<PAGE>
STAGECOACH FUNDS-Registered Trademark-
Semi-Annual Report
INCOME Funds
Corporate Bond Fund
Short-Intermediate U.S. Government Income Fund
Strategic Income Fund
U.S. Government Income Fund
Variable Rate Government Fund
DECEMBER 31, 1998
<PAGE>
Income Funds TABLE OF CONTENTS
- ------------------------------------------------------------------------
LETTER TO SHAREHOLDERS.......................................... 1
PERFORMANCE AT A GLANCE AND
INVESTMENT ADVISOR COMMENTARY
Corporate Bond Fund......................................... 3
Short-Intermediate U.S. Government Income Fund.............. 8
Strategic Income Fund.......................................13
U.S. Government Income Fund.................................19
Variable Rate Government Fund...............................24
PORTFOLIOS OF INVESTMENTS
Corporate Bond Fund.........................................29
Short-Intermediate U.S. Government Income Fund..............33
Strategic Income Fund.......................................38
U.S. Government Income Fund.................................44
Variable Rate Government Fund...............................48
INCOME FUNDS
Statement of Assets and Liabilities.........................50
Statement of Operations.....................................52
Statements of Changes in Net Assets.........................54
Financial Highlights........................................58
Notes to Financial Statements...............................69
PROXY VOTING RESULTS............................................83
NOT FDIC INSURED - NO BANK GUARANTEE - MAY LOSE VALUE
i
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THIS PAGE IS INTENTIONALLY LEFT BLANK --
ii
<PAGE>
LETTER TO SHAREHOLDERS Income Funds
- ------------------------------------------------------------------------
TO OUR SHAREHOLDERS
Thank you for your investment in the Stagecoach Funds.
It is a pleasure to bring this Semi-Annual Report to you for the period ended
December 31, 1998. The report provides information about your investment,
including economic and market trends over the period as well as a performance
summary, portfolio review and strategic outlook for each Fund.
As we enter the eighth consecutive year of economic expansion, the U.S.
economy remains strong, the stock market is riding the crest of another
outstanding year and December capped a very profitable year for the income
markets. While 1998 ended on a high note, the six-month reporting period will be
best remembered for unprecedented highs in conjunction with volatility in the
market. In response to global economic concerns, the Federal Reserve Board ("the
Fed") reduced interest rates in three different moves. This calmed the domestic
financial markets and prompted accelerating economic activity.
Stocks, as measured by the S&P 500 Index(1), returned 9.24% for the six-month
period ending December 31, 1998. We witnessed a sell-off in the stock market
during the summer that served as an introduction to sharp market swings and
volatility that we would see for the remainder of the year. In the end, however,
broad stock indexes were propelled higher by a series of upbeat earnings
reports.
Government bonds also performed well, returning 6.74% as measured by the
Lehman Brothers Long Government Bond Index.(2) While the U.S. Treasury market
rallied in response to the Fed's actions to lower interest rates, the corporate,
asset-backed and mortgage-backed securities markets did not perform as well
early in the reporting period. However, both mortgage-backed and corporate
securities bounced back by December.
While the latest signs of economic strength are positive, we still expect the
Fed to decrease short-term rates again sometime during the first half of 1999.
We
1
<PAGE>
Income Funds LETTER TO SHAREHOLDERS
- ------------------------------------------------------------------------
feel this move may come in response to subdued inflation, lingering strains on
emerging markets, and signs of slower economic growth.
In our ongoing commitment to provide you with quality investment options, we
introduced a new Stagecoach Fund during the six month reporting period -- the
Strategic Income Fund, which was launched in July 1998.
We appreciate your continued investment with the Stagecoach Funds. As always,
we recommend that you continually review your investment portfolio with your
financial consultant to determine an appropriate mix of investments to meet your
ongoing needs. We understand that you have a variety of investment options and
thank you for your confidence in selecting us to help you manage your money.
Sincerely,
/s/ Michael J. Hogan
Michael J. Hogan
Senior Vice President
Wells Fargo Bank,
Mutual Fund Group
/s/ R. Greg Feltus
R. Greg Feltus
Chairman and President of
Stagecoach Funds
1 The "S&P 500 Index" is a trademark of Standard & 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
<PAGE>
PERFORMANCE AT A GLANCE Corporate Bond Fund
- ------------------------------------------------------------------------
CORPORATE BOND FUND
AVERAGE ANNUAL TOTAL RETURNS (%) (as of December 31, 1998)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
SIX-MONTHS (4/1/98)
<S> <C> <C>
CLASS A 4.92 7.00
CLASS B 4.53 6.42
CLASS C 4.41 6.27
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
SIX-MONTHS (4/1/98)
<S> <C> <C>
CLASS A 0.23 2.20
CLASS B (0.47) 1.42
CLASS C 3.41 5.27
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTHS
<S> <C> <C>
LEHMAN BROTHERS CORPORATE LONG BOND INDEX 3.98
</TABLE>
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 portfolio managers who actively manage the
Fund seeking to provide a high level of income for investors. Graham Allen, who
specializes in global and high yield fixed-income securities and has over 22
years of experience in the securities industry, leads the portfolio team. Other
members of the team contribute expertise in long-term investment grade corporate
and mortgage-backed securities, intermediate corporate and government bonds and
foreign securities. Together, they bring a highly specialized and unique
discipline to the Fund.
3
<PAGE>
Corporate Bond Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
PERFORMANCE SUMMARY
The Corporate Bond Fund's Class A share net asset value increased from $10.03
on June 30, 1998, to $10.16 on December 31, 1998. The Fund distributed $0.32 per
share in dividend income and $0.04 per share in capital gains distributions.
Keep in mind that past distributions are not predictive of future trends as
distributions will vary based on Fund portfolio earnings.
PORTFOLIO DATA (as of December 31, 1998)(2)
- ---------------------------------------------------------
<TABLE>
<S> <C>
NUMBER OF ISSUES 57
WEIGHTED AVERAGE COUPON 7.83%
WEIGHTED AVERAGE MATURITY 12.71 years
AVERAGE CREDIT QUALITY Baa1
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 10.16 10.16 10.15
DISTRIBUTION RATE 5.92% 5.44% 5.43%
SEC YIELD 5.51% 5.01% 5.00%
</TABLE>
The Corporate Bond Fund reported a 4.92% cumulative total return for Class A
shares, excluding sales charge for the six-month period ended December 31, 1998.
The Fund outperformed its benchmark, the Lehman Brothers Corporate Long Bond
Index, which returned 3.98% over the same period. The Fund's strong performance
can be attributed to our careful attention to sector allocations within the
Fund. We strategically shifted assets into U.S. Treasuries to take advantage of
yield opportunities during extreme market volatility. As interest rates fell,
this provided us with favorable circumstances to reinvest assets into corporate
bonds with very attractive yields.
PORTFOLIO REVIEW
Corporate bonds represented the largest allocation for the Fund with 82% of
assets on December 31, 1998, up from 78% on June 30, 1998. We increased our
position in this sector when interest rates fell because the market was flooded
with corporate bonds available for very attractive prices. This occurred because
falling interest rates provided an opportunity for corporations
4
<PAGE>
INVESTMENT ADVISOR COMMENTARY Corporate Bond Fund
- ------------------------------------------------------------------------
to lower their cost of capital by issuing low-cost debt. Throughout the period,
the corporate bond sector performed well for the Fund due to particularly wide
corporate spreads and active management.
We were careful to avoid cyclical sectors, such as capital goods, machinery
and raw materials, due to the negative impact the slowdown in Asia may have had
on them. Instead, we focused on industries like cinema, cable and healthcare to
search for good values. Overall, the bonds that performed well for the Fund were
ones unaffected by the Asian market crisis.
Due to the yield advantage provided by securities with lower credit quality,
we have slightly increased the high yield component of the Fund. For example,
BB/Ba-rated bonds currently represent 23% of the portfolio, up from 17% on June
30, 1998. We feel that we have invested in high yield bonds that represent solid
companies with significant potential. These securities should continue to
capture opportunities for higher yields for the Fund.
CREDIT QUALITY
(as of December 31, 1998)(3)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 11%
AA 3%
A 27%
BBB 34%
BB/Ba 23%
Cash Equivalents 2%
</TABLE>
The Fund's top ten holdings represent corporate securities issued by
well-known, established companies. Tele Communications Inc. ("TCI") provides a
good example of our continuing focus on companies that generate strong cash flow
from domestic operations. TCI is the 2nd largest cable company in the U.S. and
thus should be relatively insulated from global events as well as a domestic
slowdown (i.e. non-cyclical). TCI bonds have performed exceptionally well. AT&T
has recently announced their intention to merge with TCI in a $32 billion
buyout. This will substantially improve TCI's credit profile while enhancing
AT&T's access to U.S. homes.
5
<PAGE>
Corporate Bond Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
TOP 10 HOLDINGS (as of December 31, 1998)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
% OF PORTFOLIO'S
NAME/COUPON MARKET VALUE
<S> <C>
U.S. TREASURY BONDS, 8.00%,
11/15/21 5.2%
HOUSEHOLD FINANCE CORPORATION,
6.4%, 6/17/08 3.4%
CAMDEN PROPERTIES TRUST, 6.63%,
2/15/01 3.2%
TELE COMMUNICATIONS INCORPORAT-
ED, 7.88%, 2/15/26 3.1%
HOMESIDE INCORPORATED PRIVATE
PLACEMENT, 11.25%, 5/15/03 3.1%
NATIONS BANK CORPORATION, 7.25%,
10/15/25 2.9%
J.C. PENNEY & COMPANY, 7.65%,
8/15/26 2.8%
TRANS-CANADA PIPELINE, 6.49%,
1/21/09 2.7%
K.N. ENERGY INCORPORATED, 6.8%,
3/1/08 2.6%
CENDANT CORPORATION, 7.50%,
12/01/00 2.6%
</TABLE>
PORTFOLIO ALLOCATION
(as of December 31, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Bonds 9%
U.S. Treasury Notes 1%
Foreign Government Bonds 6%
Corporate Bonds 82%
Cash 2%
</TABLE>
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second half
of 1998 will give way to moderate growth during the first half of 1999. We
expect the Federal Reserve Board will lower interest rates again sometime in the
first half of 1999. As a decrease in interest rates should produce a sharper
yield curve, we expect long-term rates may return to their past lows.
While the corporate bond sector of the market is more sensitive to the U.S.
economy and more vulnerable to interest rate movements, we expect corporate
bonds to remain relatively stable, producing higher yields in the upcoming year.
We continue to see value in the high yield market and expect to participate in
the growth of this sector up to a maximum of 25% of the portfolio. Going
6
<PAGE>
forward, we will maintain a relatively defensive profile and will only look to
add cyclical corporate bonds when we feel the global economy has regained its
stability.
Past performance is no guarantee of future results.
1 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 charges assumes maximum contingent
deferred sales charge for the corresponding time period.
The Lehman Brothers Corporate Long Bond Index is an unmanaged index composed
of all publicly issued, fixed-rate nonconvertible investment grade domestic
corporate debt. The index does not incur expenses and is not available
directly for investment. Had this index incurred operating expenses, its
performance would have been lower.
2 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.
3 The average credit rating is compiled from ratings by Standard & Poor's and/or
Moody's Investor 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>
Short-Intermediate U.S. Government Income Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS (%) (as of December 31, 1998)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
SIX-MONTHS 1-YEAR 5-YEAR 10/27/93
<S> <C> <C> <C> <C>
CLASS A 4.54 7.61 5.90 5.80
CLASS B 4.17 6.97 5.25 5.15
INSTITUTIONAL CLASS 4.60 7.72 5.94 5.84
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
SIX-MONTHS 1-YEAR 5-YEAR 10/27/93
<S> <C> <C> <C> <C>
CLASS A 1.39 4.35 5.26 5.18
CLASS B (0.83) 1.97 4.92 4.99
INSTITUTIONAL CLASS N/A N/A N/A N/A
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTHS 1-YEAR 5-YEAR
<S> <C> <C> <C> <C>
LEHMAN BROTHERS TREASURY NOTE
INDEX 3.90 7.02 5.97
</TABLE>
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. Investing in short- to intermediate-term bonds with an
average maturity of between two and five years helps to maximize the Fund's
income potential.
Madeleine Gish manages the Short-Intermediate U.S. Government Income Fund. Ms.
Gish 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.
8
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
PERFORMANCE SUMMARY
The Short-Intermediate U.S. Government Income Fund's Class A share net asset
value increased from $9.97 on June 30, 1998, to $10.13 on December 31, 1998. The
Fund distributed $0.29 per share in dividend income. No capital gains were
distributed for the Fund. Keep in mind that past distributions are not
predictive of future trends as distributions will vary based on Fund portfolio
earnings.
PORTFOLIO DATA (as of December 31, 1998)(2)
- ---------------------------------------------------------
<TABLE>
<S> <C>
NUMBER OF ISSUES 57
WEIGHTED AVERAGE COUPON 6.70%
4.85
WEIGHTED AVERAGE MATURITY years
AVERAGE CREDIT QUALITY AAA
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
NAV 10.13 10.13
DISTRIBUTION RATE 5.40% 4.86%
SEC YIELD 4.41% 3.17%
</TABLE>
The Short-Intermediate U.S. Government Income Fund reported a cumulative total
return of 4.54% for Class A shares, excluding sales charge, and the
Institutional Class shares returned 4.60% for the six-month period ended
December 31, 1998. The Fund outperformed its benchmark, the Lehman Brothers
Treasury Note Index, which returned 3.90% over the same period. Overall, the
Fund's performance was affected by the market's volatility during the six-month
period. The intermediate range of the yield curve, in particular, showed a high
level of volatility that hampered the Fund's return.
The Fund's performance was boosted in the third quarter of 1998 when we
reduced our corporate exposure. As corporate spreads started to widen, we
decreased our corporate holdings and increased our Treasury exposure. In
addition, the corporate securities we held were five years or less in duration,
which
9
<PAGE>
Short-Intermediate U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
performed better overall than longer corporate bonds. Corporate exposure was
increased again in the fourth quarter, taking advantage of wider spreads.
PORTFOLIO REVIEW
In an attempt to improve the Fund's performance in the falling interest rate
environment, we increased our exposure to U.S. Treasuries from 18% on June 30,
1998 to 24% on December 31, 1998. In addition, our strategy included maintaining
our exposure to mortgage-backed securities, which enabled us to capture the
higher yield from that sector. We are satisfied with our current mortgage bond
holdings which are primarily lower coupon securities, with a decreased
prepayment risk.
CREDIT QUALITY
(as of December 31, 1998)3
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 69%
AA 5%
A 19%
BBB 6%
Cash Equivalents 1%
</TABLE>
The Fund's average credit quality increased during the six-month reporting
period from AA to AAA. This change occurred as we added more Treasury securities
to the portfolio and sold lower rated bonds.
The Fund is managed with a total return strategy that balances reasonable risk
with the potential for competitive income and capital preservation. As of
December 31, 1998, the Fund had 41% of its assets invested in federal agency
securities, some of which are backed, but not guaranteed 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.
The bonds selected in the top ten holdings represent a solid mix of federal
agency securities, corporate bonds and Treasury notes. We took advantage of
widening spreads in the fourth quarter of 1998 by purchasing Associates
Corporation of North America, a high quality corporate bond. As spreads later
narrowed by 50%, the bond's value increased, which benefited the Fund's
performance.
