,940
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 31.46%
$ 1,000,000 FNMA MTN 5.43 % 01/27/00 $ 995,940
1,000,000 FNMA MTN 5.71 09/09/98 1,000,940
2,000,000 FNMA MTN 5.83 12/10/99 2,004,680
--------------
$ 4,001,560
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 5,002,500
(Cost $5,006,945)
</TABLE>
46
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 Short-Term Government-Corporate Income
Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. TREASURY SECURITIES - 13.59%
U.S. TREASURY NOTES - 13.59%
$ 1,300,000 U.S. Treasury Notes 5.63 % 12/31/99 $ 1,302,028
425,000 U.S. Treasury Notes 5.63 12/31/02 426,857
--------------
TOTAL U.S. TREASURY SECURITIES $ 1,728,885
(Cost $1,731,918)
SHORT-TERM INSTRUMENTS - 6.95%
CERTIFICATES OF DEPOSITS - 3.93%
$ 500,000 Royal Bank of Canada 5.82 % 08/25/98 $ 499,968
REPURCHASE AGREEMENTS - 3.02%
$ 384,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75 07/01/98 $ 384,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 883,968
(Cost $883,690)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $12,699,488)* 99.51% $ 12,656,558
(Notes 1 and 3)
Other Assets and Liabilities, Net 0.49 62,487
------ --------------
TOTAL NET ASSETS 100.00% $ 12,719,045
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 7,062
Gross Unrealized Depreciation (49,992)
--------------
NET UNREALIZED DEPRECIATION $ (42,930)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 91.77%
FEDERAL AGENCY - OTHER - 4.15%
$ 4,000,000 Tennessee Valley Authority 6.38 % 06/15/05 $ 4,138,760
5,000,000 Tennessee Valley Authority 6.75 11/01/25 5,529,700
--------------
$ 9,668,460
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.46%
$ 5,000,000 FHLMC 7.10 % 04/10/07 $ 5,433,600
2,515,145 FHLMC #G00683 8.50 12/01/25 2,625,384
--------------
$ 8,058,984
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 58.94%
$10,000,000 FNMA 5.63 % 03/15/01 $ 9,984,400
15,000,000 FNMA 5.75 02/15/08 14,929,650
5,000,000 FNMA #251906 7.50 06/01/28 5,128,850
3,884,865 FNMA #376272 7.00 02/01/12 3,955,569
6,937,143 FNMA #401994 6.50 11/01/27 6,909,950
3,382,625 FNMA #417768 6.50 03/01/28 3,369,365
449,151 FNMA #421867 6.50 04/01/28 447,391
6,146,395 FNMA #424815 6.50 04/01/28 6,122,301
5,017,335 FNMA #426032 7.50 06/01/28 5,146,632
9,900,000 FNMA #430040 6.50 06/01/28 9,861,192
9,900,000 FNMA #430194 7.00 06/01/28 10,041,372
6,953,091 FNMA #70765 9.00 03/01/21 7,404,555
9,850,927 FNMA POOL# 251615 7.50 04/01/28 10,104,785
10,001,673 FNMA POOL# 251700 6.50 04/01/13 10,059,182
9,081,930 FNMA POOL# 415789 6.00 05/01/28 8,841,350
10,010,098 FNMA POOL#251759 6.00 04/01/13 9,901,789
5,000,000 FNMA TBAl 6.50 07/01/28 4,979,700
10,000,000 FNMA TBAl 7.00 07/01/28 10,140,600
--------------
$ 137,328,633
</TABLE>
48
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 25.22%
$ 452,148 GNMA #0058 9.00 % 07/20/22 $ 482,510
479 GNMA #0070 12.00 01/20/99 494
2,132 GNMA #0116 12.00 04/20/99 2,199
278,333 GNMA #0864 6.50 02/20/08 281,793
162,456 GNMA #1168 9.00 04/20/19 173,704
168,554 GNMA #157247 9.50 05/20/16 180,762
126,464 GNMA #158583 9.00 09/20/16 135,114
509,080 GNMA #170928 9.00 09/20/16 541,055
328,309 GNMA #1740 9.00 12/20/21 350,562
19,883 GNMA #223618 10.00 01/15/19 21,770
310,369 GNMA #227132 9.00 07/20/17 329,863
1,356,774 GNMA #291124 7.50 06/15/25 1,387,302
3,355,089 GNMA #306052 9.00 06/15/21 3,607,660
1,996,781 GNMA #319413 7.25 12/15/18 2,029,847
964,072 GNMA #336930 7.50 03/15/23 992,194
1,207,889 GNMA #352961 6.50 05/15/24 1,210,111
2,170,483 GNMA #355528 8.50 04/15/27 2,175,909
1,899,578 GNMA #358863 7.25 01/15/29 1,931,035
1,577,222 GNMA #362589 6.88 01/15/29 1,587,569
3,703,828 GNMA #414636 7.50 10/15/25 3,809,535
1,828,009 GNMA #430800 7.00 05/15/26 1,857,915
3,756,915 GNMA #450871 8.00 05/15/27 3,893,629
9,900,001 GNMA #467791 7.50 04/15/28 10,179,478
5,940,000 GNMA #473573 6.50 06/15/28 5,928,655
32,414 GNMA #766 9.50 05/20/17 34,756
190,741 GNMA II #1236 9.50 08/20/19 204,433
800,799 GNMA II #1239 11.00 08/20/19 886,821
806,379 GNMA II #1273 9.50 10/20/19 864,261
194,445 GNMA II #1420 11.00 06/20/20 214,997
24,366 GNMA II #1436 10.00 07/20/20 26,508
174,198 GNMA II #1454 10.00 08/20/20 189,511
123,539 GNMA II #1456 11.00 08/20/20 136,897
265,512 GNMA II #1472 10.00 09/20/20 288,854
195,363 GNMA II #1526 10.00 12/20/20 212,639
196,376 GNMA II #1544 10.00 01/20/21 213,742
</TABLE>
49
<PAGE>
U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES (CONTINUED)
$ 98,546 GNMA II #1579 9.50 % 03/20/21 $ 105,605
1,121,643 GNMA II #1580 10.00 03/20/21 1,220,247
98,675 GNMA II #1596 9.00 04/20/21 105,455
922,896 GNMA II #1616 10.00 05/20/21 1,004,508
150,655 GNMA II #173 10.00 07/20/14 163,318
81,897 GNMA II #1848 10.00 06/20/22 89,139
2,334,229 GNMA II #2268 7.50 08/20/26 2,388,196
2,000,423 GNMA II #2303 7.50 10/20/26 2,046,673
362,108 GNMA II #340045 8.00 03/20/23 375,738
741,452 GNMA II #418627 8.50 11/20/25 779,325
28,160 GNMA II #495 10.00 02/20/16 30,555
3,588 GNMA II #60 10.00 12/20/13 3,881
78,818 GNMA II #811 8.00 02/20/23 81,785
3,941,844 GNMAII #2496 7.00 10/20/27 3,994,034
--------------
$ 58,752,543
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 213,808,620
(Cost $212,127,332)
U.S. TREASURY SECURITIES - 9.98%
U.S. TREASURY BONDS - 7.81%
$ 4,500,000 U.S. Treasury Bonds 6.13 % 11/15/27 $ 4,822,020
10,000,000 U.S. Treasury Bonds 10.38 11/15/12 13,390,600
--------------
$ 18,212,620
U.S. TREASURY NOTES - 2.17%
$ 5,000,000 U.S. Treasury Notes 5.75 % 04/30/03 $ 5,049,200
--------------
TOTAL U.S. TREASURY SECURITIES $ 23,261,820
(Cost $23,297,812)
SHORT-TERM INSTRUMENTS - 4.59%
U.S. TREASURY BILLS - 3.37%
$ 8,000,000 U.S. Treasury Bills 5.17 %F 11/12/98 7,849,920
</TABLE>
50
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS (CONTINUED)
REPURCHASE AGREEMENTS - 1.22%
$ 2,795,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75 % 07/01/98 $ 2,795,000
40,000 JP Morgan Securities Inc Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.65 07/01/98 40,000
--------------
$ 2,835,000
TOTAL SHORT-TERM INSTRUMENTS $ 10,684,920
(Cost $10,681,198)
</TABLE>
51
<PAGE>
U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $246,106,342)* 106.34% $ 247,755,360
(Notes 1 and 3)
Other Assets and Liabilities, Net (6.34) (14,781,194)
------ --------------
TOTAL NET ASSETS 100.00% $ 232,974,166
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
l PURCHASED ON A WHEN ISSUED BASIS. SEE NOTE 1.