10
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
TOP 10 HOLDINGS (as of December 31, 1998)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
% OF PORTFOLIO'S
NAME/COUPON MARKET VALUE
<S> <C>
FHLB, 5.53%, 1/15/03 5.8%
U.S. TREASURY NOTES, 6.50%, 10/15/06 4.9%
FHLMC, 6.79%, 8/26/05 3.9%
PACIFIC GAS & ELECTRIC COMPANY,
7.875%, 3/01/02 3.8%
FNMA, 6.160%, 12/18/07 3.8%
FHLMC, 7.01%, 7/11/07 3.7%
U.S. TREASURY NOTES, 5.75%, 4/30/03 3.7%
FORD MOTOR CREDIT COMPANY,
6.13%, 4/28/03 3.6%
FIRST BANK CORPORATION, 6.40%, 2/15/03 3.6%
FNMA MTN, 6.18%, 6/23/00 3.6%
</TABLE>
PORTFOLIO ALLOCATION
(as of December 31, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 41%
Corporate Bond 31%
U.S. Treasury Notes 22%
U.S. Treasury Bonds 2%
Foreign Government 3%
Cash 1%
</TABLE>
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second half
of 1998 will give way to moderate growth during the first half of 1999. We
expect the Federal Reserve Board will lower interest rates again sometime in the
first half of 1999. A decrease in interest rates should produce a sharper yield
curve. Flight to quality from another global financial crisis could push
long-term rates to their past lows.
Given this outlook, we continue to be bullish on the bond market. As a result,
we have positioned the Fund's duration longer than its benchmark by
approximately 15%. We expect to maintain our overweight position in corporate
bonds due to attractive spreads and their high income potential over U.S.
Treasuries. We will keep a close watch, however, on this sector and may look to
decrease exposure if we foresee lower corporate earnings and high absolute
levels of corporate debt. As always, we will continue to focus on providing
investors with current income and preservation of capital.
11
<PAGE>
Short-Intermediate U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
Past performance is no guarantee of future results.
1 Performance shown for the Class B shares of the Fund for periods prior to June
15, 1998 reflects the performance and expenses of the Fund's Class A shares.
Performance shown for the Institutional Class shares of the Fund for periods
prior to September 6, 1996 reflects the performance and expenses of the Fund's
Class A shares.
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 maximum contingent deferred sales
charge for the corresponding time period.
The Lehman Brothers Treasury Note Index is an unmanaged index composed of U.S.
Treasury 2-10 year notes. The Index does not incur expenses and is not
available directly for investment. Had this Index incurred operating expenses,
its performance would have been lower.
2 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.
3 The average credit rating is compiled from ratings by Standard & Poor's and/or
Moody's Investor 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.
12
<PAGE>
PERFORMANCE AT A GLANCE Strategic Income Fund
- ------------------------------------------------------------------------
STRATEGIC INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS (%) (as of December 31, 1998)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
(7/13/98)
<S> <C>
CLASS A 3.57
CLASS B 3.29
CLASS C 3.29
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
(7/13/98)
<S> <C>
CLASS A (1.10)
CLASS B (1.71)
CLASS C 2.29
</TABLE>
BENCHMARKS
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE FUND'S
INCEPTION
(7/13/98)
<S> <C>
LEHMAN BROTHERS AGGREGATE BOND INDEX 4.27
S&P 500 INDEX 6.32
</TABLE>
The Stagecoach Strategic Income Fund (the "Fund") seeks to maximize income
while maintaining prospects for capital appreciation. The Fund invests in a
diversified portfolio of debt securities and income-producing equity securities
selected with particular consideration for their potential to generate current
income. Assets shift between bonds and stocks depending on where opportunities
for income are most attractive. The Fund may buy debt securities that are below
investment grade as well as debt rated in the lower investment grade categories.
The equity focus will be on securities issued by companies in industries that
tend to pay high ongoing dividends, such as utilities. The Fund may purchase
preferred stock and other convertible securities, as well as common stock of any
size company.
The Fund is managed by a team of portfolio managers who actively manage the
Fund to provide a high level of income for investors.
13
<PAGE>
Strategic Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
Graham Allen, who specializes in global and high yield securities and has over
22 years of experience in the securities industry, leads the team. Other members
of the team contribute expertise in long-term investment grade corporate and
mortgage-backed securities, intermediate corporate and government bonds,
equities and foreign securities. Together, they bring a highly specialized and
unique discipline to the Fund.
PERFORMANCE SUMMARY
The Strategic Income Fund's Class A share net asset value increased from
$12.50 on the Fund's inception date, July 13, 1998, to $12.56 on December 31,
1998. The Fund distributed $0.37 per share in dividend income, and no capital
gains were distributed. Keep in mind that past distributions are not predictive
of future trends as distributions will vary based on Fund portfolio earnings.
PORTFOLIO DATA (as of December 31, 1998)(2)
- --------------------------------------------------
<TABLE>
<S> <C>
NUMBER OF ISSUES 82
WEIGHTED AVERAGE COUPON 8.19%
WEIGHTED AVERAGE MATURITY 13.1 years
AVERAGE CREDIT QUALITY Baa
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 12.56 12.57 12.57
DISTRIBUTION RATE 6.17% 5.70% 5.70%
SEC YIELD 6.83% 6.40% 6.33%
</TABLE>
The Strategic Income Fund reported a cumulative total return since inception
of 3.57% for Class A shares, excluding sales charge, and the Institutional Class
shares returned 3.29%, as of December 31, 1998. Because the Fund can invest in
bonds and equity securities, we have provided benchmarks that represent each
asset class for comparison. The Fund underperformed both benchmarks. The Lehman
Brothers Aggregate Bond Index returned 4.27% and the S&P 500 Index returned
6.32% over the same period. A combination of strong active management and swift
portfolio reallocations helped the Fund's performance during a time of unusual
market volatility.
14
<PAGE>
INVESTMENT ADVISOR COMMENTARY Strategic Income Fund
- ------------------------------------------------------------------------
For example, while maintaining diversification in five core sectors, we took
advantage of opportunities in the Treasury sector in response to unusual market
conditions. While Treasuries helped maintain price appreciation for the Fund
during market turbulence, other sectors such as corporate bonds and high yield
securities provided attractive opportunities for yield as the market stabilized.
Overall, we are pleased with the Fund's performance and the stability of its
share price given the stock market's high volatility.
PORTFOLIO REVIEW
To limit volatility, the Fund invests across five types of securities,
including corporate and government bonds, high yield bonds, Treasury Bills,
income-producing stocks, and foreign securities. The corporate bond sector
represented 68% of the Fund's assets as of December 31, 1998. We increased our
position in this sector when interest rates reached their low and corporate
bonds became a better value. At the same time, we decreased our Treasury
exposure to its current level of 16%.
Throughout the period, the corporate bond sector performed well for the Fund
due to particularly wide corporate spreads and active management. In addition,
the Fund made gains in the foreign and emerging markets sector. Purchases made
in the Philippines and Argentina did particularly well for the Fund.
The average credit quality of the bonds in the portfolio is BBB or BB as a
result of broad diversification. In addition, we are globally diversified as we
see enormous potential in the European high yield market.
CREDIT QUALITY
(as of December 31, 1998)(3)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
A or better 16%
BAA 27%
Lower than BAA 46%
Preferred Stock 2%
Common Stock 9%
</TABLE>
PORTFOLIO ALLOCATION
(as of December 31, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Bonds 16%
Foreign Government 5%
Corporate Bonds 68%
Common Stock 9%
Preferred Stock 2%
</TABLE>
Within the high yield sector, Cablevision performed well for the Fund. We
acquired the bonds in August and October when the market was particularly soft
and the price has increased since that time. Our research showed they were an
excellent credit for a number of reasons, including an almost certain TCI-AT&T
deal and an affiliate relationship with TCI. We foresee a solid future for
Cablevision.
Another high yield bond that boosted the Fund's performance was Tenet
Healthcare, the second largest hospital chain in the U.S. Purchased in October,
these bonds
15
<PAGE>
Strategic Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
have traded up significantly and their last earnings release was very positive.
In addition, as these bonds do not have any foreign exposures, they were
isolated from the effects of the Asian market crisis.
The securities selected in the top ten holdings represent a solid mix of
government bonds, corporate bonds, and stocks. We are particularly strong in
movie theaters, such as Cinemark U.S.A. and Loews Cineplex Entertainment, due to
their strong resistance during slower economic times and their potential to be
unaffected by global economic concerns, such as the recent Asian market crisis.
TOP 10 HOLDINGS (as of December 31, 1998)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
% OF PORTFOLIO'S
NAME/COUPON MARKET VALUE
<S> <C>
U.S. TREASURY BONDS, 5.25%, 11/15/28 15.5%
COCA-COLA BOTTLING COMPANY, 7.20%,
7/01/09 3.9%
CABLE & WIRELESS COMMUNICATIONS,
6.75%, 3/6/08 3.1%
NEWS AMERICA HOLDINGS INCORPORATED,
8.00%, 10/17/16 2.6%
RANDALLS FOOD MARKETS INCORPORATED,
9.38%, 7/1/07 2.5%
D. R. HORTON INCORPORATED, 10.00%,
4/15/06 2.5%
CINEMARK U.S.A. INCORPORATED, 9.625%,
8/01/08 2.4%
LOEWS CINEPLEX ENTERTAINMENT, 8.88%,
8/1/08 2.4%
SPRINT CAPITAL CORPORATION, 6.13%,
11/15/08 2.4%
CENDANT CORPORATION, 7.50%, 12/01/00 2.4%
</TABLE>
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second half
of 1998 will give way to moderate growth during the first half of 1999. We
expect the Federal Reserve Board will lower rates again
16
<PAGE>
sometime in the first half of 1999. As a decrease in interest rates should
steepen the yield curve, we expect long-term rates may return to their old lows.
We continue to see value in the high yield market and expect to maintain a
high level of exposure. In addition, we expect the development of European
markets to be important and may consider adding high grade government bonds from
overseas. Specifically, if rates fall in Europe, these types of bonds should
perform well. Overall, we feel the Fund is positioned well to maximize income in
the coming months.
Past performance is no guarantee of future results.
1 Investments in lower rated higher yielding corporate bonds are subject to
additional risks because they tend to be more sensitive to economic conditions
and, during sustained periods of rising interest rates, may experience
interest and/or principle defaults. Investments in foreign securities entail
certain additional risks that may not be present in domestic securities,
including currency fluctuation, the potential for diplomatic and political
instability, regulatory and liquidity risks, foreign taxation and differences
in auditing and other financial standards.
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 charges assumes maximum contingent
deferred sales charge for the corresponding time period.
The Lehman Brothers Aggregate Bond Index is composed of the Lehman
Government/Corporate Index and the Mortgage-Backed Securities Index and
includes treasury issues, agency issues, corporate bond issues and mortgage
backed securities. The index does not incur expenses and is not available
directly for investment. Had this index incurred operating expenses, its
performance would have been lower.
17
<PAGE>
The "S&P 500 Index" is a trademark of Standard & 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 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.
3 The average credit rating is compiled from ratings by Standard & Poor's and/or
Moody's Investor 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.
18
<PAGE>
PERFORMANCE AT A GLANCE U.S. Government Income Fund
- ------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS (%) (as of December 31, 1998)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTHS 1-YEAR 5-YEAR 10-YEAR
<S> <C> <C> <C> <C>
CLASS A 3.99 7.35 5.73 8.78
CLASS B 3.55 6.64 4.96 8.08
CLASS C 3.64 6.63 4.98 8.09
INSTITUTIONAL CLASS 3.94 7.39 5.73 8.78
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTHS 1-YEAR 5-YEAR 10-YEAR
<S> <C> <C> <C> <C>
CLASS A (0.73) 2.55 4.76 8.28
CLASS B (1.45) 1.63 4.67 8.08
CLASS C 2.64 5.63 4.98 8.09
INSTITUTIONAL CLASS N/A N/A N/A N/A
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTHS 1-YEAR 5-YEAR 10-YEAR
<S> <C> <C> <C> <C>
LEHMAN BROTHERS U.S. GOVERNMENT LONG
BOND INDEX 6.74 13.41 9.35 11.54
</TABLE>
The Stagecoach U.S. Government Income Fund (the "Fund") seeks to achieve a
long-term rate of return through preserving capital and earning high interest
income by investing principally in a portfolio of U.S. Government mortgage
pass-through securities, consisting primarily of securities issued by GNMA, FNMA
and FHLMC. 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.
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.
19
<PAGE>
U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
PERFORMANCE SUMMARY
The U.S. Government Income Fund's Class A share price increased from $10.93 on
June 30, 1998, to $11.07 on December 31, 1998. The Fund distributed $0.29 per
share in dividend income, and the Fund's distribution rate for Class A shares
was 4.80%. No capital gains were distributed. Keep in mind that past
distributions are not predictive of future trends as distributions will vary
based on Fund portfolio earnings.
PORTFOLIO DATA (as of December 31, 1998)(2)
- ---------------------------------------------------------
<TABLE>
<S> <C>
NUMBER OF ISSUES 74
WEIGHTED AVERAGE COUPON 7.07%
WEIGHTED AVERAGE MATURITY 23.42 years
AVERAGE CREDIT QUALITY AAA
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 11.07 10.89 10.90
DISTRIBUTION RATE 4.80% 4.33% 4.31%
SEC YIELD 4.70% 4.21% 4.19%
</TABLE>
The U.S. Government Income Fund reported a cumulative total return of 3.99%
for Class A shares, excluding sales charge, and the Institutional Class shares
returned 3.94%, for the six-month period ended December 31, 1998. The Fund
lagged its benchmark, the Lehman Brothers U.S. Government Long Bond Index, which
returned 6.74% over the same period. The Index is composed entirely of U.S.
Treasuries whereas, the Fund must have at least 65% of its assets in mortgage-
backed securities, causing the difference in performance. In addition, the Fund
has a substantially shorter maturity than the benchmark. As a result, when
interest rates declined, the Fund's performance was impacted by its
mortgage-backed bonds and their shorter durations.
PORTFOLIO REVIEW
The Fund was well positioned to take advantage of falling rates, owning 10% of
longer-term Treasuries and government agency securities at year end. In
addition, our strategy included owning lower coupon mortgage-backed securities
to protect the Fund from prepayment
20
<PAGE>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
risk. Overall, these moves helped to extend the Fund's duration, enhancing
performance in a declining interest rate environment.
The Fund is managed with a total return strategy that balances reasonable risk
with competitive income and capital preservation. As of December 31, 1998, the
Fund had 90% of its assets invested 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.
The "AAA-rated" portfolio helps the Fund provide regular income, preserve
capital and maintain liquidity.
CREDIT QUALITY
(as of December 31, 1998)3
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AAA 96%
Cash Equivalents 4%
</TABLE>
The bonds selected in the top ten holdings demonstrate our strategy to manage
coupon and U.S. Treasury exposure. As of December 31, 1998, the portfolio was
heavily weighted in mortgage-backed securities. We search for bonds based on
their value and expected performance. During the reporting period, we witnessed
a "flight to quality" in the bond market whereby investors preferred the
liquidity of U.S. Treasuries. As a result, we currently find mortgage-backed
securities relatively inexpensive and are making attempts to increase such
holdings in our portfolio.
TOP 10 HOLDINGS (as of December 31, 1998)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
% OF PORTFOLIO'S
NAME/COUPON MARKET VALUE
<S> <C>
U.S. TREASURY BONDS, 10.375%,
11/15/12 6.1%
GNMA POOL #486724, 6.5% 12/15/28 4.7%
FNMA POOL #252211, 6.0%, 12/1/28 4.4%
FNMA POOL #443908, 6.5%, 11/1/28 4.3%
FNMA POOL #430194, 7.0%, 6/1/28 4.3%
FNMA POOL #430040, 6.5%, 6/1/28 4.2%
FNMA POOL #251759, 6.0%, 5/1/13 4.2%
FNMA POOL #440447, 6.0%, 9/1/28 4.2%
FNMA POOL #251700, 6.5%, 5/1/13 4.2%
FNMA POOL #415789, 6.0%, 5/1/28 3.9%
</TABLE>
21
<PAGE>
U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
PORTFOLIO ALLOCATION
(as of December 31, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Treasury Bonds 6%
U.S. Govt Agency 90%
Cash 4%
</TABLE>
STRATEGIC OUTLOOK
We believe the economy's stronger-than-expected performance in the second half
of 1998 will give way to moderate growth during the first half of 1999. We
expect the Federal Reserve Board will lower interest rates again sometime in the
first half of 1999. Within this environment, we look for short-term rates to
decline more than longer-term rates resulting in a steeper yield curve.
Given this outlook, we may add to our short-and intermediate-term positions to
take advantage of the projected yield curve. In addition, we expect to continue
our overweighting of mortgage-backed securities due to their current wide
spreads. Finally, as we believe interest rates will trend downward, we will
strive to maintain a lower coupon bias to avoid prepayment risk. Overall,
managing our coupon exposure will play a significant role in the coming months
as we seek to ensure a balance between income, stability and price appreciation.
Past performance is no guarantee of future results.
1 Performance for the Class A, Class B, Class C and Institutional Class shares
of the U.S. Government Income Fund 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.
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 charges assumes maximum contingent
deferred sales charge for the corresponding time period.
The Lehman Brothers U.S. Government Long Bond Index is an unmanaged index
composed of publicly issued long-term government debt securities with an
average maturity of 23-25 years. The index 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>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
2 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.
3 The average credit rating is compiled from ratings by Standard & Poor's and/or
Moody's Investor 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.
23
<PAGE>
Variable Rate Government Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
AVERAGE ANNUAL TOTAL RETURNS (%) (as of December 31, 1998)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
SIX-MONTHS 1-YEAR 5-YEAR (11/1/90)
<S> <C> <C> <C> <C>
CLASS A 1.39 3.58 3.38 4.57
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
SIX-MONTHS 1-YEAR 5-YEAR (11/1/90)
<S> <C> <C> <C> <C>
CLASS A (1.61) 0.43 2.76 4.18
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SIX-MONTHS 1-YEAR 5-YEAR
<S> <C> <C> <C> <C>
LEHMAN BROTHERS ARMS INDEX 2.20 5.27 6.11
</TABLE>
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.
Paul Single is responsible for the day-to-day management of the Variable Rate
Government Fund. Managing fixed income portfolios for Wells Fargo Bank since
1988, Mr. Single specializes in mortgage-backed securities and fixed income
investing.
PERFORMANCE SUMMARY
The Variable Rate Government Fund's Class A share price decreased from $9.19
on June 30, 1998, to $9.09 on December 31, 1998. The Fund distributed $0.23 per
share in dividend income, and no capital gains were distributed. Keep in mind
that past distributions are not predictive of future trends as distributions
will vary based on Fund portfolio earnings.
24
<PAGE>
INVESTMENT ADVISOR COMMENTARY Variable Rate Government Fund
- ------------------------------------------------------------------------
PORTFOLIO DATA (as of December 31, 1998)(2)
- ---------------------------------------------------------
<TABLE>
<S> <C>
NUMBER OF ISSUES 21
WEIGHTED AVERAGE COUPON 6.29%
WEIGHTED AVERAGE MATURITY 17.27 years
AVERAGE CREDIT QUALITY AG4
<CAPTION>
CLASS A
<S> <C>
NAV 9.09
DISTRIBUTION RATE 4.53%
SEC YIELD 4.66%
</TABLE>
The Variable Rate Government Fund reported a cumulative total return of 1.39%
for Class A shares, excluding sales charge for the six-month period ended
December 31, 1998. The Fund lagged its benchmark, the Lehman Brothers ARMs
Index, which returned 2.20% over the same period. As discussed in our last
report, the performance of the ARMs Index was again largely driven by the
performance of the 11th District Cost of Funds Index ("COFI") sector. The Lehman
Brothers ARMs Index contains a higher weighting in COFI securities than the
Fund, accounting for the Fund's underperformance compared to the benchmark. COFI
securities trade at higher premiums and have longer durations than other ARMs,
which means as interest rates decline, as they did during the last six months,
they will be good performers.
Another reason for the Fund's lackluster performance centers on the ARMs
market itself. During the reporting period, ARMs continued to underperform
relative to alternative investments. Many investors were wary of the ARMs market
due to a flat yield curve and extraordinarily high prepayment rates. In
addition, demand for ARMs decreased as the economy changed because banks began
making loans rather than buying ARMs.
PORTFOLIO REVIEW
In an attempt to boost the Fund's yield, we increased the Fund's duration by
purchasing 5-year Treasuries. As a result, the Fund's performance improved in
the fourth quarter of 1998.
PORTFOLIO ALLOCATION
(as of December 31, 1998)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C>
ARMs:
FNMA 32%
FHLMC 22%
GNMA 16%
CMOs: FHLMC 3%
Treasury Notes 26%
Cash 1%
</TABLE>
25
<PAGE>
Variable Rate Government Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
The Fund's portfolio allocation and duration are managed on an ongoing basis.
During the six-month reporting period, COFI and GNMA sectors performed well for
the Fund because of their longer duration and low prepayment rate. In addition,
we increased our allocation in Treasuries to 26% in an attempt to capture higher
yields and lengthen the Fund's duration.
The bonds selected in the top ten holdings help maintain our strategy to
manage prepayment risk, increase duration and boost yield. We have the ability
to invest in a broad range of mortgage securities and U.S. Treasury securities
with remaining maturities of up to five years, which provide additional
diversification within the ARMs market.
TOP 10 HOLDINGS (as of December 31, 1998)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
% OF PORTFOLIO'S
NAME/COUPON MARKET VALUE
<S> <C>
U.S. TREASURY NOTES, 4.25%,
11/15/03 17.1%
U.S. TREASURY NOTES, 5.38%,
6/30/03 8.7%
FHLMC POOL #846150 (CMT), 7.62%,
4/1/21 8.3%
FNMA POOL #323186, 7.50%, 9/1/25 7.8%
GNMA II #8121, 6.87%, 01/20/23 7.1%
FNMA #66397, 6.25%, 3/1/18 6.8%
FNMA POOL #323382, 7.43%,
10/1/28 5.8%
FHLMC #610303, 7.58%, 4/1/18 5.7%
GNMA II #8076, 6.70%, 11/20/22 5.5%
FNMA #57733, 6.14%, 2/1/17 5.2%
</TABLE>
STRATEGIC OUTLOOK
We anticipate that the economy will be moderate in 1999, causing the Federal
Reserve Board to lower interest rates again sometime in the first half of 1999.
A decrease in interest rates should produce a sharper yield curve as short rates
decline faster than long rates. We
26
<PAGE>
INVESTMENT ADVISOR COMMENTARY Variable Rate Government Fund
- ------------------------------------------------------------------------
expect this change in the yield curve will be beneficial to the ARMs market as
an increased differential between short and long rates should decrease
prepayment risk.
Past performance is no guarantee of future results.
1 Performance shown for the Class A shares of the Variable Rate Government Fund
reflects performance of a predecessor portfolio with the same investment
objective and policies as the Variable Rate Government Fund. Complete
historical information about any Stagecoach Fund can be found in such Fund's
prospectus and statement of additional information.
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 Lehman Brothers ARMs Index is an unmanaged index composed of
agency-guaranteed securities with coupons that periodically adjust based on a
spread over a published index. The index does not incur expenses and is not
available directly for investment. Had this index incurred operating expenses,
its performance would have been lower.
2 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.
27
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
28
<PAGE>
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED) Corporate Bond Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 5.66%
FOREIGN GOVERNMENTS - 5.66%
$ 100,000 Quebec Province 8.80 % 04/15/03 $ 112,213
240,000 Republic of Argentina 11.00 10/09/06 238,200
340,000 Republic of Poland 7.13 07/01/04 352,325
200,000 United Mexican States 8.63 03/12/08 187,000
--------------
TOTAL FOREIGN GOVERNMENTS $ 889,738
(Cost $898,926)
CORPORATE BONDS & NOTES - 79.87%
BANK & FINANCE - 21.00%
$ 100,000 Associates Corporation of North America 6.73 % 09/30/02 $ 104,033
300,000 AT & T Capital Corporation 6.60 05/15/05 294,000
490,000 Camden Properties Trust 6.63 02/15/01 483,517
300,000 Citicorp Capital II 8.02 02/15/27 335,250
100,000 Discover Credit Corporation Series II 9.14 03/13/12 126,076
300,000 ERP Operating Limited Partnership 6.63 04/13/05 296,028
300,000 Ford Motor Credit Corporation 6.00 01/14/03 304,875
100,000 General Motors Acceptance Corporation 6.13 01/22/08 102,000
500,000 Household Finance Corporation 6.40 06/17/08 515,000
400,000 NationsBank Corporation 7.25 10/15/25 438,000
300,000 Transamerica Finance Corporation 6.13 11/01/01 300,375
--------------
$ 3,299,154
ENERGY & RELATED - 2.10%
$ 100,000 Noram Energy Corporation 6.50 % 02/01/08 $ 103,000
205,000 Occidental Petroleum Corporation 10.13 11/15/01 227,038
--------------
$ 330,038
</TABLE>
29
<PAGE>
Corporate Bond Fund PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
ENTERTAINMENT & LEISURE - 9.59%
$ 250,000 Loews Cineplex Entertainment 8.88 % 08/01/08 $ 256,250
200,000 News America Incorporated 6.70 05/21/04 209,500
250,000 News American Holdings Incorporated 9.25 02/01/13 310,000
250,000 Regal Cinemas Incorporated Private Placement 9.50 06/01/08 260,000
125,000 Sun International Hotels Limited 9.00 03/15/07 130,155
300,000 Time Warner Incorporated 8.11 08/15/06 341,250
--------------
$ 1,507,155
FOOD & RELATED - 2.70%
$ 200,000 Marsh Supermarkets Incorporated 8.88 % 08/01/07 $ 209,250
200,000 Randalls Food Markets Incorporated 9.38 07/01/07 214,500
--------------
$ 423,750
HEALTHCARE - 1.32%
$ 200,000 Tenet Healthcare Corporation 8.13 % 12/01/08 $ 206,750
INDUSTRIALS - 21.85%
$ 400,000 Cendant Corporation 7.50 % 12/01/00 $ 402,500
300,000 Daimler Chrysler AG 7.45 02/01/97 345,000
250,000 Cinemark USA Incorporated 9.63 08/01/08 261,875
200,000 CSC Holdings Incorporated 9.88 05/15/06 212,250
100,000 CSC Holdings Incorporated 10.50 05/15/16 118,500
200,000 D. R. Horton Incorporated 10.00 04/15/06 211,500
350,000 Dial Corporation 6.50 09/15/08 358,820
300,000 Enserch Corporation 6.56 07/01/05 313,125
150,000 Fort James Corporation 6.88 09/15/07 155,063
200,000 Frontiervision Operating Partners 11.00 10/15/06 221,250
400,000 Homeside Incorporated Private Placement 11.25 05/15/03 470,500
100,000 International Business Machines 8.38 11/01/19 126,375
125,000 Playtex Family Products 9.00 12/15/03 130,000
100,000 Raytheon Corporation 6.55 03/15/10 103,750
--------------
$ 3,430,508
</TABLE>
30
<PAGE>
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED) Corporate Bond Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
RETAIL & RELATED - 6.96%
$ 100,000 Dayton Hudson Corporation 7.25 % 09/01/04 $ 108,000
300,000 Federated Department Stores Incorporated 6.13 09/01/01 300,750
400,000 J.C. Penney & Company 7.65 08/15/16 433,500
250,000 K-Mart Corporation 8.25 01/01/22 251,562
--------------
$ 1,093,812
TELECOMMUNICATIONS - 7.19%
$ 100,000 Adelphia Communications Corporation 9.88 % 03/01/07 $ 110,250
100,000 Cable & Wireless Communications 6.75 03/06/08 101,125
100,000 Century Communications Corporation 8.88 01/15/07 110,500
300,000 Continental Cablevision 8.30 05/15/06 336,750
400,000 Tele Communications Incorporated 7.88 02/15/26 471,500
--------------
$ 1,130,125
TRANSPORTATION - 1.95%
$ 300,000 Union Pacific Corporation 6.63 % 02/01/08 $ 305,625
UTILITIES - 5.21%
$ 400,000 K. N. Energy Incorporated 6.80 % 03/01/08 $ 406,000
400,000 Trans-Canada Pipelines 6.49 01/21/09 412,000
--------------
$ 818,000
TOTAL CORPORATE BONDS & NOTES $ 12,544,917
(Cost $12,332,512)
U.S. TREASURY SECURITIES - 10.19%
$ 250,000 U.S. Treasury Bonds 6.13 % 11/15/27 $ 279,843
600,000 U.S. Treasury Bonds 8.00 11/15/21 802,218
15,000 U.S. Treasury Bonds 8.75 08/15/20 21,347
170,000 U.S. Treasury Bonds 12.50 08/15/14 273,090
200,000 U.S. Treasury Notes 7.25 05/15/04 224,156
--------------
TOTAL U.S. TREASURY SECURITIES $ 1,600,654
(Cost $1,583,790)
</TABLE>
31
<PAGE>
Corporate Bond Fund PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 1.99%
REPURCHASE AGREEMENTS - 1.99%