F YIELD TO MATURITY.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED APPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 1,936,489
Gross Unrealized Depreciation (287,471)
--------------
NET UNREALIZED APPRECIATION $ 1,649,018
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1998 Variable Rate Government Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 94.26%
ADJUSTABLE RATE MORTGAGES - 80.10%
$ 8,564,269 FHLMC #610303+ 7.71 % 04/01/18 $ 8,830,533
4,515,274 FHLMC #755102 (CMT)+ 7.41 06/01/18 4,668,387
3,153,019 FHLMC #840118+ 7.96 09/01/18 3,290,964
22,196 FHLMC #845410 (CMT)+ 7.63 07/01/23 22,817
8,461 FHLMC #845613 (CMT)+ 8.00 01/01/24 8,744
11,813,945 FHLMC #846150 (CMT)+ 7.75 04/01/21 12,463,712
6,914,577 FHLMC #846602+ 7.62 04/01/27 7,183,596
6,980,736 FNMA #136014 (COFI)+ 5.93 05/01/18 6,923,843
7,090,458 FNMA #57733+ 6.15 02/01/17 7,112,651
3,025,033 FNMA #57775+ 6.19 05/01/18 3,035,440
9,228,905 FNMA #66397+ 6.27 03/01/18 9,259,176
11,172,839 FNMA POOL #323186+ 7.73 09/01/25 11,787,346
2,946,270 FNMA POOL #70611+ 7.46 08/01/20 3,101,421
4,950,000 GNMA II #80205+ 5.00 06/20/28 4,940,694
8,158,622 GNMA II #8076+ 7.00 11/20/22 8,353,694
10,685,844 GNMA II #8121 (CMT)+ 6.87 01/20/23 10,936,320
7,706,355 GNMA II #8303 (CMT)+ 7.00 10/20/23 7,889,381
5,632,245 GNMA II #8358 (CMT)+ 6.87 01/20/24 5,745,791
5,768,822 GNMA II #8443 (CMT)+ 7.37 06/20/24 5,899,543
6,826,930 GNMA II #8705 (CMT)+ 7.00 09/20/25 6,989,069
7,252,694 GNMA II POOL #8006+ 7.00 07/20/22 7,422,697
--------------
$ 135,865,819
REAL ESTATE MORTGAGE INVESTMENT CONDUITS - 14.16%
$ 3,295,848 FHLMC #1534 6.96 % 06/15/23 $ 3,485,359
10,016,536 FHLMC #846569 7.27 04/01/29 10,240,305
10,193,367 FHLMC 1991F 6.50 09/15/27 10,296,320
--------------
$ 24,021,984
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 159,887,803
(Cost $159,593,143)
U.S. TREASURY SECURITIES - 4.72%
U.S. TREASURY BONDS - 4.72%
$ 8,000,000 U.S. Treasury Bonds 5.50 % 03/31/00 $ 7,997,520
--------------
(Cost $7,988,750)
</TABLE>
53
<PAGE>
Variable Rate Government Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 0.37%
REPURCHASE AGREEMENTS - 0.37%
$ 58,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.75 % 07/01/98 $ 58,000
578,000 JP Morgan Securities Inc Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 5.65 07/01/98 578,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 636,000
(Cost $636,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $168,217,893)* 99.35% $ 168,521,323
(Notes 1 and 3)
Other Assets and Liabilities, Net 0.65 1,098,594
------ --------------
TOTAL NET ASSETS 100.00% $ 169,619,917
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
+ THESE VARIABLE RATE SECURITIES ARE SUBJECT TO A DEMAND FEATURE WHICH
REDUCES THE REMAINING MATURITY.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED APPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 943,927
Gross Unrealized Depreciation (640,497)
--------------
NET UNREALIZED APPRECIATION $ 303,430
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
55
<PAGE>
Income Funds STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE
BOND FUND
<S> <C>
ASSETS
INVESTMENTS:
In securities, at market value (see
cost below) $10,230,229
Cash 1,724
RECEIVABLES:
Interest 197,544
Fund shares sold 25,000
Investment securities sold 0
Due from administrator (Note 2) 8,387
Organization expenses, net of
amortization 0
Prepaid expenses 9,206
TOTAL ASSETS 10,472,090
LIABILITIES
Payables:
Investment securities purchased 0
Distribution to shareholders 47,635
Fund shares redeemed 0
Due to sponsor and distributor (Note
2) 3,732
Due to adviser (Note 2) 0
Other 23,501
TOTAL LIABILITIES 74,868
TOTAL NET ASSETS
$10,397,222
NET ASSETS CONSIST OF:
Paid-in capital $10,336,933
Undistributed(overdistributed) net
investment income 5,621
Undistributed net realized gain(loss)
on investments 14,604
Net unrealized appreciation of
investments 40,064
TOTAL NET ASSETS $10,397,222
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net assets - Class A(1) $ 5,503,115
Shares outstanding - Class A(1) 548,600
Net asset value per share - Class A(1) $ 10.03
Maximum offering price per share - Class
A(1) $ 10.50(2)
Net assets - Class B $ 4,594,613
Shares outstanding - Class B 457,972
Net asset value and offering price per
share - Class B $ 10.03
Net assets - Class C $ 299,494
Shares outstanding - Class C 29,865
Net asset value and offering price per
share - Class C $ 10.03
Net assets - Institutional Class N/A
Shares outstanding - Institutional Class N/A
Net asset value and offering price per
share - Institutional Class N/A
INVESTMENT AT COST(NOTE 3) $10,190,165
- --------------------------------------------------------
</TABLE>
(1) INCLUDES FUNDS WITH A SINGLE CLASS.
(2) 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.
(3) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/97 OF NET ASSET VALUE. ON
INVESTMENTS OF $100,000 OR MORE THE OFFERING PRICE IS REDUCED.
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1998 Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE SHORT-TERM
U.S. GOVERNMENT GOVERNMENT-CORPORATE U.S. GOVERNMENT VARIABLE RATE
INCOME FUND INCOME FUND INCOME FUND GOVERNMENT FUND
<S> <C> <C> <C> <C>
ASSETS
INVESTMENTS:
In securities, at market value (see
cost below) $ 134,923,366 $ 12,656,558 $ 247,755,360 $ 168,521,323
Cash 1,893 1,993 1,510 1,910
RECEIVABLES:
Interest 1,554,329 188,304 1,743,260 1,182,196
Fund shares sold 29,095 0 31,156 0
Investment securities sold 0 0 0 1,143,551
Due from administrator (Note 2) 0 0 0 0
Organization expenses, net of
amortization 6,244 32,264 0 0
Prepaid expenses 7,330 0 9,935 67
TOTAL ASSETS 136,522,257 12,879,119 249,541,221 170,849,047
LIABILITIES
Payables:
Investment securities purchased 0 0 15,110,938 0
Distribution to shareholders 495,875 59,443 1,042,495 726,499
Fund shares redeemed 1,499 0 28,094 94
Due to sponsor and distributor (Note
2) 44,955 15,348 151,475 279,577
Due to adviser (Note 2) 50,075 4,260 129,859 84,641
Other 121,270 81,023 104,194 138,319
TOTAL LIABILITIES 713,674 160,074 16,567,055 1,229,130
TOTAL NET ASSETS
$ 135,808,583 $ 12,719,045 $ 232,974,166 $ 169,619,917
NET ASSETS CONSIST OF:
Paid-in capital $ 150,010,176 $ 12,808,778 $ 248,138,327 $ 313,810,253
Undistributed(overdistributed) net
investment income 0 0 0 0
Undistributed net realized gain(loss)
on investments (16,030,986) (46,803) (16,813,179) (144,493,766)
Net unrealized appreciation of
investments 1,829,393 (42,930) 1,649,018 303,430
TOTAL NET ASSETS $ 135,808,583 $ 12,719,045 $ 232,974,166 $ 169,619,917
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net assets - Class A(1) $ 38,148,574 $ 12,719,045 $ 192,537,928 $ 164,993,645
Shares outstanding - Class A(1) 3,824,728 2,557,689 17,614,429 17,958,913
Net asset value per share - Class A(1) $ 9.97 $ 4.97 $ 10.93 $ 9.19
Maximum offering price per share - Class
A(1) $ 10.28(3) $ 5.12(3) $ 11.45(2) $ 9.47(3)
Net assets - Class B $ 7,514,485 N/A $ 29,867,308 N/A
Shares outstanding - Class B 753,507 N/A 2,776,392 N/A
Net asset value and offering price per
share - Class B $ 9.97 N/A $ 10.76 N/A
Net assets - Class C N/A N/A $ 2,262,391 $ 4,626,272
Shares outstanding - Class C N/A N/A 210,184 335,381
Net asset value and offering price per
share - Class C N/A N/A $ 10.76 $ 13.79
Net assets - Institutional Class $ 90,145,524 N/A $ 8,306,539 N/A
Shares outstanding - Institutional Class 9,213,071 N/A 526,215 N/A
Net asset value and offering price per
share - Institutional Class $ 9.78 N/A $ 15.79 N/A
INVESTMENT AT COST(NOTE 3) $ 133,093,973 $ 12,699,488 $ 246,106,342 $ 168,217,893
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES FUNDS WITH A SINGLE CLASS.
(2) 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.
(3) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/97 OF NET ASSET VALUE. ON
INVESTMENTS OF $100,000 OR MORE THE OFFERING PRICE IS REDUCED.
The accompanying notes are an integral part of these financial statements.
57
<PAGE>
Income Funds STATEMENTS OF OPERATIONS - JUNE 30, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE
BOND FUND
-------- SHORT-INTERMEDIATE
U.S. GOVERNMENT
FROM INCOME FUND
APRIL 1, --------------------------
1998
(COMMENCEMENT FOR THE
OF THREE
OPERATIONS) MONTHS FOR THE
TO ENDED YEAR ENDED
JUNE 30, JUNE 30, MARCH 31,
1998 1998 1998
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $112,623 $ 1,413,691 $5,266,959
TOTAL INVESTMENT INCOME 112,623 1,413,691 5,266,959
EXPENSES (NOTE 2)
Advisory fees 7,925 111,477 441,584
Administration fees 1,107 15,606 54,262
Custody fees 270 4,671 18,880
Shareholder servicing fees 3,955 59,582 236,501
Portfolio accounting fees 7,090 18,741 76,442
Transfer agency fees 2,215 19,788 78,169
Distribution fees 5,621 3,511 15,741
Organization costs 0 1,795 21,204
Legal and audit fees 18,200 5,131 18,550
Registration fees 9,025 4,087 14,779
Directors' fees 1,115 1,115 4,457
Shareholder reports 9,100 7,300 26,384
Other 1,319 1,911 7,480
TOTAL EXPENSES 66,942 254,715 1,014,433
Less:
Waived fees and reimbursed expenses (52,261) (45,611) (378,499)
Net Expenses 14,681 209,104 635,934
NET INVESTMENT INCOME (LOSS) 97,942 1,204,587 4,631,025
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sale of
investments 14,604 197,277 8,966
Net change in unrealized appreciation
(depreciation) of investments 40,064 (315,497) 2,861,633
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 54,668 (118,220) 2,870,599
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $152,610 $ 1,086,367 $7,501,624
- ------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES AMOUNTS ALLOCATED FROM THE MASTER PORTFOLIO PRIOR TO DECEMBER 15,
1997. SEE NOTE 1.
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
STATEMENTS OF OPERATIONS - JUNE 30, 1998 Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT-CORPORATE
INCOME FUND U.S. GOVERNMENT INCOME FUND VARIABLE RATE GOVERNMENT
---------------------- --------------------------- FUND
FOR THE FOR THE FOR THE ---------------------------
SIX YEAR SIX FOR THE SIX
MONTHS ENDED MONTHS FOR THE MONTHS FOR THE
ENDED DECEMBER ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER
1998 1997 (1) 1998 1997 1998 31, 1997
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $439,517 $ 730,233 $7,583,196 $ 6,482,519 $ 5,679,864 $21,098,626
TOTAL INVESTMENT INCOME 439,517 730,233 7,583,196 6,482,519 5,679,864 21,098,626
EXPENSES (NOTE 2)
Advisory fees 36,157 58,935 593,655 469,051 474,183 1,650,124
Administration fees 4,921 11,020 80,831 66,992 64,485 282,517
Custody fees 1,208 1,974 55,210 28,822 20,812 67,018
Shareholder servicing fees 0 0 353,759 39,949 6,100 17,359
Portfolio accounting fees 16,963 20,995 54,243 76,869 49,481 127,952
Transfer agency fees 10,124 15,164 163,169 127,322 132,896 443,980
Distribution fees 12,940 29,820 139,807 23,268 243,415 848,029
Organization costs 7,756 17,129 0 4,176 0 5,872
Legal and audit fees 7,657 37,628 24,233 24,753 28,323 105,519
Registration fees 1,193 12,599 37,821 27,720 10,548 34,123
Directors' fees 2,217 4,973 2,217 4,976 2,217 4,976
Shareholder reports 5,895 11,184 57,914 40,752 12,397 22,546
Other 5,036 6,965 23,184 22,768 34,696 50,880
TOTAL EXPENSES 112,067 228,386 1,586,043 957,418 1,079,553 3,660,895
Less:
Waived fees and reimbursed expenses (82,704) (182,485) (428,646) (106,522) (327,236) (933,131)
Net Expenses 29,363 45,901 1,157,397 850,896 752,317 2,727,764
NET INVESTMENT INCOME (LOSS) 410,154 684,332 6,425,799 5,631,623 4,927,547 18,370,862
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sale of
investments 14,772 (1,736) 1,653,357 (16,017,813) 12,439 1,330,949
Net change in unrealized appreciation
(depreciation) of investments (41,453) (4,114) (498,541) 2,148,328 (1,051,658) (325,594)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (26,681) (5,850) 1,154,816 (13,869,485) (1,039,219) 1,005,355
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $383,473 $ 678,482 $7,580,615 $ (8,237,862) $ 3,888,328 $19,376,217
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES AMOUNTS ALLOCATED FROM THE MASTER PORTFOLIO PRIOR TO DECEMBER 15,
1997. SEE NOTE 1.
The accompanying notes are an integral part of these financial statements.
59
<PAGE>
Income Funds STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE
BOND FUND
----------- SHORT-INTERMEDIATE
FROM APRIL U.S. GOVERNMENT INCOME FUND
1, 1998 ----------------------------
(COMMENCEMENT
OF FOR THE
OPERATIONS) THREE FOR THE
TO MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, MARCH 31,
1998 1998 (2) 1998
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 97,942 $ 1,204,587 $ 4,631,025
Net realized gain (loss) on sale of
investments 14,604 197,277 8,966
Net change in unrealized appreciation
(depreciation) of investments 40,064 (315,497) 2,861,633
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 152,610 1,086,367 7,501,624
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A(1) (59,155) (411,840) (1,633,537)
CLASS B (36,202) (16,670)(4) N/A
CLASS C (2,585) N/A N/A
INSTITUTIONAL CLASS N/A (776,077) (2,997,488)
From net realized gain on sale of
investments
CLASS A(1) 0 0 0
CLASS B 0 0(4) N/A
CLASS C 0 N/A N/A
INSTITUTIONAL CLASS N/A 0 0
From tax return of capital
CLASS A(1) 0 0 0
CLASS B 0 0(4) N/A
CLASS C 0 N/A N/A
INSTITUTIONAL CLASS N/A 0 0
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A(1) 5,486,114 11,342,063 5,448,204
Reinvestment of dividends - Class A(1) 25,324 298,853 1,300,551
Cost of shares redeemed - Class A(1) (35,386) (3,209,710) (11,996,563)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A(1) 5,476,052 8,431,206 (5,247,808)
Proceeds from shares sold - Class B 4,674,276 7,582,398(4) N/A
Reinvestment of dividends - Class B 10,428 5(4) N/A
Cost of shares redeemed - Class B (115,854) (27,179)(4) N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS B 4,568,850 7,555,224(4) N/A
Proceeds from shares sold - Class C 296,460 N/A N/A
Reinvestment of dividends - Class C 1,192 N/A N/A
Cost of shares redeemed - Class C 0 N/A N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C 297,652 N/A N/A
Proceeds from shares sold -
Institutional Class N/A 43,495,528 5,679,146
Reinvestment of dividends -
Institutional Class N/A 182,366 880,516
Cost of shares redeemed - Institutional
Class N/A (5,405,311) (16,585,172)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - INSTITUTIONAL CLASS N/A 38,272,583 (10,025,510)
INCREASE (DECREASE) IN NET ASSETS 10,397,222 54,140,793 (12,402,719)
NET ASSETS:
Beginning net assets 0 81,667,790 94,070,509
ENDING NET ASSETS $10,397,222 $135,808,583 $81,667,790
- -----------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES FUNDS WITH A SINGLE CLASS.
(2) "PROCEEDS FROM SHARES SOLD" INCLUDE AMOUNTS RELATED TO THE CONSOLIDATION OF
THE STAGECOACH INTERMEDIATE BOND FUND. SEE NOTE 1.
(3) "PROCEEDS FROM SHARES SOLD" INCLUDES $19,442,019 FOR CLASS A AND
$74,056,852 FOR THE INSTITUTIONAL CLASS, AS A RESULT OF THE PACIFICA
SHORT-TERM GOVERNMENT BOND FUND AND PACIFICA GOVERNMENT INCOME FUND
MERGERS. SEE NOTE 1.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE SHORT-TERM
U.S. GOVERNMENT INCOME FUND GOVERNMENT-CORPORATE INCOME FUND
---------------------------- -------------------------------------------
FOR THE SIX FOR THE SIX
MONTHS FOR THE NINE MONTHS FOR THE FOR THE
ENDED MONTHS ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 31, SEPTEMBER JUNE 30, DEC. 31, DEC. 31,
1997 30, 1996 (3) 1998 1997 1996
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 3,574,685 $ 2,375,574 $ 410,154 $ 684,332 $ 613,660
Net realized gain (loss) on sale of
investments 510,730 (1,001,781) 14,772 (1,736) (63,690)
Net change in unrealized appreciation
(depreciation) of investments (1,294,254) 438,931 (41,453) (4,114) (11,931)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 2,791,161 1,812,724 383,473 678,482 538,039
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A(1) (1,249,906) (2,125,952) (410,154) (684,332) (613,660)
CLASS B N/A N/A N/A N/A N/A
CLASS C N/A N/A N/A N/A N/A
INSTITUTIONAL CLASS (2,324,779) (249,622) N/A N/A N/A
From net realized gain on sale of
investments
CLASS A(1) 0 0 0 0 0
CLASS B N/A N/A N/A N/A N/A
CLASS C N/A N/A N/A N/A N/A
INSTITUTIONAL CLASS 0 0 N/A N/A N/A
From tax return of capital
CLASS A(1) 0 0 0 0 0
CLASS B N/A N/A N/A N/A N/A
CLASS C N/A N/A N/A N/A N/A
INSTITUTIONAL CLASS 0 0 N/A N/A N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A(1) 3,370,813 50,198,742 3,747,505 11,968,872 23,550,292
Reinvestment of dividends - Class A(1) 943,357 1,800,529 336,468 571,468 368,319
Cost of shares redeemed - Class A(1) (7,567,949) (53,286,609) (6,027,180) (11,868,182) (15,774,832)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A(1) (3,253,779) (1,287,338) (1,943,207) 672,158 8,143,779
Proceeds from shares sold - Class B N/A N/A N/A N/A N/A
Reinvestment of dividends - Class B N/A N/A N/A N/A N/A
Cost of shares redeemed - Class B N/A N/A 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 N/A N/A
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 4,565,190 75,368,746 N/A N/A N/A
Reinvestment of dividends -
Institutional Class 667,123 934 N/A N/A N/A
Cost of shares redeemed - Institutional
Class (18,226,996) (2,345,155) N/A N/A N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - INSTITUTIONAL CLASS (12,994,683) 73,024,525 N/A N/A N/A
INCREASE (DECREASE) IN NET ASSETS (17,031,986) 71,174,337 (1,969,888) 666,308 8,068,158
NET ASSETS:
Beginning net assets 111,102,495 39,928,158 14,688,933 14,022,625 5,954,467
ENDING NET ASSETS $94,070,509 $111,102,495 $12,719,045 $14,688,933 $14,022,625
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES FUNDS WITH A SINGLE CLASS.
(2) "PROCEEDS FROM SHARES SOLD" INCLUDE AMOUNTS RELATED TO THE CONSOLIDATION OF
THE STAGECOACH INTERMEDIATE BOND FUND. SEE NOTE 1.
(3) "PROCEEDS FROM SHARES SOLD" INCLUDES $19,442,019 FOR CLASS A AND
$74,056,852 FOR THE INSTITUTIONAL CLASS, AS A RESULT OF THE PACIFICA
SHORT-TERM GOVERNMENT BOND FUND AND PACIFICA GOVERNMENT INCOME FUND
MERGERS. SEE NOTE 1.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
Income Funds STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
---------------------------------------------
FOR THE SIX FOR THE FOR THE
MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, DEC. 31, DEC. 31,
1998 1997 (2) 1996
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 6,425,799 $ 5,631,623 $ 2,616,427
Net realized gain (loss) on sale of
investments 1,653,357 (16,017,813) (499,201)
Net change in unrealized appreciation
(depreciation) of investments (498,541) 2,148,328 (979,155)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 7,580,615 (8,237,862) 1,138,071
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A(1) (5,483,277) (5,440,321) (2,481,512)
CLASS B (679,047) (22,232)(3) N/A
CLASS C (50,459) (164,423) (134,915)
INSTITUTIONAL CLASS (213,016) (4,647)(3) N/A
From net realized gain on sale of
investments
CLASS A(1) 0 0 0
CLASS B 0 0(3) N/A
CLASS C 0 0 0
INSTITUTIONAL CLASS 0 0(3) N/A
From tax return of capital
CLASS A(1) 0 0 0
CLASS B 0 0(3) N/A
CLASS C 0 0 0
INSTITUTIONAL CLASS 0 0(3) N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A(1) 14,893,331 180,455,427 60,822,363
Reinvestment of dividends - Class A(1) 3,684,634 4,095,456 1,102,521
Cost of shares redeemed - Class A(1) (34,573,811) (39,630,894) (13,841,571)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A(1) (15,995,846) 144,919,989 48,083,313
Proceeds from shares sold - Class B 6,603,948 26,085,390(3) N/A
Reinvestment of dividends - Class B 353,766 289(3) N/A
Cost of shares redeemed - Class B (3,623,776) (260,384)(3) N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS B 3,333,938 25,825,295(3) N/A
Proceeds from shares sold - Class C 854,024 313,936 357,679
Reinvestment of dividends - Class C 18,640 40,188 73,898
Cost of shares redeemed - Class C (391,003) (893,744) (771,274)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C 481,661 (539,620) (339,697)
Proceeds from shares sold -
Institutional Class 1,378,641 7,130,458(3) N/A
Reinvestment of dividends -
Institutional Class 52,382 0(3) N/A
Cost of shares redeemed - Institutional
Class (416,683) (10,496)(3) N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - INSTITUTIONAL CLASS 1,014,340 7,119,962(3) N/A
INCREASE (DECREASE) IN NET ASSETS (10,011,091) 163,456,141 46,265,260
NET ASSETS:
Beginning net assets 242,985,257 79,529,116 33,263,856
ENDING NET ASSETS $232,974,166 $242,985,257 $79,529,116
- ------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES FUNDS WITH A SINGLE CLASS.
(2) PROCEEDS FROM SHARES SOLD INCLUDES $133,935,218 FOR CLASS A SHARES,
$25,382,621 FOR CLASS B SHARES AND $7,031,601 FOR INSTITUTIONAL CLASS
SHARES AS A RESULT OF THE CONSOLIDATION OF THE OVERLAND EXPRESS U.S.