$ 290,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.70 01/04/99 $ 290,000
3,000 HSBC Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.80 01/04/99 3,000
9,000 JP Morgan Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.75 01/04/99 9,000
10,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.65 01/04/99 10,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 312,000
(Cost $312,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $15,127,228)* (Notes 1 and 3) 97.71% $ 15,347,309
Other Assets and Liabilities, Net 2.29 360,432
------ --------------
TOTAL NET ASSETS 100.00% $ 15,707,741
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* 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 $ 276,494
Gross Unrealized Depreciation (56,413)
--------------
NET UNREALIZED APPRECIATION $ 220,081
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
PORTFOLIO OF INVESTMENTS -
DECEMBER 31, 1998 (UNAUDITED) Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 2.55%
FOREIGN GOVERNMENTS - 2.55%
$ 500,000 National Australia Bank 6.40 % 12/10/07 $ 507,175
1,300,000 Province of Ontario 7.63 06/22/04 1,433,250
1,500,000 Province of Quebec 8.80 04/15/03 1,683,195
--------------
TOTAL FOREIGN GOVERNMENTS $ 3,623,620
(Cost $3,495,192)
CORPORATE BONDS & NOTES - 30.67%
BANK & FINANCE - 13.22%
$ 4,000,000 Associate Corporation N.A. 5.75 % 11/01/03 $ 4,005,000
200,000 Banc One Corporation 7.00 03/25/02 209,750
250,000 Bank of America Corporation 8.38 03/15/02 269,688
500,000 EOP Operating LP 6.38 02/15/03 498,750
500,000 Equity Residential Properties 6.15 09/15/00 498,225
5,000,000 First Bank Corporation 6.40 02/15/03 5,102,650
5,000,000 Ford Motor Credit Company 6.13 04/28/03 5,118,750
1,000,000 General Motors Acceptance Corporation 6.88 07/15/01 1,032,500
1,000,000 Nynex Credit Company 6.25 06/13/02 1,004,440
1,000,000 Standard Credit Card Master Trust 8.35 01/07/00 1,009,470
--------------
$ 18,749,223
BEVERAGE BREWING AND DISTRIBUTION - 3.00%
$ 4,000,000 Anheuser-Busch Companies Incorporated 6.75 % 08/01/03 $ 4,250,000
INDUSTRIALS - 4.75%
$ 4,000,000 Honeywell Incorporated 6.75 % 03/15/02 $ 4,165,000
1,000,000 Lockheed Martin Company 6.85 05/15/01 1,028,750
1,500,000 Mobil Oil Corporation 6.25 08/31/01 1,543,125
--------------
$ 6,736,875
</TABLE>
33
<PAGE>
PORTFOLIO OF INVESTMENTS -
Short-Intermediate U.S. Government Income Fund DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
ENTERTAINMENT & LEISURE - 0.37%
$ 500,000 News America Incorporated 6.70 % 05/21/04 $ 523,750
TELECOMMUNICATIONS - 2.99%
$ 2,000,000 Cable & Wireless Communications PLC 6.38 % 03/06/03 $ 2,000,880
2,000,000 Continental Cablevision 8.30 05/15/06 2,245,000
--------------
$ 4,245,880
UTILITIES - 6.34%
$ 500,000 AT&T 6.25 % 05/15/01 $ 496,250
2,500,000 MCI Worldcom 6.13 08/15/01 2,537,500
5,000,000 Pacific Gas & Electric Company 7.88 03/01/02 5,362,500
500,000 Public Service Electric & Gas Company 9.13 07/01/05 593,750
--------------
$ 8,990,000
TOTAL CORPORATE BONDS & NOTES $ 43,495,728
(Cost $42,515,145)
U.S. GOVERNMENT AGENCY SECURITIES - 40.64%
FEDERAL AGENCY - OTHER - 1.46%
$ 2,000,000 Tennessee Valley Authority 6.50 % 08/20/01 $ 2,070,320
FEDERAL FARM CREDIT - 1.45%
$ 2,000,000 Federal Farm Credit Bank 5.75 % 02/09/05 $ 2,049,380
FEDERAL HOME LOAN BANKS - 7.14%
$ 2,000,000 FHLB 5.13 % 09/15/03 $ 1,999,380
8,000,000 FHLB 5.53 01/15/03 8,129,520
--------------
$ 10,128,900
</TABLE>
34
<PAGE>
PORTFOLIO OF INVESTMENTS -
DECEMBER 31, 1998 (UNAUDITED) Short-Intermediate 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)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 9.30%
$ 5,000,000 FHLMC 6.79 % 08/26/05 $ 5,421,100
5,000,000 FHLMC 7.01 07/11/07 5,247,650
2,200,000 FHLMC 8.12 01/31/05 2,520,364
--------------
$ 13,189,114
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 17.51%
$ 2,900,000 FNMA 6.09 % 09/12/00 $ 2,951,214
5,000,000 FNMA 6.16 12/18/07 5,265,600
2,600,000 FNMA 6.50 07/16/07 2,789,722
424,531 FNMA #190843 7.00 06/01/09 433,837
335,637 FNMA #303905 6.50 05/01/11 340,688
3,123,395 FNMA #313644+ 7.00 08/01/27 3,186,550
2,672,228 FNMA #50761 6.00 07/01/08 2,679,736
5,000,000 FNMA MTN 6.18 06/23/00 5,090,850
2,000,000 FNMA MTN 6.69 08/07/01 2,086,520
--------------
$ 24,824,717
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.71%
$ 147,466 GNMA II #157247+ 9.50 % 05/20/16 $ 156,999
944,280 GNMA #336930+ 7.50 03/15/23 974,506
1,163,745 GNMA #417389+ 7.00 05/15/26 1,191,303
1,339,520 GNMA #418261+ 6.50 04/15/26 1,353,330
1,555,580 GNMA #423779+ 7.00 05/15/26 1,592,028
--------------
$ 5,268,166
REAL ESTATE MORTGAGE INVESTMENT CONDUITS - 0.07%
$ 87,203 FNMA 1993-G19+ 7.25 % 04/25/23 $ 92,952
--------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 57,623,549
(Cost $56,016,692)
</TABLE>
35
<PAGE>
PORTFOLIO OF INVESTMENTS -
Short-Intermediate U.S. Government Income Fund DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. TREASURY SECURITIES - 24.07%
U.S. TREASURY BONDS - 2.43%
$ 2,500,000 U.S. Treasury Bonds 10.38 % 11/15/12 $ 3,449,225
U.S. TREASURY NOTES - 21.64%
$ 3,500,000 U.S. Treasury Notes 8.50 % 11/15/00 $ 3,738,420
5,000,000 U.S. Treasury Notes 5.75 04/30/03 5,204,700
500,000 U.S. Treasury Notes 5.75 08/15/03 522,110
4,750,000 U.S. Treasury Notes 5.88 09/30/02 4,937,007
1,400,000 U.S. Treasury Notes 6.00 07/31/02 1,459,066
1,000,000 U.S. Treasury Notes 6.13 08/15/07 1,092,190
50,000 U.S. Treasury Notes 6.38 03/31/01 51,828
500,000 U.S. Treasury Notes 6.50 08/15/05 549,530
6,200,000 U.S. Treasury Notes 6.50 10/15/06 6,877,164
1,250,000 U.S. Treasury Notes 6.75 04/30/00 1,282,813
300,000 U.S. Treasury Notes 7.25 08/15/04 337,266
4,000,000 U.S. Treasury Notes 7.88 11/15/04 4,634,360
--------------
$ 30,686,454
TOTAL U.S. TREASURY SECURITIES $ 34,135,679
(Cost $33,474,263)
SHORT-TERM INSTRUMENTS - 1.15%
REPURCHASE AGREEMENTS - 1.15%
$ 1,626,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.70 01/04/99 $ 1,626,000
(Cost $1,626,000)
</TABLE>
36
<PAGE>
PORTFOLIO OF INVESTMENTS -
DECEMBER 31, 1998 (UNAUDITED) Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C> <C> <C>
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $137,127,292) 99.08% $ 140,504,576
Other Assets and Liabilities, Net 0.92 1,300,674
------ --------------
TOTAL NET ASSETS 100.00% $ 141,805,250
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</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 $ 3,495,033
Gross Unrealized Depreciation (117,749)
--------------
NET UNREALIZED APPRECIATION $ 3,377,284
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Strategic Income Fund PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - 9.09%
CAPITAL GOODS - 0.13 %
4,000 USEC Incorporated $ 59,535 $ 55,500
ENERGY & RELATED - 0.17%
400 Atlantic Richfield Corporation $ 28,732 $ 26,100
600 New Century Energies Incorporated 27,686 29,250
400 Texaco Incorporated 23,257 21,150
------------ --------------
$ 79,675 $ 76,500
FINANCE & RELATED - 6.60%
12,900 Archstone Communities Trust $ 256,955 $ 261,225
15,000 Arden Realty Group Incorporated 339,268 347,812
8,000 Charles E. Smith Residential Realty Incorporated 246,559 257,000
3,200 Duke Realty Investments Incorporated 71,019 74,400
5,000 Equity Residential Properties Trust 202,300 202,187
12,500 Highwoods Properties Incorporated 344,281 321,875
20,000 Indymac Mortgage Holdings Incorporated 309,935 211,250
2,400 Irvine Community Apartments Incorporated 68,080 76,500
17,000 Kilroy Realty Corporation 360,125 391,000
6,100 Post Properties Incorporated 236,051 234,468
2,000 Prologis Trust 47,860 41,500
7,200 Simon Property Group Incorporated 215,346 205,200
7,500 Spieker Properties Incorporated 263,138 259,688
------------ --------------
$ 2,960,917 $ 2,884,105
FOOD & RELATED - 0.09%
700 Philip Morris Companies Incorporated $ 28,056 $ 37,450
HEALTHCARE - 1.27%
12,000 American Health Properties Incorporated $ 280,066 $ 247,500
10,000 Health Care Property Investors Incorporated 328,725 307,500
------------ --------------
$ 608,791 $ 555,000
</TABLE>
38
<PAGE>
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED) Strategic Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C> <C> <C>
COMMON STOCKS (CONTINUED)
INTERNATIONAL STOCKS - 0.59%
8,000 British Steel PLC ADR (UK) $ 137,355 $ 117,000
4,000 Imperial Chemical Industries PLC ADR (UK) 148,990 139,750
------------ --------------
$ 286,345 $ 256,750
TELECOMMUNICATIONS - 0.06%
400 GTE Corporation $ 22,857 $ 26,975
UTILITIES - 0.18%
600 Alltel Corporation $ 25,361 $ 35,887
700 Sonat Incorporated 24,775 18,944
900 Southern Company 24,485 26,156
------------ --------------
$ 74,621 $ 80,987
TOTAL COMMON STOCKS $ 4,120,797 $ 3,973,267
PREFERRED STOCKS - 2.49%
CONVERTIBLES - 2.49%
800 Aetna Incorporated $ 58,514 $ 60,850
22,000 Duke Capital Finance 551,500 558,250
5,000 Enterprise Capital III 123,125 124,688
5,000 PSCO Capital I 128,438 127,500
900 Readers Digest Association 24,878 23,400
1,200 Texas Utilities Company 62,364 67,650
5,000 U.S. Bancorp Capitol II 125,000 126,250
------------ --------------
TOTAL PREFERRED STOCKS $ 1,073,819 $ 1,088,588
</TABLE>
39
<PAGE>
Strategic Income Fund PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 4.64%
FOREIGN GOVERNMENTS - 4.64%
$ 720,000 Republic of Argentina 11.00 % 10/09/06 $ 714,600
170,000 Republic of Poland 7.13 07/01/04 176,162
440,000 Republic of the Philippines 8.88 04/15/08 442,750
745,000 United Mexican States 8.63 03/12/08 696,575
--------------
TOTAL FOREIGN GOVERNMENTS $ 2,030,087
(Cost $1,856,018)
CORPORATE BONDS & NOTES - 66.31%
BANK & FINANCE - 3.67%
$ 500,000 American General Finance Corporation 8.13 % 08/15/09 $ 583,125
1,000,000 Sprint Capital Corporation 6.13 11/15/08 1,021,250
--------------
$ 1,604,375
CONSUMER PRODUCTS - 5.93%
$ 1,500,000 Coca-Cola Bottling Company 7.20 % 07/01/09 $ 1,650,000
500,000 Neiman Marcus Group Incorporated 7.13 06/01/28 486,250
500,000 Revlon Consumer Products Corporation 8.63 02/01/08 458,750
--------------
$ 2,595,000
ENTERTAINMENT & LEISURE - 15.15%
$ 500,000 Chancellor Media Corporation 8.00 % 11/01/08 $ 508,750
1,000,000 Cinemark USA Incorporated 9.63 08/01/08 1,047,500
500,000 Comcast Corporation 9.50 01/15/08 528,750
500,000 Hollinger International Publishing Incorporated 9.25 03/15/07 528,750
1,000,000 Loews Cineplex Entertainment 8.88 08/01/08 1,025,000
1,000,000 News America Holdings Incorporated 8.00 10/17/16 1,111,250
1,000,000 Regal Cinemas Incorporated Private Placement 9.50 06/01/08 1,040,000
500,000 Sun International Hotels Limited 9.00 03/15/07 520,625
250,000 Time Warner Incorporated 9.13 01/15/13 316,250
--------------
$ 6,626,875
</TABLE>
40
<PAGE>
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED) Strategic Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
FOOD & RELATED - 6.60%
$ 500,000 Agrilink Foods 11.88 % 11/01/08 $ 508,750
500,000 Chiquita Brands International Incorporated 10.25 11/01/06 520,625
750,000 Marsh Supermarkets Incorporated 8.88 08/01/07 784,688
1,000,000 Randalls Food Markets Incorporated 9.38 07/01/07 1,072,500
--------------
$ 2,886,563
FOREIGN CORPORATE BONDS - 0.59%
$ 250,000 TM Group Holdings PLC 11.00 % 05/15/08 $ 255,625
HEALTHCARE - 1.73%
$ 250,000 Integrated Health Services Incorporated 9.50 % 09/15/07 $ 238,125
500,000 Tenet Healthcare Corporation 8.13 12/01/08 516,875
--------------
$ 755,000
INDUSTRIALS - 16.31%
$ 1,000,000 Cendant Corporation 7.50 % 12/01/00 $ 1,006,250
500,000 CSC Holdings Incorporated 9.88 02/15/13 560,625
500,000 CSC Holdings Incorporated 10.50 05/15/16 592,500
1,000,000 D. R. Horton Incorporated 10.00 04/15/06 1,057,500
250,000 Frontiervision Operating Partners 11.00 10/15/06 276,563
500,000 Homeside Incorporated 11.25 05/15/03 588,125
750,000 Kaufman & Broad Home Corporation 9.63 11/15/06 790,313
500,000 Playtex Family Products 9.00 12/15/03 520,000
750,000 Raytheon Company 5.70 11/01/03 747,187
1,000,000 Service Corporation International 6.00 12/15/05 993,750
--------------
$ 7,132,813
PHARMACEUTICALS - 1.15%
$ 500,000 ICN Pharmaceuticals Incorporated 8.75 % 11/15/08 $ 503,750
</TABLE>
41
<PAGE>
Strategic Income Fund PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
RETAIL & RELATED - 6.80%
$ 500,000 Federated Department Stores Incorporated 6.13 % 09/01/01 $ 501,250
125,000 Home Interiors & Gifts Incorporated 10.13 06/01/08 123,438
500,000 Jitney-Jungle Stores America Incorporated 12.00 03/01/06 555,000
250,000 Jitney-Jungle Stores Incorporated 10.38 09/15/07 257,500
1,000,000 K-Mart Corporation 8.25 01/01/22 1,006,250
500,000 National Vision Associate Limited 12.75 10/15/05 528,750
--------------
$ 2,972,188
TELECOMMUNICATIONS - 6.87%
$ 500,000 Adelphia Communications Corporation Series B 10.50 % 07/15/04 $ 546,250
1,300,000 Cable & Wireless Communications 6.75 03/06/08 1,314,625
500,000 Jacor Communications Company 8.75 06/15/07 524,375
500,000 TCI Communications Incorporated 8.75 08/01/15 618,125
--------------
$ 3,003,375
TRANSPORTATION - 1.51%
$ 650,000 Union Pacific Corporation 6.63 % 02/01/08 $ 662,188
--------------
TOTAL CORPORATE BONDS & NOTES $ 28,997,752
(Cost $28,710,679)
U.S. TREASURY SECURITIES - 15.22%
U.S. TREASURY BONDS - 15.22%
$ 6,500,000 U.S. Treasury Bonds 5.25 % 11/15/28 $ 6,654,375
(Cost $6,598,750)
</TABLE>
42
<PAGE>
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1998 (UNAUDITED) Strategic Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 0.36%