GOVERNMENT INCOME FUND. SEE NOTE 1.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
----------------------------------------------
FOR THE SIX
MONTHS FOR THE
ENDED YEAR ENDED FOR THE
JUNE 30, DEC. 31, YEAR ENDED
1998 1997 DEC. 31, 1996
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 4,927,547 $ 18,370,862 $ 28,838,854
Net realized gain (loss) on sale of
investments 12,439 1,330,949 (4,577,544)
Net change in unrealized appreciation
(depreciation) of investments (1,051,658) (325,594) (1,951,636)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 3,888,328 19,376,217 22,309,674
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A(1) (4,809,412) (18,017,297) (26,355,616)
CLASS B N/A N/A N/A
CLASS C (118,135) (353,565) (327,816)
INSTITUTIONAL CLASS N/A N/A N/A
From net realized gain on sale of
investments
CLASS A(1) 0 0 0
CLASS B N/A N/A N/A
CLASS C 0 0 0
INSTITUTIONAL CLASS N/A N/A N/A
From tax return of capital
CLASS A(1) 0 0 (2,128,910)
CLASS B N/A N/A N/A
CLASS C 0 0 (26,512)
INSTITUTIONAL CLASS N/A N/A N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A(1) 48,964,576 68,881,115 13,360,648
Reinvestment of dividends - Class A(1) 817,437 3,028,668 6,013,951
Cost of shares redeemed - Class A(1) (111,124,094) (239,536,408) (272,864,909)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A(1) (61,342,081) (167,626,625) (253,490,310)
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 26,817,057 213,222,536 82,466,303
Reinvestment of dividends - Class C 60,258 220,657 184,258
Cost of shares redeemed - Class C (26,686,854) (214,475,037) (84,794,106)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C 190,461 (1,031,844) (2,143,545)
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 (62,190,839) (167,653,114) (262,163,035)
NET ASSETS:
Beginning net assets 231,810,756 399,463,870 661,626,905
ENDING NET ASSETS $169,619,917 $231,810,756 $ 399,463,870
- -------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES FUNDS WITH A SINGLE CLASS.
(2) PROCEEDS FROM SHARES SOLD INCLUDES $133,935,218 FOR CLASS A SHARES,
$25,382,621 FOR CLASS B SHARES AND $7,031,601 FOR INSTITUTIONAL CLASS
SHARES AS A RESULT OF THE CONSOLIDATION OF THE OVERLAND EXPRESS U.S.
GOVERNMENT INCOME FUND. SEE NOTE 1.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
CORPORATE BOND FUND (1)
CLASS A CLASS B CLASS C
---------- ---------- ----------
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1998 1998 1998
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.17 0.15 0.15
Net realized and unrealized gain (loss) on investments 0.03 0.03 0.03
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.20 0.18 0.18
LESS DISTRIBUTIONS:
Dividends from net investment income (0.17) (0.15) (0.15)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.17) (0.15) (0.15)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $10.03 $10.03 $10.03
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 1.98% 1.81% 1.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $5,503 $4,595 $299
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.56% 1.35% 1.34%
Ratio of net investment income to average net assets 6.47% 5.47% 5.57%
Portfolio turnover 33% 33% 33%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 3.74% 4.30% 8.58%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 3.29% 2.52% (1.67)%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) THE FUND COMMENCED OPERATIONS ON APRIL 1, 1998.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM MARCH 31 TO JUNE 30.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(4) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO SEPTEMBER 30.
(5) THE FUND COMMENCED OPERATIONS ON OCTOBER 27, 1993.
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
CLASS A
----------------------------------------------------------------------------------
THREE NINE
MONTHS SIX MONTHS MONTHS PERIOD
ENDED YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED ENDED
JUNE 30, MARCH 31, MARCH 31, SEPT. 30, DEC. 31, DEC. 31, DEC. 31,
1998 (2) 1998 1997 (3) 1996 (4) 1995 1994 1993 (5)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $9.95 $9.64 $9.73 $10.00 $9.39 $9.99 $10.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.13 0.51 0.34 0.41 0.55 0.46 0.06
Net realized and
unrealized gain (loss)
on investments 0.02 0.31 (0.09) (0.27) 0.61 (0.60) (0.01)
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.15 0.82 0.25 0.14 1.16 (0.14) 0.05
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.13) (0.51) (0.34) (0.41) (0.55) (0.46) (0.06)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.13) (0.51) (0.34) (0.41) (0.55) (0.46) (0.06)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $9.97 $9.95 $9.64 $9.73 $10.00 $9.39 $9.99
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 1.54% 8.69 % 2.57 % 1.34 % 12.67 % (1.42)% 0.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $38,149 $29,694 $33,920 $37,465 $39,928 $11,602 $8,557
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 0.96% 0.78% 0.71% 0.76% 0.71% 0.25% 0.00%
Ratio of net investment
income to average net
assets 5.36% 5.19% 6.96% 5.60% 5.64% 4.75% 3.49%
Portfolio turnover 12% 48% 52% 389% 472% 288% N/A
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.24% 1.30% 1.12% 1.21% 1.67% 2.28% 2.45%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 5.08% 4.67% 6.55% 5.15% 4.68% 2.72% 1.04%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) THE FUND COMMENCED OPERATIONS ON APRIL 1, 1998.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM MARCH 31 TO JUNE 30.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(4) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO SEPTEMBER 30.
(5) THE FUND COMMENCED OPERATIONS ON OCTOBER 27, 1993.
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND (CONT.)
INSTITUTIONAL CLASS
CLASS B ----------------------
---------- THREE
PERIOD MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, MARCH 31,
1998 (1) 1998 (2) 1998
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.03 $9.76 $9.45
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.02 0.13 0.51
Net realized and unrealized gain (loss) on investments (0.06) 0.02 0.31
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS (0.04) 0.15 0.82
LESS DISTRIBUTIONS:
Dividends from net investment income (0.02) (0.13) (0.51)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.02) (0.13) (0.51)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $9.97 $9.78 $9.76
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* (0.38)% 1.56% 8.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $7,514 $90,146 $51,973
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 1.66% 0.91% 0.69%
Ratio of net investment income to average net assets 5.08% 5.44% 5.28%
Portfolio turnover 12% 12% 48%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.97% 1.08% 1.07%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 4.77% 5.27% 4.90%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM MARCH 31 TO JUNE 30.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON SEPTEMBER 6, 1996.
(5) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(6) THE FUND COMMENCED OPERATIONS ON SEPTEMBER 19, 1994.
(7) THIS RATIO INCLUDES ACTIVITY OF THE MASTER PORTFOLIO PRIOR TO DECEMBER
15, 1997. SEE NOTE 1.
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME
FUND (CONT.)
INSTITUTIONAL CLASS
(CONT.) SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND
---------------------- ----------------------------------------------------------
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
MARCH 31, SEPT. 30, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1997 (3) 1996 (4) 1998 (5) 1997 1996 1995 1994(6)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $9.54 $9.46 $4.98 $4.98 $5.02 $4.93 $5.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.34 0.03 0.14 0.29 0.28 0.30 0.08
Net realized and
unrealized gain (loss)
on investments (0.09) 0.08 (0.01) 0.00 (0.04) 0.09 (0.07)
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.25 0.11 0.13 0.29 0.24 0.39 0.01
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.34) (0.03) (0.14) (0.29) (0.28) (0.30) (0.08)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.34) (0.03) (0.14) (0.29) (0.28) (0.30) (0.08)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $9.45 $9.54 $4.97 $4.98 $4.98 $5.02 $4.93
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 2.58% 1.08% 2.64% 5.91% 4.83% 8.05% 0.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $60,150 $73,637 $12,719 $14,689 $14,023 $5,954 $96
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 0.65% 0.59% 0.41% 0.39%(7) 0.36%(7) 0.30%(7) 0.30%(7)
Ratio of net investment
income to average net
assets 7.01% 5.14% 5.67% 5.74%(7) 5.47%(7) 6.01%(7) 5.77%(7)
Portfolio turnover 52% 389% 73% 223%(7) 247%(7) 227%(7) 0%(7)
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.02% 0.84% 1.55% 1.92%(7) 1.85%(7) 6.79%(7) 67.89%(7)
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 6.64% 4.89% 4.53% 4.21%(7) 3.98%(7) (0.48)%(7) (61.82)%(7)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM MARCH 31 TO JUNE 30.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON SEPTEMBER 6, 1996.
(5) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(6) THE FUND COMMENCED OPERATIONS ON SEPTEMBER 19, 1994.
(7) THIS RATIO INCLUDES ACTIVITY OF THE MASTER PORTFOLIO PRIOR TO DECEMBER
15, 1997. SEE NOTE 1.
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND (1)
CLASS A
----------------------------------
SIX MONTHS
ENDED YEAR ENDED YEAR ENDED
JUNE 30, DEC. 31, DEC. 31,
1998(3) 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.88 $10.65 $11.34
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.30 0.64 0.66
Net realized and unrealized gain (loss) on investments 0.05 0.23 (0.69)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.35 0.87 (0.03)
LESS DISTRIBUTIONS:
Dividends from net investment income (0.30) (0.64) (0.66)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.30) (0.64) (0.66)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $10.93 $10.88 $10.65
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 3.23% 8.73% (0.11)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $192,538 $207,558 $77,239
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.89% 0.88% 0.89%
Ratio of net investment income to average net assets 5.51% 6.01% 6.07%
Portfolio turnover 245% 306% 240%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.25% 0.96% 1.24%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 5.15% 5.93% 5.72%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. SEE NOTE 1.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D SHARES ON JULY 1,
1993. THESE SHARES WERE RENAMED AS CLASS C SHARES IN CONJUNCTION WITH
THE CONSOLIDATION OF OVERLAND EXPRESS FUNDS, INC. AND STAGECOACH
FUNDS, INC. SEE NOTE 1.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME U.S. GOVERNMENT INCOME
U.S. GOVERNMENT INCOME FUND (1) FUND (1) FUND (1)
(CONT.) CLASS B CLASS C (2)
CLASS A (CONT.) ---------------------- ----------------------
---------------------------------- SIX MONTHS PERIOD SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED ENDED YEAR ENDED
DEC. 31, DEC. 31, DEC. 31, JUNE 30, DEC. 31, JUNE 30, DEC. 31,
1995 1994 1993 1998 (3) 1997 (4) 1998 (3) 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $10.16 $11.44 $11.11 $10.70 $10.72 $10.71 $10.49
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.73 0.74 0.78 0.26 0.03 0.26 0.55
Net realized and
unrealized gain (loss)
on investments 1.18 (1.28) 0.38 0.06 (0.02) 0.05 0.22
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 1.91 (0.54) 1.16 0.32 0.01 0.31 0.77
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.73) (0.74) (0.78) (0.26) (0.03) (0.26) (0.55)
Distributions from net
realized gain 0.00 0.00 (0.05) 0.00 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00 0.00 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.73) (0.74) (0.83) (0.26) (0.03) (0.26) (0.55)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $11.34 $10.16 $11.44 $10.76 $10.70 $10.76 $10.71
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 19.32% (4.81)% 10.67% 2.98% 0.08% 2.88% 7.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $30,471 $35,838 $50,301 $29,867 $26,401 $2,262 $1,772
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 0.88% 0.76% 0.53% 1.59% 1.58% 1.59% 1.62%
Ratio of net investment
income to average net
assets 6.79% 6.84% 6.79% 4.78% 5.75% 4.76% 5.27%
Portfolio turnover 95% 50% 115% 245% 306% 245% 306%
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.24% 1.08% 1.01% 1.90% 1.87% 2.46% 3.06%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 6.44% 6.52% 6.31% 4.47% 5.46% 3.89% 3.83%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. SEE NOTE 1.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D SHARES ON JULY 1,
1993. THESE SHARES WERE RENAMED AS CLASS C SHARES IN CONJUNCTION WITH
THE CONSOLIDATION OF OVERLAND EXPRESS FUNDS, INC. AND STAGECOACH
FUNDS, INC. SEE NOTE 1.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
69
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND (1) (CONT.)
CLASS C (2) (CONT.)
----------------------------------------------
PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.17 $10.01 $11.26 $11.37
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.58 0.64 0.65 0.32
Net realized and unrealized gain (loss) on
investments (0.68) 1.16 (1.25) (0.06)
---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS (0.10) 1.80 (0.60) 0.26
LESS DISTRIBUTIONS:
Dividends from net investment income (0.58) (0.64) (0.65) (0.32)
Distributions from net realized gain 0.00 0.00 0.00 (0.05)
Tax return of capital 0.00 0.00 0.00 0.00
---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.58) (0.64) (0.65) (0.37)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $10.49 $11.17 $10.01 $11.26
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* (0.79)% 18.54% (5.45)% 2.25%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $2,290 $2,793 $3,722 $9,594
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 1.62% 1.62% 1.37% 0.90%
Ratio of net investment income to average net
assets 5.50% 6.07% 6.14% 5.90%
Portfolio turnover 240% 95% 50% 115%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior
to waived fees and reimbursed expenses 3.39% 2.29% 1.87% 2.03%
Ratio of net investment income (loss) to
average net assets prior to waived fees and
reimbursed expenses 3.73% 5.40% 5.64% 4.77%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. SEE NOTE 1.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D SHARES ON JULY 1,
1993. THESE SHARES WERE RENAMED AS CLASS C SHARES IN CONJUNCTION WITH
THE CONSOLIDATION OF OVERLAND EXPRESS FUNDS, INC. AND STAGECOACH
FUNDS, INC. SEE NOTE 1.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME
FUND (1) VARIABLE RATE GOVERNMENT FUND
INSTITUTIONAL CLASS CLASS A
---------------------- ----------------------------------------------
SIX MONTHS PERIOD SIX MONTHS
ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, DEC. 31, JUNE 30, DEC. 31, DEC. 31, DEC. 31,
1998 (3) 1997 (4) 1998 (3) 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $15.71 $15.73 $9.23 $9.25 $9.35 $9.19
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.43 0.05 0.24 0.51 0.50 0.53
Net realized and
unrealized gain (loss)
on investments 0.08 (0.02) (0.04) (0.02) (0.10) 0.16
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.51 0.03 0.20 0.49 0.40 0.69
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.43) (0.05) (0.24) (0.51) (0.46) (0.53)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00 0.00 (0.04) 0.00
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.43) (0.05) (0.24) (0.51) (0.50) (0.53)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $15.79 $15.71 $9.19 $9.23 $9.25 $9.35
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 3.32% 0.18% 2.16% 5.43% 4.41% 7.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $8,307 $7,255 $164,994 $227,353 $393,948 $653,897
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 0.83% 0.77% 0.78% 0.81% 0.88% 0.84%
Ratio of net investment
income to average net
assets 5.56% 6.58% 5.21% 5.55% 5.36% 5.71%
Portfolio turnover 245% 306% 45% 92% 277% 317%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.18% 1.16% 1.11% 1.09% 0.98% 0.96%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 5.21% 6.19% 4.88% 5.27% 5.26% 5.59%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. SEE NOTE 1.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D SHARES ON JULY 1,
1993. THESE SHARES WERE RENAMED AS CLASS C SHARES IN CONJUNCTION WITH
THE CONSOLIDATION OF OVERLAND EXPRESS FUNDS, INC. AND STAGECOACH
FUNDS, INC. SEE NOTE 1.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
71
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
VARIABLE RATE
GOVERNMENT FUND
(CONT.)
CLASS A (CONT.)
----------------------
YEAR ENDED YEAR ENDED
DEC. 31, DEC. 31,
1994 1993
<S> <C> <C>
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.99 $9.95
---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.43 0.44
Net realized and unrealized gain (loss) on investments (0.80) 0.04
---------- ----------
TOTAL FROM INVESTMENT OPERATIONS (0.37) 0.48
LESS DISTRIBUTIONS:
Dividends from net investment income (0.43) (0.44)
Distributions from net realized gain 0.00 0.00
Tax return of capital 0.00 0.00
---------- ----------
TOTAL FROM DISTRIBUTIONS (0.43) (0.44)
---------- ----------
NET ASSET VALUE, END OF PERIOD $9.19 $9.99
---------- ----------
---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* (3.81)% 4.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $1,215,546 $1,949,013
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.79% 0.76%
Ratio of net investment income to average net assets 4.40% 4.37%
Portfolio turnover 164% 201%
- ----------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses 0.94% 0.95%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 4.25% 4.18%
- ----------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D SHARES ON JULY 1,
1993. THESE SHARES WERE RENAMED AS CLASS C SHARES IN CONJUNCTION WITH
THE CONSOLIDATION OF OVERLAND EXPRESS FUNDS, INC. AND STAGECOACH
FUNDS, INC. SEE NOTE 1.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
CLASS C (1)
----------------------------------------------------------------------
SIX MONTHS PERIOD
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED
JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 (2) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $13.87 $13.83 $13.97 $13.74 $14.93 $15.00
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.32 0.70 0.68 0.73 0.57 0.27
Net realized and
unrealized gain (loss)
on investments (0.08) 0.04 (0.14) 0.23 (1.19) (0.07)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.24 0.74 0.54 0.96 (0.62) 0.20
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.32) (0.70) (0.63) (0.73) (0.57) (0.27)
Distributions from net
realized gain 0.00 0.00 0.00 0.00 0.00 0.00
Tax return of capital 0.00 0.00 (0.05) 0.00 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.32) (0.70) (0.68) (0.73) (0.57) (0.27)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $13.79 $13.87 $13.83 $13.97 $13.74 $14.93
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 1.76% 5.44% 3.95% 7.08% (4.25)% 1.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $4,626 $4,458 $5,516 $7,730 $12,220 $11,319
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 1.28% 1.31% 1.38% 1.35% 1.29% 1.26%
Ratio of net investment
income to average net
assets 4.70% 5.05% 4.85% 5.23% 3.94% 3.41%
Portfolio turnover 45% 92% 277% 317% 164% 201%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 2.10% 1.77% 1.67% 1.64% 1.55% 1.75%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 3.88% 4.59% 4.56% 4.95% 3.68% 2.92%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES
(1) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D SHARES ON JULY 1,
1993. THESE SHARES WERE RENAMED AS CLASS C SHARES IN CONJUNCTION WITH
THE CONSOLIDATION OF OVERLAND EXPRESS FUNDS, INC. AND STAGECOACH
FUNDS, INC. SEE NOTE 1.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Stagecoach Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company. The Company commenced operations on January 1,
1992 and currently offers thirty-two separate series. These financial statements
represent the Corporate Bond, Short-Intermediate U.S. Government Income,
Short-Term Government-Corporate Income, U.S. Government Income and Variable Rate
Government Funds (the "Funds") each a diversified series of the Company.
At a special shareholders meeting on May 29, 1998, the shareholders of the
Stagecoach Intermediate Bond Fund (the "Bond Fund") approved a plan of
consolidation providing for the transfer of the assets and liabilities of the
Bond Fund to the Company's Short-Intermediate U.S. Government Income Fund (the
"Government Fund") in exchange for shares of designated classes of the
Government Fund (the "Consolidation"). The Consolidation was subsequently
approved by the Bond Fund shareholders. As a result of this Consolidation,
effective at the close of business on June 12, 1998, the Government Fund
acquired all of the assets and assumed all of the liabilities of the Bond Fund.
The Government Fund issued 905,769 Class A shares valued at $9,084,926, issued
747,138 Class B shares valued at $7,491,591 and issued 4,138,122 Institutional
Class shares valued at $41,157,653 to Class A, Class B and the Institutional
Class shareholders of the Bond Fund. As of the Consolidation date, the
components of net assets for each Fund were as follows:
<TABLE>
<CAPTION>
STAGECOACH
SHORT-INTERMEDIATE
U.S. STAGECOACH
GOVERNMENT INTERMEDIATE
JUNE 12, 1998 INCOME FUND BOND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
Paid-in Capital $91,258,866 $58,532,526
Undistributed Net Realized Loss (14,355,134) (1,700,545 )
Unrealized Appreciation 1,689,227 902,189
----------- -----------
Total Net Assets $78,592,959 $57,734,170
----------- -----------
----------- -----------
</TABLE>
The combined net assets for the Stagecoach Short-Intermediate U.S. Government
Income Fund immediately after the Consolidation were $136,327,129. The
acquisition was accomplished in a tax-free exchange for shares of the Stagecoach
Short-Intermediate U.S. Government Income Fund.
74
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
At a meeting held on July 23, 1997, the Boards of Directors of Overland
Express Funds, Inc. ("Overland") and the Company approved a consolidation
agreement providing for the transfer of the assets and liabilities of each
Overland fund to a corresponding fund of the Company in exchange for shares of
designated classes of the corresponding Stagecoach fund (the "Stagecoach/
Overland Consolidation"). The Stagecoach/Overland Consolidation was subsequently
approved by Overland shareholders. As a result of the Stagecoach/ Overland
Consolidation, effective at the close of business on December 12, 1997, the
Stagecoach Ginnie Mae Fund acquired all of the assets and assumed all of the
liabilities of the Overland U.S. Government Income Fund. The acquisition was
accomplished in a tax-free exchange for shares of the Stagecoach Ginnie Mae
Fund. Subsequent to the Stagecoach/Overland Consolidation, the Stagecoach Ginnie
Mae Fund was renamed Stagecoach U.S. Government Income Fund. This Fund retained
Overland accounting and performance history. Historical share data was restated
to give effect to the conversion ratios of 0.95041322 for Class A shares and
1.31902985 for Class D shares which were renamed Class C shares in conjunction
with the Stagecoach/Overland Consolidation.
Additionally, the Stagecoach Short-Term Government-Corporate Income and
Stagecoach Variable Rate Government Funds were established to acquire all of the
assets and assume all of the liabilities of the Overland Short-Term
Government-Corporate Income and Overland Variable Rate Government Funds,
respectively. At the time of the Stagecoach/Overland Consolidation, the
Short-Term Government-Corporate Income Fund, structured as a "feeder" Fund in a
"master-feeder" structure, was restructured to invest directly in a portfolio of
securities, rather than to invest in portfolio securities through a "master"
portfolio (the "Master Portfolio"). The Master Portfolio distributed all of its
assets and liabilities in-kind to its interest holders and wound up its affairs
(the "Dissolution"). The Dissolution occurred at the close of business on
December 12, 1997.