REPURCHASE AGREEMENTS - 0.36%
$ 154,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.70 01/04/99 $ 154,000
3,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.65 01/04/99 3,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 157,000
(Cost $157,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $42,517,063)* (Notes 1 and 3) 98.11% $ 42,901,069
Other Assets and Liabilities, Net 1.89 828,347
------ --------------
TOTAL NET ASSETS 100.00% $ 43,729,416
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* 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 $ 888,269
Gross Unrealized Depreciation (504,263)
--------------
NET UNREALIZED APPRECIATION $ 384,006
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
PORTFOLIO OF INVESTMENTS -
U.S. Government Income Fund DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 90.14%
FEDERAL AGENCY - OTHER - 4.34%
$ 5,000,000 Tennessee Valley 6.75 % 11/01/25 $ 5,647,550
4,000,000 Tennessee Valley Authority 6.38 06/15/05 4,252,480
--------------
$ 9,900,030
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.32%
$ 5,000,000 FHLMC 7.10 % 04/10/07 $ 5,567,200
1,919,459 FHLMC #G00683 8.50 12/01/25 2,009,424
--------------
$ 7,576,624
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 56.41%
$ 5,000,000 FNMA 5.75 % 02/15/08 $ 5,177,350
10,100,000 FNMA #252211 6.00 12/01/28 9,968,902
4,289,496 FNMA #251906 7.50 06/01/28 4,406,084
3,280,333 FNMA #376272 7.00 02/01/12 3,345,350
3,310,132 FNMA #417768 6.50 03/01/28 3,332,806
437,068 FNMA #421867 6.50 04/01/28 440,062
6,105,647 FNMA #424815 6.50 04/01/28 6,147,471
4,578,205 FNMA #426032 7.50 06/01/28 4,702,641
9,597,674 FNMA #430040 6.50 06/01/28 9,663,418
9,511,275 FNMA #430194 7.00 06/01/28 9,703,593
5,364,117 FNMA #70765 9.00 03/01/21 5,709,941
5,298,461 FNMA POOL #430540 7.00 06/01/28 5,405,596
4,443,901 FNMA POOL #432484 7.00 06/01/28 4,533,757
9,751,489 FNMA POOL #440447 6.00 09/01/28 9,624,915
9,790,610 FNMA POOL #443908 6.50 11/01/28 9,857,676
8,422,782 FNMA POOL# 251615 7.50 04/01/28 8,651,713
9,477,808 FNMA POOL# 251700 6.50 04/01/13 9,614,478
9,025,876 FNMA POOL# 415789 6.00 05/01/28 8,908,720
9,598,125 FNMA POOL#251700 6.00 04/01/13 9,626,728
--------------
$ 128,821,201
</TABLE>
44
<PAGE>
PORTFOLIO OF INVESTMENTS -
DECEMBER 31, 1998 (UNAUDITED) 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 - 26.07%
$ 360,462 GNMA #0058 9.00 % 07/20/22 $ 384,227
487 GNMA #0116 12.00 03/01/17 500
254,383 GNMA #0864 6.50 02/20/08 258,657
120,534 GNMA #1168 9.00 04/20/19 128,656
144,963 GNMA #157247 9.50 05/20/16 154,334
62,030 GNMA #158583 9.00 09/20/16 66,158
502,558 GNMA #170928 9.00 09/20/16 532,551
262,247 GNMA #1740 9.00 12/20/21 279,537
17,520 GNMA #223618 10.00 01/15/19 18,954
162,310 GNMA #227132 9.00 07/20/17 171,996
1,349,522 GNMA #291124 7.50 06/15/25 1,438,078
2,622,895 GNMA #306052 9.00 06/15/21 2,817,120
1,976,156 GNMA #319413 7.25 12/15/18 2,084,845
839,360 GNMA #336930 7.50 03/15/23 866,228
1,891,394 GNMA #358863 7.25 01/15/24 1,995,421
1,570,075 GNMA #362589 6.88 01/15/29 1,629,926
1,738,915 GNMA #430800 7.00 05/15/26 1,780,093
3,247,763 GNMA #450871 8.00 05/15/27 3,375,627
8,216,534 GNMA #467791 7.50 04/15/28 8,479,545
5,828,002 GNMA #473573 6.50 06/15/28 5,888,671
22,589 GNMA #766 9.50 05/20/17 24,043
148,426 GNMA II #1236 9.50 08/20/19 157,934
625,688 GNMA II #1239 11.00 08/20/19 681,368
646,973 GNMA II #1273 9.50 10/20/19 688,314
192,939 GNMA II #1420 11.00 06/20/20 209,982
19,753 GNMA II #1436 10.00 07/20/20 21,190
141,415 GNMA II #1454 10.00 08/20/20 151,703
78,574 GNMA II #1456 11.00 08/20/20 85,611
223,675 GNMA II #1472 10.00 09/20/20 239,947
153,052 GNMA II #1526 10.00 12/20/20 164,186
149,272 GNMA II #1544 10.00 01/20/21 160,131
81,706 GNMA II #1579 9.50 03/20/21 86,915
85,902 GNMA II #1580 9.00 04/20/21 91,647
930,476 GNMA II #1580 10.00 03/20/21 998,168
685,315 GNMA II #1616 10.00 05/20/21 735,172
</TABLE>
45
<PAGE>
PORTFOLIO OF INVESTMENTS -
U.S. Government Income Fund DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES (CONTINUED)
$ 122,529 GNMA II #173 10.00 % 07/20/14 $ 130,995
81,485 GNMA II #1848 10.00 06/20/22 87,443
1,790,599 GNMA II #2268 7.50 08/20/26 1,838,713
1,556,260 GNMA II #2303 7.50 10/20/26 1,598,077
163,762 GNMA II #340045 8.00 03/20/23 170,056
263,916 GNMA II #418627 8.50 11/20/25 278,925
23,712 GNMA II #495 10.00 02/20/16 25,370
3,521 GNMA II #60 10.00 12/20/13 3,757
62,590 GNMA II #811 8.00 02/20/23 64,995
1,116,574 GNMA POOL #352961 6.50 05/15/24 1,128,901
2,928,247 GNMA POOL #414636 7.50 10/15/25 3,019,228
10,576,030 GNMA POOL #486724 6.50 12/15/28 10,686,126
3,582,646 GNMA II #002496 7.00 10/20/27 3,649,569
--------------
$ 59,529,590
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 205,827,445
(Cost $202,648,242)
U.S. TREASURY SECURITIES - 6.04%
U.S. TREASURY BONDS - 6.04%
$10,000,000 U.S. Treasury Bonds 10.38 % 11/15/12 $ 13,796,900
(Cost $13,472,656)
</TABLE>
46
<PAGE>
PORTFOLIO OF INVESTMENTS -
DECEMBER 31, 1998 (UNAUDITED) U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 3.55%
REPURCHASE AGREEMENTS - 3.55%
$ 5,348,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.70 01/04/99 $ 5,348,000
978,000 JP Morgan Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.75 01/04/99 978,000
1,786,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.65 01/04/99 1,786,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 8,112,000
(Cost $8,112,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $224,232,898)* (Notes 1 and 3) 99.73% 227,736,345
Other Assets and Liabilities, Net 0.27 623,125
------ --------------
TOTAL NET ASSETS 100.00% $ 228,359,470
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* 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 $ 3,728,435
Gross Unrealized Depreciation (224,988)
--------------
NET UNREALIZED APPRECIATION $ 3,503,447
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
PORTFOLIO OF INVESTMENTS -
Variable Rate Government Fund DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 73.58%
ADJUSTABLE RATE MORTGAGES - 47.89%
$ 7,266,955 FHLMC #610303+ 7.58 % 04/01/18 $ 7,415,710
2,741,129 FHLMC #840118+ 7.62 09/01/18 2,837,507
16,501 FHLMC #845410 (CMT)+ 7.58 07/01/23 16,728
6,632 FHLMC #845613 (CMT)+ 7.62 01/01/24 6,769
10,371,287 FHLMC #846150 (CMT)+ 7.62 04/01/21 10,714,887
6,440,903 FNMA #136014 (COFI)+ 5.92 05/01/18 6,418,747
6,688,827 FNMA #57733+ 6.14 02/01/17 6,708,693
2,828,721 FNMA #57775+ 6.14 05/01/18 2,837,999
8,794,560 FNMA #66397+ 6.25 03/01/18 8,822,087
6,960,831 GNMA II #8076+ 7.00 11/20/22 7,063,085
9,095,304 GNMA II #8121 (CMT)+ 6.87 01/20/23 9,236,008
--------------
$ 62,078,220
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.91%
$ 6,183,231 FHLMC #846602 7.46 % 04/01/27 $ 6,365,822
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 13.51%
$ 9,696,780 FNMA POOL #323186 7.50 % 09/01/25 $ 10,046,737
7,260,738 FNMA POOL #323382 7.43 10/01/28 7,469,484
--------------
$ 17,516,221
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.74%
$ 4,822,021 GNMA II #80205 5.00 % 06/20/28 $ 4,850,664
REAL ESTATE MORTGAGE INVESTMENT CONDUITS - 3.53%
$ 3,295,848 FHLMC #1534 6.96 % 06/15/23 $ 3,353,525
1,225,029 FHLMC 1991F 6.15 09/15/27 1,222,211
--------------
$ 4,575,736
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 95,386,663
(Cost $95,990,251)
</TABLE>
48
<PAGE>
PORTFOLIO OF INVESTMENTS -
DECEMBER 31, 1998 (UNAUDITED) Variable Rate Government Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. TREASURY SECURITIES - 25.86%
U.S. TREASURY NOTES - 25.86%
$22,500,000 U.S. Treasury Notes 4.25 % 11/15/03 $ 22,211,775
11,000,000 U.S. Treasury Notes 5.38 06/30/03 11,319,660
--------------
TOTAL U.S. TREASURY SECURITIES $ 33,531,435
(Cost $33,972,835)
SHORT-TERM INSTRUMENTS - 0.58%
REPURCHASE AGREEMENTS - 0.58%
$ 656,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.70 01/04/99 $ 656,000
95,000 JP Morgan Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.75 01/04/99 95,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 751,000
(Cost $751,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $130,714,086)* (Notes 1 and 3) 100.02% $ 129,669,098
Other Assets and Liabilities, Net (0.02) (25,132)
------ --------------
TOTAL NET ASSETS 100.00% $ 129,643,966
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</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 DEPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 243,959
Gross Unrealized Depreciation (1,288,947)
--------------
NET UNREALIZED DEPRECIATION $ (1,044,988)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
Income Funds DECEMBER 31, 1998
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
U.S.
CORPORATE GOVERNMENT
BOND FUND INCOME FUND
<S> <C> <C>
ASSETS
INVESTMENTS:
In securities, at market value (see cost below) $15,347,309 $140,504,576
Cash 5,690 27,602
RECEIVABLES:
Dividends and interest 296,155 1,867,383
Fund shares sold 226,030 369,024
Investment securities sold 0 0
Due from co-administrator (Note 2) 7,499 0
Organization expenses, net of amortization 0 2,614
Prepaid expenses 0 22,046
TOTAL ASSETS 15,882,683 142,793,245
LIABILITIES
Payables:
Distribution to shareholders 71,383 648,352
Fund shares redeemed 3,214 186,644
Due to distributor (Note 2) 9,942 14,389
Due to adviser (Note 2) 0 51,931
Other 90,403 86,679
TOTAL LIABILITIES 174,942 987,995
TOTAL NET ASSETS $15,707,741 $141,805,250
NET ASSETS CONSIST OF:
Paid-in capital $15,480,701 $153,916,196
Undistributed net investment income (loss) 5,621 0
Undistributed net realized gain (loss) on
investments 1,338 (15,488,230)
Net unrealized appreciation (depreciation) of
investments 220,081 3,377,284
TOTAL NET ASSETS $15,707,741 $141,805,250
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
PER SHARE
Net assets - Class A $ 4,599,342 $ 49,478,923
Shares outstanding - Class A 452,850 4,883,349
Net asset value per share - Class A $ 10.16 $ 10.13
Maximum offering price per share - Class A $ 10.64(1) $ 10.44(2)
Net assets - Class B $ 9,724,722 $ 9,105,443
Shares outstanding - Class B 957,365 898,552
Net asset value and offering price per share -
Class B $ 10.16 $ 10.13
Net assets - Class C $ 1,383,677 N/A
Shares outstanding - Class C 136,256 N/A
Net asset value and offering price per share -
Class C $ 10.15 N/A
Net assets - Institutional Class N/A $ 83,220,884
Shares outstanding - Institutional Class N/A 8,370,546
Net asset value and offering price per share -
Institutional Class N/A $ 9.94
INVESTMENT AT COST (NOTE 3) $15,127,228 $137,127,292
- -----------------------------------------------------------------------------------
</TABLE>
(1) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/95.5 OF NET ASSET VALUE. ON
INVESTMENTS OF $50,000 OR MORE THE OFFERING PRICE IS REDUCED.
(2) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/97 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.
50
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 1998 Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
U.S. RATE
STRATEGIC GOVERNMENT GOVERNMENT
INCOME FUND INCOME FUND FUND
<S> <C> <C> <C>
ASSETS
INVESTMENTS:
In securities, at market value (see cost below) $42,901,069 $227,736,345 $129,669,098
Cash 3,641 5,830 23,487
RECEIVABLES:
Dividends and interest 771,984 1,383,604 819,861
Fund shares sold 377,610 675,175 67,703
Investment securities sold 0 0 1,141,889
Due from co-administrator (Note 2) 0 0 0
Organization expenses, net of amortization 0 0 0
Prepaid expenses 0 6,050 3,036
TOTAL ASSETS 44,054,304 229,807,004 131,725,074
LIABILITIES
Payables:
Distribution to shareholders 216,202 941,629 531,946
Fund shares redeemed 4,351 99,439 875,727
Due to distributor (Note 2) 28,268 135,691 462,244
Due to adviser (Note 2) 18,036 151,240 75,385
Other 58,031 119,535 135,806
TOTAL LIABILITIES 324,888 1,447,534 2,081,108
TOTAL NET ASSETS $43,729,416 $228,359,470 $129,643,966
NET ASSETS CONSIST OF:
Paid-in capital $43,177,267 $240,673,102 $275,356,486
Undistributed net investment income (loss) 19,997 0
Undistributed net realized gain (loss) on
investments 148,146 (15,817,079) (144,667,532)
Net unrealized appreciation (depreciation) of
investments 384,006 3,503,447 (1,044,988)
TOTAL NET ASSETS $43,729,416 $228,359,470 $129,643,966
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
PER SHARE
Net assets - Class A $ 8,760,292 $179,797,174 $129,643,966
Shares outstanding - Class A 697,415 16,247,003 14,257,899
Net asset value per share - Class A $ 12.56 $ 11.07 $ 9.09
Maximum offering price per share - Class A $ 13.15(1) $ 11.59(1) $ 9.37(2)
Net assets - Class B $31,735,557 $ 36,035,444 N/A
Shares outstanding - Class B 2,524,710 3,308,604 N/A
Net asset value and offering price per share -
Class B $ 12.57 $ 10.89 N/A
Net assets - Class C $ 3,233,567 $ 4,301,169 N/A
Shares outstanding - Class C 257,230 394,694 N/A
Net asset value and offering price per share -
Class C $ 12.57 $ 10.90 N/A
Net assets - Institutional Class N/A $ 8,225,683 N/A
Shares outstanding - Institutional Class N/A 514,684 N/A
Net asset value and offering price per share -
Institutional Class N/A $ 15.98 N/A
INVESTMENT AT COST (NOTE 3) $42,517,063 $224,232,898 $130,714,086
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/95.5 OF NET ASSET VALUE. ON
INVESTMENTS OF $50,000 OR MORE THE OFFERING PRICE IS REDUCED.
(2) MAXIMUM OFFERING PRICE IS COMPUTED AS 100/97 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.
51
<PAGE>
STATEMENT OF OPERATIONS
Income Funds FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
U.S.
CORPORATE GOVERNMENT
BOND INCOME
FUND FUND
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 0 $ 0
Interest 445,018 4,629,233
TOTAL INVESTMENT INCOME 445,018 4,629,233
EXPENSES (NOTE 2)
Advisory fees 31,301 349,120
Administration fees 4,382 48,877
Custody fees 1,018 13,576
Shareholder servicing fees 15,651 185,628
Portfolio accounting fees 16,480 44,966
Transfer agency fees 8,764 62,883
Distribution fees 32,339 30,761
Organization costs 0 3,630
Legal and audit fees 54,687 31,731
Registration fees 17,460 25,220
Directors' fees 3,996 1,201
Shareholder reports 9,801 23,312
Other 9,002 3,225
TOTAL EXPENSES 204,881 824,130
Less:
Waived fees and reimbursed expenses (118,207) (147,092)
Net Expenses 86,674 677,038
NET INVESTMENT INCOME (LOSS) 358,344 3,952,195
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sale of
investments 43,263 542,756
Net change in unrealized appreciation
(depreciation) of:
Investments 180,017 1,547,891
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 223,280 2,090,647
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $581,624 $6,042,842
- --------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1998.
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. VARIABLE
STRATEGIC GOVERNMENT RATE
INCOME INCOME GOVERNMENT
FUND (1) FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 117,058 $ 0 $ 0
Interest 943,308 7,199,880 4,307,324
TOTAL INVESTMENT INCOME 1,060,366 7,199,880 4,307,324
EXPENSES (NOTE 2)
Advisory fees 70,820 579,674 378,205
Administration fees 9,915 81,154 52,948
Custody fees 2,366 55,329 17,674
Shareholder servicing fees 35,410 344,963 379
Portfolio accounting fees 21,158 54,188 46,130
Transfer agency fees 19,829 158,990 105,897
Distribution fees 80,716 127,306 189,482
Organization costs 0 0 0
Legal and audit fees 27,975 28,459 35,655
Registration fees 20,150 41,128 1,164
Directors' fees 4,100 1,201 1,201
Shareholder reports 12,000 71,054 17,911
Other 6,619 7,272 11,498
TOTAL EXPENSES 311,058 1,550,718 858,144
Less:
Waived fees and reimbursed expenses (171,310) (327,994) (268,382)
Net Expenses 139,748 1,222,724 589,762
NET INVESTMENT INCOME (LOSS) 920,618 5,977,156 3,717,562
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on sale of
investments 148,146 996,100 (173,766)
Net change in unrealized
appreciation (depreciation) of:
Investments 384,006 1,854,429 (1,350,014)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 532,152 2,850,529 (1,523,780)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,452,770 $8,827,685 $ 2,193,782
- --------------------------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1998.
The accompanying notes are an integral part of these financial statements.
53
<PAGE>
Income Funds STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BOND FUND
-----------------------------
FROM APRIL
1, 1998
(COMMENCEMENT
(UNAUDITED) OF
FOR THE SIX OPERATIONS)
MONTHS ENDED TO
DEC. 31, JUNE 30,
1998 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 358,344 $ 97,942
Net realized gain (loss) on sale of
investments 43,263 14,604
Net change in unrealized appreciation
(depreciation) of investments 180,017 40,064
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 581,624 152,610
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (133,116) (59,155)
CLASS B (201,757) (36,202)
CLASS C (23,471) (2,585)
INSTITUTIONAL CLASS N/A N/A
From net realized gain on sale of
investments
CLASS A (17,016) 0
CLASS B (34,782) 0
CLASS C (4,731) 0
INSTITUTIONAL CLASS N/A N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A 1,953,083 5,486,114
Reinvestment of dividends - Class A 67,534 25,324
Cost of shares redeemed - Class A (2,969,542) (35,386)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A (948,925) 5,476,052
Proceeds from shares sold - Class B 5,103,417 4,674,276
Reinvestment of dividends - Class B 167,649 10,428
Cost of shares redeemed - Class B (249,231) (115,854)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS B 5,021,835 4,568,850
Proceeds from shares sold - Class C 1,105,612 296,460
Reinvestment of dividends - Class C 22,256 1,192
Cost of shares redeemed - Class C (57,010) 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C 1,070,858 297,652
Proceeds from shares sold -
Institutional Class N/A N/A
Reinvestment of dividends -
Institutional Class N/A N/A
Cost of shares redeemed -
Institutional Class N/A N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - INSTITUTIONAL CLASS N/A N/A
INCREASE (DECREASE) IN NET ASSETS 5,310,519 10,397,222
NET ASSETS:
Beginning net assets 10,397,222 0
ENDING NET ASSETS $ 15,707,741 $ 10,397,222
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 5,621 $ 5,621
- --------------------------------------------------------------------------
</TABLE>
(1) "PROCEEDS FROM SHARES SOLD" INCLUDES $8,897,237 FOR CLASS A SHARES AS A
RESULT OF THE CONSOLIDATION OF THE MASTERWORKS SHORT-INTERMEDIATE TERM
FUND.
(2) "PROCEEDS FROM SHARES SOLD" INCLUDES $9,084,926 FOR CLASS A SHARES,
$7,491,591 FOR CLASS B SHARES AND $41,157,653 FOR THE INSTITUTIONAL CLASS
SHARES AS A RESULT OF THE CONSOLIDATION OF THE STAGECOACH INTERMEDIATE BOND
FUND.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC
INCOME FUND
-----------
(UNAUDITED)
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND FROM JULY
---------------------------------------------- 13, 1998
(COMMENCEMENT
(UNAUDITED) FOR THE OF
FOR THE SIX THREE FOR THE OPERATIONS)
MONTHS ENDED MONTHS ENDED YEAR ENDED TO
DEC. 31, JUNE 30, MARCH 31, DEC. 31,
1998 (1) 1998 (2) 1998 1998
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 3,952,195 $ 1,204,587 $ 4,631,025 920,618
Net realized gain (loss) on sale of
investments 542,756 197,277 8,966 148,146
Net change in unrealized appreciation
(depreciation) of investments 1,547,891 (315,497) 2,861,633 384,006
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 6,042,842 1,086,367 7,501,624 1,452,770
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (1,253,524) (411,840) (1,633,537) (246,272)
CLASS B (203,628) (16,670)(3) N/A (590,329)
CLASS C N/A N/A N/A (64,020)
INSTITUTIONAL CLASS (2,495,043) (776,077) (2,997,488) N/A
From net realized gain on sale of
investments
CLASS A 0 0 0 0
CLASS B 0 0(3) N/A 0
CLASS C N/A N/A N/A 0
INSTITUTIONAL CLASS 0 0 0 N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A 30,840,463 11,342,063 5,448,204 13,807,449
Reinvestment of dividends - Class A 1,056,960 298,853 1,300,551 205,162
Cost of shares redeemed - Class A (21,146,941) (3,209,710) (11,996,563) (5,372,471)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A 10,750,482 8,431,206 (5,247,808) 8,640,140
Proceeds from shares sold - Class B 2,360,981 7,582,398(3) N/A 37,554,772
Reinvestment of dividends - Class B 184,985 5(3) N/A 426,222
Cost of shares redeemed - Class B (1,071,246) (27,179)(3) N/A (6,640,782)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS B 1,474,720 7,555,224(3) N/A 31,340,212
Proceeds from shares sold - Class C N/A N/A N/A 3,557,376
Reinvestment of dividends - Class C N/A N/A N/A 51,294
Cost of shares redeemed - Class C N/A N/A N/A (411,755)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C N/A N/A N/A 3,196,915
Proceeds from shares sold -
Institutional Class 5,676,637 43,495,528 5,679,146 N/A
Reinvestment of dividends -
Institutional Class 1,086,203 182,366 880,516 N/A
Cost of shares redeemed -
Institutional Class (15,082,022) (5,405,311) (16,585,172) N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - INSTITUTIONAL CLASS (8,319,182) 38,272,583 (10,025,510) N/A
INCREASE (DECREASE) IN NET ASSETS 5,996,667 54,140,793 (12,402,719) 43,729,416
NET ASSETS:
Beginning net assets 135,808,583 81,667,790 94,070,509 0
ENDING NET ASSETS $141,805,250 $135,808,583 $ 81,667,790 $43,729,416
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 0 $ 0 $ 0 $ 19,997
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) "PROCEEDS FROM SHARES SOLD" INCLUDES $8,897,237 FOR CLASS A SHARES AS A
RESULT OF THE CONSOLIDATION OF THE MASTERWORKS SHORT-INTERMEDIATE TERM
FUND.
(2) "PROCEEDS FROM SHARES SOLD" INCLUDES $9,084,926 FOR CLASS A SHARES,
$7,491,591 FOR CLASS B SHARES AND $41,157,653 FOR THE INSTITUTIONAL CLASS
SHARES AS A RESULT OF THE CONSOLIDATION OF THE STAGECOACH INTERMEDIATE BOND
FUND.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
The accompanying notes are an integral part of these financial statements.
55
<PAGE>
Income Funds STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
----------------------------------------------
(UNAUDITED)
FOR THE SIX FOR THE SIX FOR THE
MONTHS ENDED MONTHS ENDED YEAR ENDED
DEC. 31, JUNE 30, DEC. 31,
1998 1998 1997 (1)
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 5,977,156 $ 6,425,799 $ 5,631,623
Net realized gain (loss) on sale of
investments 996,100 1,653,357 (16,017,813)
Net change in unrealized appreciation
(depreciation) of investments 1,854,429 (498,541) 2,148,328
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 8,827,685 7,580,615 (8,237,862)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (4,936,029) (5,483,277) (5,440,321)
CLASS B (751,482) (679,047) (22,232)(3)
CLASS C (68,858) (50,459) (164,423)
INSTITUTIONAL CLASS (220,787) (213,016) (4,647)(3)
From net realized gain on sale of
investments
CLASS A 0 0 0
CLASS B 0 0 0(3)
CLASS C 0 0 0
INSTITUTIONAL CLASS 0 0 0(3)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A 9,345,528 14,893,331 180,455,427
Reinvestment of dividends - Class A 4,003,704 3,684,634 4,095,456
Cost of shares redeemed - Class A (28,414,372) (34,573,811) (39,630,894)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A (15,065,140) (15,995,846) 144,919,989
Proceeds from shares sold - Class B 9,295,823 6,603,948 26,085,390(3)
Reinvestment of dividends - Class B 509,401 353,766 289(3)
Cost of shares redeemed - Class B (4,022,003) (3,623,776) (260,384)(3)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS B 5,783,221 3,333,938 25,825,295(3)
Proceeds from shares sold - Class C 2,628,264 854,024 313,936
Reinvestment of dividends - Class C 38,217 18,640 40,188
Cost of shares redeemed - Class C (663,183) (391,003) (893,744)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C 2,003,298 481,661 (539,620)
Proceeds from shares sold -
Institutional Class 1,061,691 1,378,641 7,130,458(3)
Reinvestment of dividends -
Institutional Class 57,701 52,382 0(3)
Cost of shares redeemed -
Institutional Class (1,305,996) (416,683) (10,496)(3)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - INSTITUTIONAL CLASS (186,604) 1,014,340 7,119,962(3)
INCREASE (DECREASE) IN NET ASSETS (4,614,696) (10,011,091) 163,456,141
NET ASSETS:
Beginning net assets 232,974,166 242,985,257 79,529,116
ENDING NET ASSETS $228,359,470 $232,974,166 $242,985,257
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 0 $ 0 $ 0
- -------------------------------------------------------------------------------------------
</TABLE>
(1) "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.
(2) "PROCEEDS FROM SHARES SOLD" FOR THE CLASS A SHARES INCLUDES $4,577,231 AS A
RESULT OF THE CONVERSION OF THE FUND'S CLASS C SHARES ON JULY 13, 1998.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
(4) THIS CLASS OF SHARES CEASED OPERATIONS ON JULY 13, 1998.
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
-----------------------------------------------
(UNAUDITED)
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED FOR THE
DEC. 31, JUNE 30, YEAR ENDED
1998 (2) 1998 DEC. 31, 1997
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 3,717,562 $ 4,927,547 $ 18,370,862
Net realized gain (loss) on sale of
investments (173,766) 12,439 1,330,949
Net change in unrealized appreciation
(depreciation) of investments (1,350,014) (1,051,658) (325,594)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 2,193,782 3,888,328 19,376,217
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (3,710,613) (4,809,412) (18,017,297)
CLASS B N/A N/A N/A
CLASS C (6,949)(4) (118,135) (353,565)
INSTITUTIONAL CLASS N/A N/A N/A
From net realized gain on sale of
investments
CLASS A 0 0 0
CLASS B N/A N/A N/A
CLASS C 0(4) 0 0
INSTITUTIONAL CLASS N/A N/A N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A 38,813,988 48,964,576 68,881,115
Reinvestment of dividends - Class A 581,398 817,437 3,028,668
Cost of shares redeemed - Class A (73,222,009) (111,124,094) (239,536,408)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS A (33,826,623) (61,342,081) (167,626,625)
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 0(4) 26,817,057 213,222,536
Reinvestment of dividends - Class C 8,618(4) 60,258 220,657
Cost of shares redeemed - Class C (4,634,166)(4) (26,686,854) (214,475,037)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL SHARE
TRANSACTIONS - CLASS C (4,625,548)(4) 190,461 (1,031,844)
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 (39,975,951) (62,190,839) (167,653,114)
NET ASSETS:
Beginning net assets 169,619,917 231,810,756 399,463,870
ENDING NET ASSETS $129,643,966 $169,619,917 $ 231,810,756
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------
</TABLE>
(1) "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.
(2) "PROCEEDS FROM SHARES SOLD" FOR THE CLASS A SHARES INCLUDES $4,577,231 AS A
RESULT OF THE CONVERSION OF THE FUND'S CLASS C SHARES ON JULY 13, 1998.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
(4) THIS CLASS OF SHARES CEASED OPERATIONS ON JULY 13, 1998.
The accompanying notes are an integral part of these financial statements.