At a special shareholders meeting on July 16, 1996, the Shareholders of
Pacifica Funds Trust ("Pacifica") approved a plan of reorganization providing
for the transfer of the assets and liabilities of each Pacifica portfolio to a
corresponding fund of the Company in exchange for shares of designated classes
of the corresponding Stagecoach fund. As a result of this reorganization,
effective September 6, 1996, the Stagecoach Short-Intermediate U.S.
Govern-
75
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
ment Income Fund acquired all of the assets and assumed all of the liabilities
of the Pacifica Short-Term Government Bond and Government Income Funds. These
acquisitions were accomplished in separate tax-free exchanges for shares of the
Stagecoach Short-Intermediate U.S. Government Income Fund.
The Corporate Bond and U.S. Government Income Funds each offer Class A, Class
B and Class C shares. In addition, the U.S. Government Income Fund also offers
Institutional Class shares. The Short-Intermediate U.S. Government Income Fund
offers Class A, Class B and Institutional Class shares. The Short-Term
Government-Corporate Income Fund offers a single class of shares. The Variable
Rate Government Fund offers only Class A shares. Prior to July 13, 1998, the
Variable Rate Government Fund also offered Class C shares. 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 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 declared
separately for each class. Realized gains are allocated to each class pro rata
based on the net assets of each class on the date of distribution. No class has
preferential dividend rights. Differences in per share dividend rates generally
result from the relative weightings of pro rata income and gain allocations and
from differences in separate class expenses, including distribution, shareholder
servicing and transfer agency fees.
The following significant accounting policies are consistently followed by the
Company in the preparation of its financial statements, and such policies 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
All securities are valued at the close of each business day. Securities, for
which the primary market is a national or foreign recognized securities or
commodities
76
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
exchange or the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market, are valued at the last reported sales price on the
day of valuation. Debt securities are generally traded in the over-the-counter
market and are valued at a price deemed best to reflect fair value as quoted by
dealers who make markets in those securities or by an independent pricing
source. U.S. Government obligations are valued at the last reported bid price.
In the absence of any sale of such securities on the valuation date and in the
case of other securities, excluding money market instruments maturing in 60 days
or less, the valuations are based on latest quoted bid prices. 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. Securities for which quotations are not readily available are
valued at fair value as determined by policies set by the Company's Board of
Directors.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Securities transactions are recorded on a trade date basis. Interest income is
accrued daily. Realized gains or losses are reported on the basis of identified
cost of securities delivered. With the exception of the Corporate Bond Fund,
bond discounts are accreted and premiums are amortized under provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). For the Corporate Bond
Fund discounts are accreted under provisions of the Code.
TBA PURCHASE COMMITMENTS
The Funds may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed price at a future date beyond customary
settlement time. Funds hold, and maintain until the settlement date, cash or
high-quality debt obligations in an amount sufficient to meet the purchase
price. TBA purchase commitments are considered securities in themselves, and
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Unsettled TBA purchase commitments are valued at
the current market value of the underlying securities, generally according to
the procedures described under "Security Valuation" above. At June 30, 1998, the
U.S. Government Income Fund held TBA purchase commitments with an aggregate cost
basis of $15,110,938.
77
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
Although the Fund generally enters into TBA purchase commitments with the
intention of acquiring securities for its portfolio, the Fund may dispose of a
commitment prior to settlement if the Fund's adviser deems it appropriate to do
so.
REPURCHASE AGREEMENTS
Transactions involving purchases of securities under agreements to resell such
securities ("repurchase agreements") are treated as collateralized financing
transactions and are recorded at their contracted resale amounts. These
repurchase agreements, if any, are detailed in each Fund's Portfolio of
Investments. The Funds 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 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 or federal agency obligations.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment income, if any, are declared
daily and distributed monthly. Any distributions to shareholders from net
realized capital gains are declared and distributed annually.
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 Company 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
78
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
it from all, or substantially all, federal income taxes. Accordingly, no
provision for federal income taxes was required at June 30, 1998. The following
Funds had net capital loss carryforwards at June 30, 1998:
<TABLE>
<CAPTION>
YEAR CAPITAL LOSS
FUND EXPIRES CARRYFORWARDS
- ---------------------------------------------------------------------------
<S> <C> <C>
Short-Intermediate U.S. Government Income Fund 2000 $ 1,378,117
2001 17,986
2002 6,807,249
2003 7,074,103
2004 753,400
Short-Term Government-Corporate Income Fund 2004 49,262
2005 1,392
U.S. Government Income Fund 2001 1,204,502
2002 11,205,131
2003 510,531
2004 3,893,014
Variable Rate Government Fund 2000 14,942,728
2001 2,818,401
2002 119,628,012
2003 4,546,666
2004 2,482,931
2006 75,026
</TABLE>
Any loss carryforwards from merged Pacifica, Overland and Stagecoach Funds are
included in the Fund's carryforwards as shown above and certain of these
carryforwards may be subject to limitation as a result of rules in the Code
applicable to corporate changes of ownership. The Company's Board of Directors
intends to offset net capital gains with each capital loss carryforward, and no
capital gain distribution shall be made until each carryforward has been fully
utilized or expires.
Due to the timing of dividend distributions and the differences in accounting
for income and realized gains (losses) for financial statement and federal
income tax purposes, the fiscal year in which amounts are distributed may differ
from the year in which the income and realized gains (losses) were recorded by
the Fund. 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
79
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
in Net Assets. The amount of distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from GAAP. These "book/tax" differences are either
considered temporary or permanent in nature. 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.
ORGANIZATION COSTS
Certain costs incurred in connection with the organization of the Funds and
their initial registration with the Securities and Exchange Commission and with
the various states are amortized on a straight-line basis over 60 months from
the date each Fund commenced operations.
2. AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
The Company entered into separate advisory contracts on behalf of the Funds
with WFB. Pursuant to the contracts, WFB has agreed to provide the Funds with
daily portfolio management. Under the contracts with the Corporate Bond,
Short-Intermediate U.S. Government Income, Short-Term Government-Corporate
Income, and Variable Rate Government Funds, WFB is entitled to be paid a monthly
advisory fee at the annual rate of 0.50% of each Fund's average daily net
assets. Under the contract with the U.S. Government Income Fund, WFB is entitled
to be paid a monthly advisory fee at the annual rate of 0.50% of the Fund's
average daily net assets up to $250 million, 0.40% of the next $250 million and
0.30% of the Fund's average daily net assets in excess of $500 million. Prior to
December 15, 1997, the Short-Term Government-Corporate Income Fund did not
directly retain an investment advisor because it invested all of its assets in a
separate Master Portfolio which, in turn, retained WFB as investment advisor and
was charged at the same rate listed above.
The Company entered into contracts on behalf of each Fund with WFB, whereby
WFB is responsible for providing custody and portfolio accounting services for
the Funds. Pursuant to the contracts, WFB is entitled to certain transaction
charges plus a monthly fee for custody services at an annual rate of 0.0167% of
the average daily net assets of each Fund. For portfolio accounting services,
WFB is 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
80
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
net assets in excess of $100 million. Prior to December 15, 1997, WFB was
entitled to compensation for its custodial and portfolio accounting services to
the Short-Term Government-Corporate Master Portfolio at the same rates listed
above.
The Company entered into a contract on behalf of the Funds with WFB, whereby
WFB provides transfer agency services for the Funds. Under the transfer agency
contract, WFB is entitled to receive transfer agency fees at the following
annual rates:
<TABLE>
<CAPTION>
% OF AVERAGE DAILY NET ASSETS
-------------------------------------------
CLASS INSTITUTIONAL
FUND A* CLASS B CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Corporate Bond Fund 0.14 0.14 0.14 N/A
Short-Intermediate U.S. Government 0.14 0.14 N/A 0.06
Income Fund
Short-Term Government-Corporate 0.14 N/A N/A N/A
Income Fund
U.S. Government Income Fund 0.14 0.14 0.14 0.06
Variable Rate Government Fund 0.14 N/A 0.14 N/A
</TABLE>
* INCLUDES FUNDS WITH A SINGLE CLASS.
Prior to February 1, 1997, under the contracts with the Short-Term
Government-Corporate, U.S. Government Income, and Variable Rate Government
Funds, WFB was entitled to be paid a per account fee plus other related costs
with a minimum monthly fee of $3,000 per Fund, unless net assets of the
respective Fund were less than $20 million. For as long as the assets remained
less than $20 million, the Fund would not be charged any transfer agency fees by
WFB.
Transfer agency fees paid on behalf of the Funds for the six months ended June
30, 1998 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Corporate Bond Fund* $ 1,249 $ 902 $ 64 N/A
Short-Intermediate U.S. Government 10,759 459** N/A $ 8,570
Income Fund*
U.S. Government Income Fund 139,525 19,867 1,483 2,294
Variable Rate Government Fund 129,480 N/A 3,416 N/A
</TABLE>
* REPRESENTS THREE MONTHS ENDED JUNE 30, 1998.
** REPRESENTS THE PERIOD FROM JUNE 15, 1998 TO JUNE 30, 1998.
81
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
The transfer agency fees paid on behalf of the Funds for the year ended
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government $ 44,076 N/A N/A $ 34,093
Income Fund*
U.S. Government Income Fund 122,893 $ 1,716** $ 2,511 202**
Variable Rate Government Fund 434,525 N/A 9,455 N/A
</TABLE>
* REPRESENTS THE YEAR ENDED MARCH 31, 1998.
** REPRESENTS THE PERIOD FROM DECEMBER 15, 1997 TO DECEMBER 31, 1997.
Transfer agency fees paid on behalf of the Short-Term Government-Corporate
Income Fund for the six months ended June 30, 1998 and the year ended December
31, 1997 are disclosed in the Statement of Operations.
The shareholder servicing fees paid on behalf of the Funds for the six months
ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
% OF AVERAGE DAILY NET ASSETS
-------------------------------------------
INSTITUTIONAL
FUND CLASS A* CLASS B CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Corporate Bond Fund 0.25 0.25 0.25 N/A
Short-Intermediate U.S. Government 0.30 0.25 N/A 0.25
Income Fund
U.S. Government Income Fund 0.30 0.30 0.25 0.25
Variable Rate Government Fund 0.00 N/A 0.25 N/A
</TABLE>
* INCLUDES FUNDS WITH A SINGLE CLASS.
The shareholder servicing fees paid on behalf of the Funds for the six months
ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Corporate Bond Fund* $ 2,230 $ 1,611 $ 114 N/A
Short-Intermediate U.S. Government 23,056 819** N/A $ 35,707
Income Fund*
U.S. Government Income Fund 298,981 42,572 2,648 9,558
Variable Rate Government Fund 0 N/A 6,100 N/A
</TABLE>
* REPRESENTS THREE MONTHS ENDED JUNE 30, 1998.
** REPRESENTS THE PERIOD FROM JUNE 15, 1998 TO JUNE 30, 1998.
82
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
The shareholder servicing fees paid on behalf of the Funds for the year ended
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government $ 94,448 N/A N/A $ 142,053
Income Fund*
U.S. Government Income Fund 30,748 $ 3,677** $ 4,680 844**
Variable Rate Government Fund 0 N/A 17,359 N/A
</TABLE>
* REPRESENTS THE YEAR ENDED MARCH 31, 1998.