57
<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
------------------------------ ------------------------------
(UNAUDITED) (UNAUDITED)
SIX MONTHS PERIOD SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED
DEC. 31, JUNE 30, DEC. 31, JUNE 30,
1998 1998 1998 1998
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.03 $10.00 $10.03 $10.00
------------- ------------ ------------ -------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.32 0.17 0.28 0.15
Net realized and unrealized gain
(loss) on investments 0.17 0.03 0.17 0.03
------------- ------------ ------------ -------------
TOTAL FROM INVESTMENT OPERATIONS 0.49 0.20 0.45 0.18
LESS DISTRIBUTIONS:
Dividends from net investment income (0.32) (0.17) (0.28) (0.15)
Distributions from net realized gain (0.04) 0.00 (0.04) 0.00
Tax return of capital 0.00 0.00 0.00 0.00
------------- ------------ ------------ -------------
TOTAL FROM DISTRIBUTIONS (0.36) (0.17) (0.32) (0.15)
------------- ------------ ------------ -------------
NET ASSET VALUE, END OF PERIOD $10.16 $10.03 $10.16 $10.03
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
TOTAL RETURN (NOT ANNUALIZED)* 4.92% 1.98% 4.53% 1.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $4,599 $5,503 $9,725 $4,595
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to average net
assets 0.87% 0.56% 1.64% 1.35%
Ratio of net investment income to
average net assets 6.24% 6.47% 5.45% 5.47%
Portfolio turnover 51% 33% 51% 33%
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 2.88 % 3.74 % 3.36 % 4.30 %
Ratio of net investment income (loss) to
average net assets prior to waived
fees and reimbursed expenses 4.23% 3.29% 3.73% 2.52%
- -------------------------------------------------------------------------------------------------------------
</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.
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
CORPORATE BOND FUND(1) SHORT-INTERMEDIATE U.S. GOVERNMENT
(CONT.) INCOME FUND
CLASS C CLASS A
---------------------- ----------------------------------------------
(UNAUDITED) (UNAUDITED) THREE
SIX MONTHS PERIOD SIX MONTHS MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED YEAR ENDED ENDED
DEC. 31, JUNE 30, DEC. 31, JUNE 30, MARCH 31, MARCH 31,
1998 1998 1998 1998 (2) 1998 1997 (3)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $10.03 $10.00 $9.97 $9.95 $9.64 $9.73
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.27 0.15 0.29 0.13 0.51 0.34
Net realized and
unrealized gain (loss)
on investments 0.16 0.03 0.16 0.02 0.31 (0.09)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.43 0.18 0.45 0.15 0.82 0.25
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.27) (0.15) (0.29) (0.13) (0.51) (0.34)
Distributions from net
realized gain (0.04) 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
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.31) (0.15) (0.29) (0.13) (0.51) (0.34)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $10.15 $10.03 $10.13 $9.97 $9.95 $9.64
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 4.41% 1.78% 4.54% 1.54% 8.69% 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $1,384 $299 $49,479 $38,149 $29,694 $33,920
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 1.65% 1.34% 0.96% 0.96% 0.78 % 0.71 %
Ratio of net investment
income to average net
assets 5.36% 5.57% 5.66% 5.36% 5.19 % 6.96 %
Portfolio turnover 51% 33% 31% 12% 48% 52%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 4.23 % 8.58 % 1.22 % 1.24% 1.30 % 1.12 %
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 2.78% (1.67)% 5.40% 5.08% 4.67% 6.55%
- ----------------------------------------------------------------------------------------------------
</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.
The accompanying notes are an integral part of these financial statements.
59
<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.)
CLASS A (CONT.)
----------------------------------
NINE
MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPT. 30, DEC. 31, DEC. 31,
1996 (1) 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $9.39 $9.99
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.41 0.55 0.46
Net realized and unrealized gain (loss) on investments (0.27) 0.61 (0.60)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.14 1.16 (0.14)
LESS DISTRIBUTIONS:
Dividends from net investment income (0.41) (0.55) (0.46)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.41) (0.55) (0.46)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $9.73 $10.00 $9.39
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 1.34% 12.67% (1.42)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $37,465 $39,928 $11,602
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.76 % 0.71 % 0.25 %
Ratio of net investment income to average net assets 5.60 % 5.64 % 4.75 %
Portfolio turnover 389% 472% 288%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.21 % 1.67 % 2.28 %
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 5.15% 4.68% 2.72%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO SEPTEMBER 30.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM MARCH 31 TO JUNE 30.
(4) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(5) THIS CLASS OF SHARES COMMENCED OPERATIONS ON SEPTEMBER 6, 1996.
The accompanying notes are an integral part of these financial statements.
60
<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.)
CLASS B INSTITUTIONAL CLASS
---------------------- ----------------------------------------------------------
(UNAUDITED) (UNAUDITED) THREE
SIX MONTHS PERIOD SIX MONTHS MONTHS SIX MONTHS PERIOD
ENDED ENDED ENDED ENDED YEAR ENDED ENDED ENDED
DEC. 31, JUNE 30, DEC. 31, JUNE 30, MARCH 31, MARCH 31, SEPT. 30,
1998 1998 (2) 1998 1998 (3) 1998 1997 (4) 1996 (5)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $9.97 $10.03 $9.78 $9.76 $9.45 $9.54 $9.46
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.25 0.02 0.29 0.13 0.51 0.34 0.03
Net realized and
unrealized gain (loss)
on investments 0.16 (0.06) 0.16 0.02 0.31 (0.09) 0.08
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.41 (0.04) 0.45 0.15 0.82 0.25 0.11
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.25) (0.02) (0.29) (0.13) (0.51) (0.34) (0.03)
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 (0.25) (0.02) (0.29) (0.13) (0.51) (0.34) (0.03)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $10.13 $9.97 $9.94 $9.78 $9.76 $9.45 $9.54
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 4.17% (0.38)% 4.60% 1.56% 8.85% 2.58% 1.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $9,105 $7,514 $83,221 $90,146 $51,973 $60,150 $73,637
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 1.66% 1.66 % 0.91% 0.91% 0.69 % 0.65 % 0.59 %
Ratio of net investment
income to average net
assets 4.96% 5.08 % 5.73% 5.44% 5.28 % 7.01 % 5.14 %
Portfolio turnover 31% 12% 31% 12% 48% 52% 389%
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 2.03 % 1.97 % 1.08 % 1.08% 1.07 % 1.02 % 0.84 %
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 4.59% 4.77% 5.56% 5.27% 4.90% 6.64% 4.89%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO SEPTEMBER 30.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM MARCH 31 TO JUNE 30.
(4) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(5) THIS CLASS OF SHARES COMMENCED OPERATIONS ON SEPTEMBER 6, 1996.
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
STRATEGIC INCOME FUND (1)
CLASS A CLASS B CLASS C
---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31,
1998 1998 1998
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.50 $12.50 $12.50
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.38 0.33 0.33
Net realized and unrealized gain (loss) on investments 0.05 0.07 0.07
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.43 0.40 0.40
LESS DISTRIBUTIONS:
Dividends from net investment income (0.37) (0.33) (0.33)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.37) (0.33) (0.33)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $12.56 $12.57 $12.57
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 3.57% 3.29% 3.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $8,760 $31,736 $3,234
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.32% 1.21% 1.19%
Ratio of net investment income to average net assets 6.88% 6.28% 6.25%
Portfolio turnover 107% 107% 107%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.88 % 2.23 % 2.71 %
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 5.32% 5.26% 4.73%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THE FUND COMMENCED OPERATIONS ON JULY 13, 1998.
(2) 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. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND (2)
CLASS A
----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1998 (3) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $10.93 $10.88 $10.65 $11.34 $10.16 $11.44
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.29 0.30 0.64 0.66 0.73 0.74
Net realized and
unrealized gain (loss)
on investments 0.14 0.05 0.23 (0.69) 1.18 (1.28)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.43 0.35 0.87 (0.03) 1.91 (0.54)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.29) (0.30) (0.64) (0.66) (0.73) (0.74)
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 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.29) (0.30) (0.64) (0.66) (0.73) (0.74)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $11.07 $10.93 $10.88 $10.65 $11.34 $10.16
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 3.99% 3.23% 8.73% (0.11)% 19.32% (4.81)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $179,797 $192,538 $207,558 $77,239 $30,471 $35,838
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 0.95% 0.89% 0.88% 0.89% 0.88% 0.76%
Ratio of net investment
income to average net
assets 5.27% 5.51% 6.01% 6.07% 6.79% 6.84%
Portfolio turnover 46% 245% 306% 240% 95% 50%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.21 % 1.25% 0.96% 1.24% 1.24% 1.08%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 5.01% 5.15% 5.93% 5.72% 6.44% 6.52%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THE FUND COMMENCED OPERATIONS ON JULY 13, 1998.
(2) 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. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
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>
U.S. GOVERNMENT INCOME FUND (2)
(CONT.)
CLASS B
----------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS PERIOD
ENDED ENDED ENDED
DEC. 31, JUNE 30, DEC. 31,
1998 1998 (3) 1997 (4)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.76 $10.70 $10.72
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.25 0.26 0.03
Net realized and unrealized gain (loss) on investments 0.13 0.06 (0.02)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.38 0.32 0.01
LESS DISTRIBUTIONS:
Dividends from net investment income (0.25) (0.26) (0.03)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.25) (0.26) (0.03)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $10.89 $10.76 $10.70
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 3.55% 2.98% 0.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $36,035 $29,867 $26,401
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 1.65% 1.59% 1.58%
Ratio of net investment income to average net assets 4.54% 4.78% 5.75%
Portfolio turnover 46% 245% 306%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.97 % 1.90% 1.87%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 4.22% 4.47% 5.46%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D AND WAS RENAMED
AS CLASS C IN CONJUNCTION WITH THE CONSOLIDATION OF OVERLAND EXPRESS
FUNDS, INC. AND STAGECOACH FUNDS, INC. ON DECEMBER 14, 1997. FUNDS,
INC. AND STAGECOACH FUNDS, INC. ON DECEMBER 15, 1997.
(2) 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. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(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.
64
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND (2) (CONT.)
CLASS C (1)
----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1998 (3) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $10.76 $10.71 $10.49 $11.17 $10.01 $11.26
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.25 0.26 0.55 0.58 0.64 0.65
Net realized and
unrealized gain (loss)
on investments 0.14 0.05 0.22 (0.68) 1.16 (1.25)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.39 0.31 0.77 (0.10) 1.80 (0.60)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.25) (0.26) (0.55) (0.58) (0.64) (0.65)
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 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.25) (0.26) (0.55) (0.58) (0.64) (0.65)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $10.90 $10.76 $10.71 $10.49 $11.17 $10.01
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 3.64% 2.88% 7.56% (0.79)% 18.54% (5.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $4,301 $2,262 $1,772 $2,290 $2,793 $3,722
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 1.65% 1.59% 1.62% 1.62% 1.62% 1.37%
Ratio of net investment
income to average net
assets 4.47% 4.76% 5.27% 5.50% 6.07% 6.14%
Portfolio turnover 46% 245% 306% 240% 95% 50%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.88 % 2.46% 3.06% 3.39% 2.29% 1.87%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 4.24% 3.89% 3.83% 3.73% 5.40% 5.64%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THIS CLASS OF SHARES COMMENCED OPERATIONS AS CLASS D AND WAS RENAMED
AS CLASS C IN CONJUNCTION WITH THE CONSOLIDATION OF OVERLAND EXPRESS
FUNDS, INC. AND STAGECOACH FUNDS, INC. ON DECEMBER 14, 1997. FUNDS,
INC. AND STAGECOACH FUNDS, INC. ON DECEMBER 15, 1997.
(2) 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. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(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.
65
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND (2)
(CONT.)
INSTITUTIONAL CLASS
----------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS PERIOD
ENDED ENDED ENDED
DEC. 31, JUNE 30, DEC. 31,
1998 1998 (1) 1997 (3)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.79 $15.71 $15.73
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.43 0.43 0.05
Net realized and unrealized gain (loss) on investments 0.19 0.08 (0.02)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.62 0.51 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.43) (0.43) (0.05)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.43) (0.43) (0.05)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $15.98 $15.79 $15.71
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 3.94% 3.32% 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $8,226 $8,307 $7,255
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.90% 0.83% 0.77%
Ratio of net investment income to average net assets 5.32% 5.56% 6.58%
Portfolio turnover 46% 245% 306%
- -----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived
fees and reimbursed expenses 1.42 % 1.18% 1.16%
Ratio of net investment income (loss) to average net assets
prior to waived fees and reimbursed expenses 4.80% 5.21% 6.19%
- -----------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(2) 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. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES).
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
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>
VARIABLE RATE GOVERNMENT FUND
CLASS A
----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1998 (1) 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $9.19 $9.23 $9.25 $9.35 $9.19 $9.99
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.23 0.24 0.51 0.50 0.53 0.43
Net realized and
unrealized gain (loss)
on investments (0.10) (0.04) (0.02) (0.10) 0.16 (0.80)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.13 0.20 0.49 0.40 0.69 (0.37)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.23) (0.24) (0.51) (0.46) (0.53) (0.43)
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 (0.04) 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.23) (0.24) (0.51) (0.50) (0.53) (0.43)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $9.09 $9.19 $9.23 $9.25 $9.35 $9.19
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 1.39% 2.16% 5.43% 4.41% 7.69% (3.81)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $129,644 $164,994 $227,353 $393,948 $653,897 $1,215,546
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 0.78% 0.78% 0.81% 0.88% 0.84% 0.79%
Ratio of net investment
income to average net
assets 4.93% 5.21% 5.55% 5.36% 5.71% 4.40%
Portfolio turnover 48% 45% 92% 277% 317% 164%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.14 % 1.11% 1.09% 0.98% 0.96% 0.94%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 4.57% 4.88% 5.27% 5.26% 5.59% 4.25%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(2) 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. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES).
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
67
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
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-one separate series. These financial statements
represent the Corporate Bond, Short-Intermediate U.S. Government Income,
Strategic 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 November 24, 1998, the shareholders of
the MasterWorks Short-Intermediate Term Fund (the "S-I Term Fund") approved a
plan of consolidation providing for the transfer of the assets and liabilities
of the S-I Term 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 S-I Term Fund shareholders. As a result of this Consolidation,
effective at the close of business on December 4, 1998, the Government Fund
acquired all of the assets and assumed all of the liabilities of the S-I Term
Fund. The Government Fund issued 874,240 Class A shares valued at $8,897,237 to
Class A shareholders of the S-I Term Fund. As of the Consolidation date, the
components of net assets for each Fund were as follows:
<TABLE>
<CAPTION>
STAGECOACH SHORT-
INTERMEDIATE U.S. MASTERWORKS
GOVERNMENT INCOME SHORT-INTERMEDIATE
DECEMBER 4, 1998 FUND TERM FUND
- -----------------------------------------------------------------------
<S> <C> <C>
Paid-in Capital $141,599,909 $8,882,504
Undistributed Net Realized
Gain (Loss) (15,395,470) (103,836)
Unrealized Appreciation
(Depreciation) 3,977,332 118,569
------------------ ------------------
Total Net Assets $130,181,771 $8,897,237
------------------ ------------------
------------------ ------------------
</TABLE>
The combined net assets for the Stagecoach Short-Intermediate U.S. Government
Income Fund immediately after the Consolidation were $139,079,008. The
acquisition was accomplished in a tax-free exchange for shares of the Stagecoach
Short-Intermediate U.S. Government Income Fund.