** REPRESENTS THE PERIOD FROM DECEMBER 15, 1997 TO DECEMBER 31, 1997.
The Company adopted a Shareholder Administrative Servicing Plan (the
"Administrative Servicing Plan") on behalf of the Class A shares of the Variable
Rate Government Fund and the single class shares of the Short-Term
Government-Corporate Income Fund. Pursuant to the Administrative Servicing Plan,
the Funds may enter into administrative servicing agreements with administrative
servicing agents who are dealers/holders of record, or that otherwise have a
servicing relationship with the beneficial owners of the Funds' Class A shares
(or single class shares, as the case may be). Administrative servicing agents
are entitled to receive a fee which will not exceed 0.25%, on an annualized
basis, of the average daily net assets of the Class A shares of the Variable
Rate Government Fund and the single class shares of the Short-Term
Government-Corporate Income Fund. In no case will the Fund be charged both
Distribution and Administrative Servicing fees.
The Company entered into administration agreements on behalf of the Funds
whereby WFB as administrator and Stephens Inc. ("Stephens") as co-administrator
provide each Fund with administration services. For these services, WFB and
Stephens are entitled to receive monthly fees at the annual rates of 0.03% and
0.04%, respectively, of each Fund's average daily net assets. Prior to February
1, 1998, WFB and Stephens were entitled to receive monthly fees at the annual
rates of 0.04% and 0.02%, respectively, of each Fund's average daily net assets.
Prior to May 1, 1997, Stephens provided substantially the same services as sole
administrator to the Short-Term Government-Corporate, U.S. Government Income and
Variable Rate Government Funds which each agreed to pay Stephens a monthly fee
at an annual rate of 0.15% of each Fund's average daily net assets up to $200
million and 0.10% of the average daily net assets in excess of $200 million.
83
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
The Company has adopted separate Distribution Plans for the single class
shares of the Short-Term Government-Corporate Income Fund and the Class A, Class
B, Class C and Institutional Class shares of the other Funds pursuant to Rule
12b-1 under the 1940 Act (each, a "Plan").
The Plan for the Class A shares of the Corporate Bond Fund provides 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 Plan for Class A shares of the Short-Intermediate U.S. Government Income
Fund provides 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 Plan for Class A shares of the U.S. Government Income Fund provides 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 up to the greater of $100,000 or 0.05% of the Fund's
average daily net assets attributable to the Class A shares.
The Plans for the single class shares of the Short-Term Government-Corporate
Income Fund and the Class A shares of the Variable Rate Government Fund provide
that each such Fund may pay to Stephens up to 0.25% of its average daily net
assets attributable to the Class A, or single class, shares as compensation for
distribution-related services or as reimbursement for distribution-related
expenses.
The Plans for the Class B shares of the Corporate Bond, Short-Intermediate
U.S. Government Income and U.S. Government Income Funds provide that the Funds
may pay to Stephens, as compensation for distribution-related services or as
reimbursement for distribution-related expenses, up to 0.75%, 0.75% and 0.70%,
respectively, of the average daily net assets attributable to the Class B
shares.
The Plans for Class C shares of the Corporate Bond, U.S. Government Income and
Variable Rate Government Funds provide that the Funds may pay to Stephens, as
compensation for distribution-related services or as reimbursement for
distribution-related expenses, up to 0.75%, 0.75%, and 0.50%, respectively,
84
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
of the average daily net assets attributable to the Class C shares as
compensation for distribution-related services or as reimbursement for
distribution-related expenses.
Each Fund may participate in joint distribution activities with other Funds,
in which event, expenses reimbursed out of the assets of one of the Funds may be
attributable, in part, to the distribution-related activities of another Fund.
Generally, the expenses of joint distribution activities are allocated among the
Funds in proportion to their relative net asset sizes.
Distribution fees paid on behalf of the Funds for the six months ended June
30, 1998 were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEES FEES FEES
FUND CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Corporate Bond Fund* $ 446 $ 4,833 $ 342
Short-Intermediate U.S. Government Income Fund* 1,054 2,457** N/A
U.S. Government Income Fund 32,528 99,335 7,944
Variable Rate Government Fund 231,215 N/A 12,200
</TABLE>
* REPRESENTS THREE MONTHS ENDED JUNE 30, 1998.
** REPRESENTS THE PERIOD FROM JUNE 15, 1998 TO JUNE 30, 1998.
Distribution fees paid on behalf of the Funds for the year ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEES FEES FEES
FUND CLASS A CLASS B CLASS C
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government Income Fund* $ 15,741 N/A N/A
U.S. Government Income Fund 5,125 $ 8,579** $ 9,564
Variable Rate Government Fund 813,312 N/A 34,717
</TABLE>
* REPRESENTS THE YEAR ENDED MARCH 31, 1998.
** REPRESENTS THE PERIOD FROM DECEMBER 15, 1997 TO DECEMBER 31, 1997.
Distribution fees paid on behalf of the Short-Term Government-Corporate Income
Fund for the six months ended June 30, 1998 and the year ended December 31, 1997
are disclosed in the Statement of Operations.
85
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
Registration fees paid on behalf of the Funds for the six months ended June
30, 1998 were as follows:
<TABLE>
<CAPTION>
REGISTRATION
FEES
REGISTRATION REGISTRATION REGISTRATION INSTITUTIONAL
FUND FEES CLASS A FEES CLASS B FEES CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Corporate Bond Fund* $ 2,275 $ 4,500 $ 2,250 N/A
Short-Intermediate U.S. Government 849 438** N/A $ 2,800
Income Fund*
U.S. Government Income Fund 24,299 2,480 6,083 4,959
Variable Rate Government Fund 7,534 N/A 3,014 N/A
</TABLE>
* REPRESENTS THREE MONTHS ENDED JUNE 30, 1998.
** REPRESENTS THE PERIOD FROM JUNE 15, 1998 TO JUNE 30, 1998.
Registration fees paid on behalf of the Funds for the year ended December 31,
1997 were as follows:
<TABLE>
<CAPTION>
REGISTRATION
FEES
REGISTRATION REGISTRATION REGISTRATION INSTITUTIONAL
FUND FEES CLASS A FEES CLASS B FEES CLASS C CLASS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Short-Intermediate U.S. Government $ 1,655 N/A N/A $ 13,124
Income Fund*
U.S. Government Income Fund 16,548 $ 233** $ 10,473 466**
Variable Rate Government Fund 24,123 N/A 10,000 N/A
</TABLE>
* REPRESENTS THE YEAR ENDED MARCH 31, 1998.
** REPRESENTS THE PERIOD FROM DECEMBER 15, 1997 TO DECEMBER 31, 1997.
Registration fees paid on behalf of the Short-Term Government-Corporate Income
Fund for the six months ended June 30, 1998 and the year ended December 31, 1997
are disclosed in the Statement of Operations.
86
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
WAIVED FEES AND REIMBURSED EXPENSES
Waived fees and reimbursed expenses for the six months ended June 30, 1998
were as follows:
<TABLE>
<CAPTION>
EXPENSES FEES
REIMBURSED WAIVED
FUND BY STEPHENS BY WFB
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Corporate Bond Fund* $ 30,232 $ 22,029
Short-Intermediate U.S. Government Income Fund* 0 45,611
Short-Term Government-Corporate Income Fund 28,082 54,622
U.S. Government Income Fund 0 428,646
Variable Rate Government Fund 0 327,236
</TABLE>
* REPRESENTS THREE MONTHS ENDED JUNE 30, 1998.
All amounts shown as waived fees and reimbursed expenses on the Statement of
Operations for the year ended December 31, 1997 and the year ended March 31,
1998 were waived by WFB. Waived fees and reimbursed expenses continue at the
discretion of WFB and Stephens.
Certain officers and one of the directors of the Company are also officers of
Stephens. As of June 30, 1998, Stephens owned 203,353 shares of the Corporate
Bond Fund, 149 shares of the Short-Intermediate U.S. Government Income Fund, 11
shares of the Short-Term Government-Corporate Income Fund, 3,291 shares of the
U.S. Government Income Fund and 15,462 shares of the Variable Rate Government
Fund.
Stephens has retained $5,647,291 as sales charges from the proceeds of Class A
shares sold, $1,473,156 as proceeds from Class B shares redeemed by the Company
and $29,526 as proceeds from Class C shares redeemed by the Company for the
period ended June 30, 1998. Wells Fargo Securities Inc., a subsidiary of WFB,
received $4,712,432 as sales charges from the proceeds of Class A shares sold,
$854,265 as proceeds from Class B shares redeemed by the Company and $0 as
proceeds from Class C shares redeemed by the Company for the period ended June
30, 1998.
87
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
3. 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 six months ended June 30, 1998, were as follows:
AGGREGATE PURCHASES AND SALES
<TABLE>
<CAPTION>
PURCHASES SALES
FUND AT COST PROCEEDS
<S> <C> <C>
- ------------------------------------------------------------------
Corporate Bond Fund* $12,514,494 $ 2,446,933
Short-Intermediate U.S. Government
Income Fund* 10,474,862 10,690,931
Short-Term Government-Corporate Income
Fund 7,546,385 8,798,226
U.S. Government Income Fund 574,992,387 579,647,595
Variable Rate Government Fund 78,811,087 147,442,081
</TABLE>
* REPRESENTS THREE MONTHS ENDED JUNE30, 1998.
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 year ended December 31, 1997, were as follows:
AGGREGATE PURCHASES AND SALES
<TABLE>
<CAPTION>
PURCHASES SALES
FUND AT COST PROCEEDS
<S> <C> <C>
- ------------------------------------------------------------------
Short-Intermediate U.S. Government
Income Fund* $39,795,071 $52,248,016
Short-Term Government-Corporate Income
Fund** 21,551,757 20,317,989
U.S. Government Income Fund 291,049,261 316,059,024
Variable Rate Government Fund 224,845,952 422,984,473
</TABLE>
* REPRESENTS THE YEAR ENDED MARCH 31, 1998.
** INCLUDES ACTIVITY OF THE MASTER PORTFOLIO PRIOR TO DECEMBER 15, 1997.
4. CAPITAL SHARE TRANSACTIONS
As of June 30, 1998, there were over 108 billion shares of $0.001 par value
capital stock authorized by the Company. As of June 30, 1998, the Corporate Bond
Fund was authorized to issue 100 million shares of $0.001 par value capital
stock for each class of shares and the Short-Intermediate U.S. Government Income
Fund was authorized to issue 200 million shares of $0.001 par value capital
stock for each class of shares. As of June 30, 1998, the U.S. Government Income
Fund was authorized to issue 300 million shares of $0.001 par value capital
stock for each class of shares. As of June 30, 1998, the Short-Term
Government-Corporate Income Fund was authorized to issue
88
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
300 million shares and the Variable Rate Government Fund was authorized to issue
500 million shares of $0.001 par value capital stock for each class of shares.
<TABLE>
<CAPTION>
CORPORATE BOND FUND
- ------------------------------------------------------------------------
FROM APRIL 1, 1998
(COMMENCEMENT OF
OPERATIONS)
TO JUNE 30, 1998
<S> <C>
- ------------------------------------------------------------------------
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 549,592
Shares issued in reinvestment of dividends --
Class A 2,541
Shares redeemed -- Class A (3,533)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A 548,600
Shares sold -- Class B 468,524
Shares issued in reinvestment of dividends --
Class B 1,045
Shares redeemed -- Class B (11,597)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS B 457,972
Shares sold -- Class C 29,746
Shares issued in reinvestment of dividends --
Class C 119
Shares redeemed -- Class C 0
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS C 29,865
</TABLE>
89
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND
-----------------------------------------------
FOR THE
FOR THE NINE
THREE FOR THE MONTHS
MONTHS YEAR FOR THE SIX ENDED
ENDED ENDED MONTHS ENDED SEPTEMBER
JUNE 30, MARCH 31, MARCH 31, 30,
1998 1998 1997 1996 (1)
<S> <C> <C> <C> <C>
-----------------------------------------------
SHARES ISSUED AND
REDEEMED:
Shares sold -- Class
A 1,131,614(2) 552,800 344,402 5,141,274
Shares issued in
reinvestment of
dividends -- Class
A 30,004 132,231 96,320 184,087
Shares redeemed --
Class A (321,454) (1,220,467) (773,143) (5,467,391)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING
-- CLASS A 840,164 (535,436) (332,421) (142,030)
Shares sold -- Class
B(3) 756,223(2) N/A N/A N/A
Shares issued in
reinvestment of
dividends -- Class
B(3) 1 N/A N/A N/A
Shares redeemed --
Class B(3) (2,717) N/A N/A N/A
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING
-- CLASS B(3) 753,507 N/A N/A N/A
Shares sold --
Institutional Class 4,422,174(2) 587,082 475,795 7,965,695
Shares issued in
reinvestment of
dividends --
Institutional Class 18,665 91,268 69,465 99
Shares redeemed --
Institutional Class (552,996) (1,716,365) (1,900,814) (246,997)
NET INCREASE (DECREASE)
IN SHARES OUTSTANDING
-- INSTITUTIONAL
CLASS 3,887,843 (1,038,015) (1,355,554) 7,718,797
</TABLE>
(1) "SHARES SOLD" INCLUDES 2,016,780 FOR CLASS A AND 7,827,393 FOR THE
INSTITUTIONAL CLASS, AS A RESULT OF THE PACIFICA SHORT-TERM GOVERNMENT BOND
FUND AND PACIFICA GOVERNMENT INCOME FUND MERGER.
(2) "SHARES SOLD" AMOUNTS RELATED TO THE CONSOLIDATION OF THE STAGECOACH
INTERMEDIATE BOND FUND. SEE NOTE 1.
(3)THE CLASS B SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
<TABLE>
<CAPTION>
SHORT-TERM GOVERNMENT-CORPORATE INCOME
FUND
------------------------------------------
FOR THE
SIX
MONTHS FOR THE FOR THE
ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
SHARES ISSUED AND REDEEMED:
Shares sold 752,319 2,403,766 4,726,783
Shares issued in reinvestment of
dividends 67,612 114,787 73,914
Shares redeemed (1,211,512) (2,384,400) (3,170,650)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING (391,581) 134,153 1,630,047
</TABLE>
90
<PAGE>
NOTES TO FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
--------------------------------------
FOR THE
SIX
MONTHS FOR THE FOR THE
ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996*
<S> <C> <C> <C>
- ------------------------------------------------------------------------
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 1,364,621 15,150,976(1) 5,755,299
Shares issued in reinvestment
of dividends -- Class A 338,255 384,053 102,502
Shares redeemed -- Class A (3,172,028) (3,703,910) (1,290,959)
NET INCREASE (DECREASE) IN
SHARES OUTSTANDING -- CLASS A (1,469,152) 11,831,119 4,566,842
Shares sold -- Class B(2) 615,009 2,490,749(1) N/A
Shares issued in reinvestment
of dividends -- Class B(2) 32,999 27 N/A
Shares redeemed -- Class B(2) (338,048) (24,344) N/A
NET INCREASE (DECREASE) IN
SHARES OUTSTANDING -- CLASS
B(2) 309,960 2,466,432 N/A
Shares sold -- Class C 79,464 29,243 34,053
Shares issued in reinvestment
of dividends -- Class C 1,739 3,838 6,982
Shares redeemed -- Class C (36,508) (85,895) (72,602)
NET INCREASE (DECREASE) IN
SHARES OUTSTANDING -- CLASS C 44,695 (52,814) (31,567)
Shares sold -- Institutional
Class(2) 87,456 462,544(1) N/A
Shares issued in reinvestment
of dividends --
Institutional Class(2) 3,331 0 N/A
Shares redeemed --
Institutional Class(2) (26,447) (669) N/A
NET INCREASE (DECREASE) IN
SHARES OUTSTANDING --
INSTITUTIONAL CLASS (2) 64,340 461,875 N/A
</TABLE>
* FIGURES HAVE BEEN RESTATED TO GIVE EFFECT TO THE CONVERSION RATIOS APPLIED IN
THE STAGECOACH/ OVERLAND CONSOLIDATION. SEE NOTE 1.
(1) "SHARES SOLD" INCLUDES 10,876,608 FOR CLASS A SHARES, 2,434,535 FOR CLASS B
SHARES AND 458,004 FOR INSTITUTIONAL CLASS SHARES AS A RESULT OF THE
CONSOLIDATION OF THE OVERLAND EXPRESS U.S. GOVERNMENT INCOME FUND. SEE NOTE
1.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
-------------------------------------------
FOR THE SIX
MONTHS FOR THE FOR THE
ENDED YEAR ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 5,306,636 7,444,514 1,440,106
Shares issued in reinvestment of
dividends -- Class A 88,803 327,188 648,270
Shares redeemed -- Class A (12,066,556) (25,731,027) (29,451,100)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING -- CLASS A (6,671,117) (17,959,325) (27,362,724)
Shares sold -- Class C 1,937,902 15,373,699 5,964,908
Shares issued in reinvestment of
dividends -- Class C 4,358 15,917 13,296
Shares redeemed -- Class C (1,928,389) (15,467,038) (6,132,463)
NET INCREASE (DECREASE) IN SHARES
OUTSTANDING -- CLASS C 13,871 (77,422) (154,259)
</TABLE>
91
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
Effective May 1, 1998 the Short-Term Government-Corporate Income Fund was
closed to new purchases and is in the process of being liquidated.
The Class C shares of the Variable Rate Government merged into the Class A
shares of the same Fund on July 13, 1998. Each Class C share was allocated
1.50054407 shares of Class A.
On August 1, 1998, Wells Capital Management Incorporated ("WCM"), a
wholly-owned subsidiary of WFB, began acting as investment sub-advisor to the
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 the Funds' average daily
net assets up to $400 million, 0.125% for the next $400 million and 0.10% of the
Funds' average daily net assets in excess of $800 million. WCM's minimum annual
fee is $120,000 for each Fund. This minimum annual fee does not increase the
advisory fees paid by the Funds to WFB.
92
<PAGE>
INDEPENDENT AUDITORS' REPORT Income Funds
- ------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors
Stagecoach Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Corporate Bond Fund,
Short-Intermediate U.S. Government Income Fund, Short-Term Government-Corporate
Income Fund, U.S. Government Income Fund, and Variable Rate Government Fund
(five of the funds comprising Stagecoach Funds, Inc.) as of June 30, 1998, and
the related statements of operations for the six months ended June 30, 1998, and
the year ended December 31, 1997, except for the Corporate Bond Fund which is
for the period from April 1, 1998 (commencement of operations) to June 30, 1998,
and the Short-Intermediate U.S. Government Income Fund which is for the three
months ended June 30, 1998, and the year ended March 31, 1998, the statement of
changes in net assets for the six months ended June 30, 1998 and the years ended
December 31, 1997 and 1996, except for the Corporate Bond Fund which is for the
period from April 1, 1998, to June 30, 1998, and the Short-Intermediate U.S.
Government Income Fund which is for the three months ended June 30, 1998, the
year ended March 31, 1998, the six months ended March 31, 1997, and the nine
months ended September 30, 1996, and financial highlights for the periods
indicated herein. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. For the Intermediate Bond Fund, all years or periods indicated in the
accompanying financial highlights ending prior to October 1, 1995, were audited
by other auditors whose report dated November 3, 1995, expressed an unqualified
opinion on this information.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and other appropriate audit
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 funds of Stagecoach Funds, Inc. as of June 30, 1998, the
results of their operations, the changes in their net assets and their financial
highlights for the periods indicated herein, except as noted above, in
conformity with generally accepted accounting principles.
[KPMG PEAT MARWICK LLP SIGNATURE]
San Francisco, California
August 5, 1998
93
<PAGE>
Income Funds SHAREHOLDERS' MEETING AND PROXY VOTING RESULTS
- ------------------------------------------------------------------------
SHAREHOLDERS' MEETING AND PROXY VOTING RESULTS
The following proposal was passed by the required majority of shareholders of
the Intermediate Bond Fund at a Special Shareholders' meeting held on May 29,
1998, for the purpose of voting on this proposal.
To approve a Plan of Consolidation providing for the transfer of the assets and
liabilities of the Intermediate Bond Fund to the Short-Intermediate U.S.
Government Income Fund in exchange for shares of designated classes of the
Short-Intermediate U.S. Government Income Fund.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- -----------------------------------
<S> <C> <C>
2,556,449 23,351 0
</TABLE>
94
<PAGE>
LIST OF ABBREVIATIONS
- ------------------------------------------------------------------------
The following is a list of common abbreviations for terms and entities which
may have appeared in this report.
<TABLE>
<S> <C> <C>
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
DW&P -- Department of Water & Power
DWR -- Department of Water Resources
EDFA -- Education Finance Authority
FGIC -- Financial Guaranty Insurance Corporation
FHA -- Federal Housing Authority
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
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
LOC -- Letter of Credit
MBIA -- Municipal Bond Insurance Association
MFHR -- Multi-Family Housing Revenue
MUD -- Municipal Utility District
PCFA -- Pollution Control Finance Authority
PCR -- Pollution Control Revenue
PFA -- Public Finance Authority
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
TRAN -- Tax Revenue Anticipation Notes
USD -- Unified School District
V/R -- Variable Rate
</TABLE>
<PAGE>
Wells Fargo provides investment advisory services, shareholder services, and
certain other services for Stagecoach Funds. The Funds are sponsored and
distributed by STEPHENS INC., Member NYSE/SIPC. Wells Fargo is not affiliated
with Stephens Inc.
This report and the financial statements contained herein are submitted for
the general information of the shareholders of the Stagecoach 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.
- -C- Stagecoach Funds
STAGECOACH FUNDS-Registered Trademark-
P.O. Box 7066
San Francisco, CA 94120-7066
DATED MATERIAL
PLEASE EXPEDITE
- -Recycle Logo- SC IF R (9/98)