Effective at the close of business on June 12, 1998, the Stagecoach
Intermediate Bond Fund was consolidated in a tax-free exchange for shares of
designated classes of the Stagecoach Short-Intermediate U.S. Government
69
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
Income Fund. Effective at the close of business on December 12, 1997, the
Overland Express Funds, Inc. were consolidated into the Company in a tax-free
exchange for shares of designated classes of the corresponding Stagecoach fund.
Also, at the close of business on December 12, 1997, funds structured as a
"feeder" fund in a "master-feeder" structure were restructured to invest
directly in a portfolio of securities, rather than to invest in a portfolio of
securities through a "master" portfolio. Effective on September 6, 1996 the
Pacifica Funds Trust was consolidated into the Company in a tax-free exchange
for shares of designated classes of the corresponding Stagecoach fund.
The Corporate Bond, Strategic Income 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 Variable Rate Government Fund offers only Class A shares. Prior to July 13,
1998, the Variable Rate Government Fund also offered Class C shares. Effective
at the close of business on July 12, 1998, the Class C shares of the Variable
Rate Government Fund were converted into Class A shares of the same Fund. The
separate classes of shares differ principally in the applicable sales charges
(if any), distribution fees, shareholder servicing fees and transfer agency
fees. Shareholders of each Class 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
70
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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.
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.
71
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
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 it from all, or substantially all, federal income taxes. Accordingly, no
provision for federal income taxes was required at December 31, 1998. The
following Funds had net capital loss carryforwards at December 31, 1998:
<TABLE>
<CAPTION>
YEAR CAPITAL LOSS
FUND EXPIRES CARRYFORWARDS
- ---------------------------------------------------------------------------
<S> <C> <C>
Short-Intermediate U.S. Government Income
Fund 2001 $ 581,532
2002 6,942,081
2003 7,074,103
2004 753,400
2005 77,556
U.S. Government Income Fund 2001 208,402
2002 11,205,131
2003 510,531
2004 3,893,014
Variable Rate Government Fund 2000 14,819,786
2001 2,818,401
2002 119,628,012
2003 4,546,666
2004 2,482,931
</TABLE>
Any loss carryforwards from merged Pacifica, Overland and Stagecoach Funds are
included in the Fund's carryforwards as shown above. 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
72
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
realized gain on sales of investments in the accompanying Statements of Changes
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, Strategic 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.
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 to the Funds, 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 Fund's 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.
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
73
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
annual fee of 0.07% of the first $50 million of each Fund's average daily net
assets, 0.045% of the next $50 million, and 0.02% of each Fund's average daily
net assets in excess of $100 million.
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
---------------------------------------------
INSTITUTIONAL
FUND CLASS 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 Income Fund 0.14 0.14 N/A 0.06
Strategic Income Fund 0.14 0.14 0.14 N/A
U.S. Government Income Fund 0.14 0.14 0.14 0.06
Variable Rate Government Fund 0.14 N/A N/A N/A
</TABLE>
Transfer agency fees paid on behalf of the Funds for the six months ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bond Fund $ 2,922 $ 5,230 $ 612 N/A
Short-Intermediate U.S.
Government Income Fund 30,989 5,742 N/A $26,152
Strategic Income Fund* 5,102 13,279 1,448 N/A
U.S. Government Income Fund 131,191 23,161 2,148 2,490
Variable Rate Government Fund 105,897** N/A N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO DECEMBER 31, 1998.
** INCLUDES EXPENSES CHARGED TO THE FUND'S CLASS C SHARES PRIOR TO THEIR
CONVERSION TO CLASS A SHARES.
The Company entered into a contract on behalf of the Funds with WFB, whereby
WFB provides shareholder services for the Funds. Pursuant to the contracts, WFB
is entitled to receive shareholder servicing fees at the following annual rates:
<TABLE>
<CAPTION>
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 Income Fund 0.30 0.25 N/A 0.25
Strategic Income Fund 0.25 0.25 0.25 N/A
U.S. Government Income Fund 0.30 0.30 0.25 0.25
Variable Rate Government Fund 0.00 N/A N/A N/A
</TABLE>
74
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
The shareholder servicing fees paid on behalf of the Funds for the six months
ended December 31 1998 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bond Fund $ 5,219 $ 9,339 $ 1,093 N/A
Short-Intermediate U.S.
Government Income Fund 66,406 10,254 N/A $ 108,968
Strategic Income Fund* 9,112 23,712 2,586 N/A
U.S. Government Income Fund 281,122 49,631 3,835 10,375
Variable Rate Government Fund 379** N/A N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO DECEMBER 31, 1998.
** INCLUDES EXPENSES CHARGED TO THE FUND'S CLASS C SHARES PRIOR TO THEIR
CONVERSION TO CLASS A SHARES.
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. Pursuant to the Administrative Servicing Plan, the Fund
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.
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. 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.
The Company has adopted separate Distribution Plans for the Class A, Class B
and Class C shares of the Funds pursuant to Rule 12b-1 under the 1940 Act (each,
a "Plan").
The Plan for the Class A shares of the Corporate Bond and Strategic Income
Funds 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
75
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
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 Plan for Class A shares of the Variable Rate Government Fund provides that
the Fund may pay to Stephens up to 0.25% of its average daily net assets
attributable to the Class A shares as compensation for distribution-related
services or as reimbursement for distribution-related expenses.
The Plans for the Class B shares of the Corporate Bond, Short-Intermediate
U.S. Government Income, Strategic 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%, 0.75% and .070%, respectively, of the average daily net assets
attributable to the Class B shares.
The Plans for Class C shares of the Corporate Bond, Strategic 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% 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
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION DISTRIBUTION DISTRIBUTION
FEES FEES FEES CLASS
FUND CLASS A CLASS B C
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bond Fund $ 1,044 $ 28,016 $ 3,279
Short-Intermediate U.S. Government Income
Fund 0 30,761 N/A
Strategic Income Fund* 1,822 71,137 7,757
U.S. Government Income Fund 0 115,801 11,505
Variable Rate Government Fund 189,482** N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO DECEMBER 31, 1998.
** INCLUDES EXPENSES CHARGED TO THE FUND'S CLASS C SHARES PRIOR TO THEIR
CONVERSION TO CLASS A SHARES.
76
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
Registration fees paid on behalf of the Funds for the six months ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
REGISTRATION
REGISTRATION REGISTRATION REGISTRATION FEES
FEES CLASS FEES CLASS FEES CLASS INSTITUTIONAL
FUND A B C CLASS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bond Fund $ 7,412 $ 5,448 $ 4,600 N/A
Short-Intermediate U.S.
Government Income Fund 5,042 6,130 N/A $ 14,048
Strategic Income Fund* 7,904 6,769 5,477 N/A
U.S. Government Income Fund 13,157 13,254 2 14,715
Variable Rate Government
Fund 1,164** N/A N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO DECEMBER 31, 1998.
** INCLUDES EXPENSES CHARGED TO THE FUND'S CLASS C SHARES PRIOR TO THEIR
CONVERSION TO CLASS A SHARES.
WAIVED FEES AND REIMBURSED EXPENSES
Waived fees and reimbursed expenses for the six months ended December 31, 1998
were as follows:
<TABLE>
<CAPTION>
EXPENSES FEES
REIMBURSED WAIVED BY
FUND BY STEPHENS WFB
- --------------------------------------------------------------------------
<S> <C> <C>
Corporate Bond Fund $ 42,875 $ 75,332
Short-Intermediate U.S. Government Income Fund 0 147,092
Strategic Income Fund* 49,722 121,588
U.S. Government Income Fund 0 327,994
Variable Rate Government Fund 0 268,382
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO DECEMBER 31, 1998.
Certain officers and one of the directors of the Company are also officers of
Stephens. As of December 31, 1998, Stephens owned 16 shares of the Corporate
Bond Fund, 3,508 shares of the Short-Intermediate U.S. Government Income Fund,
16 shares of the Strategic Income Fund, 3,379 shares of the U.S. Government
Income Fund and 15,849 shares of the Variable Rate Government Fund.
Stephens has retained $1,708,170 as sales charges from the proceeds of Class A
shares sold, $1,439,982 as proceeds from Class B shares redeemed by the Company
and $43,103 as proceeds from Class C shares redeemed by the Company for the six
months ended December 31, 1998. Wells Fargo Securities Inc., a subsidiary of
WFB, received $1,515,763 as sales charges from the proceeds of Class A shares
sold, $290,721 as proceeds from Class B shares redeemed by the Company and $0 as
proceeds from Class C shares redeemed by the Company for the six months ended
December 31, 1998.
77
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
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 December 31, 1998, were as follows:
AGGREGATE PURCHASES AND SALES
<TABLE>
<CAPTION>
PURCHASES AT SALES
FUND COST PROCEEDS
- -------------------------------------------------------------------------
<S> <C> <C>
Corporate Bond Fund $ 10,687,725 $ 6,127,645
Short-Intermediate U.S. Government Income
Fund 44,044,972 41,734,121
Strategic Income Fund* 74,087,870 32,394,808
U.S. Government Income Fund 105,464,447 125,274,115
Variable Rate Government Fund 64,028,298 87,500,604
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO DECEMBER 31, 1998.
4. CAPITAL SHARE TRANSACTIONS
As of December 31, 1998, there were over 242 billion shares of $0.001 par
value capital stock authorized by the Company. As of December 31, 1998, each
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
(UNAUDITED) OF
FOR THE SIX OPERATIONS)
MONTHS ENDED TO
DEC. 31, JUNE 30,
1998 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 193,675 549,592
Shares issued in reinvestment of dividends --
Class A 6,692 2,541
Shares redeemed -- Class A (296,117) (3,533)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING
-- CLASS A (95,750) 548,600
Shares sold -- Class B 507,579 468,524
Shares issued in reinvestment of dividends --
Class B 16,563 1,045
Shares redeemed -- Class B (24,749) (11,597)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING
-- CLASS B 499,393 457,972
Shares sold -- Class C 109,909 29,746
Shares issued in reinvestment of dividends --
Class C 2,199 119
Shares redeemed -- Class C (5,717) 0
NET INCREASE (DECREASE) IN SHARES OUTSTANDING
-- CLASS C 106,391 29,865
</TABLE>
78
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME
FUND
-------------------------------------------
FOR THE
(UNAUDITED) THREE
FOR THE SIX MONTHS
MONTHS ENDED ENDED FOR THE
DEC. 31, JUNE 30, YEAR ENDED
1998 (1) 1998 (2) MARCH 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 3,045,625 1,131,614 552,800
Shares issued in reinvestment of dividends --
Class A 104,306 30,004 132,231
Shares redeemed -- Class A (2,091,310) (321,454) (1,220,467)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A 1,058,621 840,164 (535,436)
Shares sold -- Class B(3) 232,411 756,223 N/A
Shares issued in reinvestment of dividends --
Class B(3) 18,272 1 N/A
Shares redeemed -- Class B(3) (105,638) (2,717) N/A
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS B(3) 145,045 753,507 N/A
Shares sold -- Institutional Class 574,478 4,422,174 587,082
Shares issued in reinvestment of dividends --
Institutional Class 109,424 18,665 91,268
Shares redeemed -- Institutional Class (1,526,427) (552,996) (1,716,365)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
INSTITUTIONAL CLASS (842,525) 3,887,843 (1,038,015)
</TABLE>
(1) "SHARES SOLD" INCLUDES 874,240 FOR CLASS A SHARES AS A RESULT OF THE
CONSOLIDATION OF THE MASTERWORKS SHORT-INTERMEDIATE TERM FUND.
(2) "SHARES SOLD" INCLUDES 905,769 FOR CLASS A SHARES, 747,138 FOR CLASS B
SHARES AND 4,138,122 FOR INSTITUTIONAL CLASS SHARES AS A RESULT OF THE
CONSOLIDATION OF THE STAGECOACH INTERMEDIATE BOND FUND.
(3) THE CLASS B SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
79
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC INCOME
FUND
----------------
FROM JULY 13,
1998
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER, 1998
- ----------------------------------------------------------------------------------
<S> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 1,109,880
Shares issued in reinvestment of dividends -- Class A 16,482
Shares redeemed -- Class A (428,947)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING -- CLASS A 697,415
Shares sold -- Class B 3,024,669
Shares issued in reinvestment of dividends -- Class B 34,135
Shares redeemed -- Class B (534,094)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING -- CLASS B 2,524,710
Shares sold -- Class C 286,279
Shares issued in reinvestment of dividends -- Class C 4,108
Shares redeemed -- Class C (33,157)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING -- CLASS C 257,230
</TABLE>
80
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
-------------------------------------------
FOR THE SIX
(UNAUDITED) MONTHS FOR THE
FOR THE SIX ENDED YEAR ENDED
MONTHS ENDED JUNE 30, DEC. 31,
DEC. 31, 1998 1998 1997 (1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 847,071 1,364,621 15,150,976
Shares issued in reinvestment of dividends --
Class A 362,886 338,255 384,053
Shares redeemed -- Class A (2,577,383) (3,172,028) (3,703,910)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A (1,367,426) (1,469,152) 11,831,119
Shares sold -- Class B(2) 855,704 615,009 2,490,749
Shares issued in reinvestment of dividends --
Class B(2) 46,894 32,999 27
Shares redeemed -- Class B(2) (370,386) (338,048) (24,344)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS B(2) 532,212 309,960 2,466,432
Shares sold -- Class C 242,027 79,464 29,243
Shares issued in reinvestment of dividends --
Class C 3,514 1,739 3,838
Shares redeemed -- Class C (61,031) (36,508) (85,895)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS C 184,510 44,695 (52,814)
Shares sold -- Institutional Class(2) 66,730 87,456 462,544
Shares issued in reinvestment of dividends --
Institutional Class(2) 3,622 3,331 0
Shares redeemed -- Institutional Class(2) (81,883) (26,447) (669)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
INSTITUTIONAL CLASS(2) (11,531) 64,340 461,875
</TABLE>
(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.
(2) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
81
<PAGE>
Income Funds NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
------------------------------------------------
(UNAUDITED)
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED FOR THE
DEC. 31, JUNE 30, YEAR ENDED
1998 (1) 1998 DEC. 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 4,241,692 5,306,636 7,444,514
Shares issued in reinvestment of dividends --
Class A 63,538 88,803 327,188
Shares redeemed -- Class A (8,006,244) (12,066,556) (25,731,027)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A (3,701,014) (6,671,117) (17,959,325)
Shares sold -- Class C(2) 0 1,937,902 15,373,699
Shares issued in reinvestment of dividends --
Class C(2) 625 4,358 15,917
Shares redeemed -- Class C(2) (336,006) (1,928,389) (15,467,038)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS C(2) (335,381) 13,871 (77,422)
</TABLE>
(1) "SHARES SOLD" INCLUDES 498,000 FOR CLASS A SHARES AS A RESULT OF THE
CONVERSION OF THE FUND'S CLASS C SHARES ON JULY 13, 1998.
(2) THIS CLASS OF SHARES CEASED OPERATIONS ON JULY 13, 1998.
82
<PAGE>
SHAREHOLDERS' MEETING AND PROXY VOTING RESULTS Income Funds
- ------------------------------------------------------------------------
SHAREHOLDERS' MEETING AND PROXY VOTING RESULTS
The following proposal was passed by the required majority of shareholders of
the MasterWorks Short-Intermediate Term Fund at a Special Shareholders' meeting
held on November 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 MasterWorks Short-Intermediate Term Fund to the
Stagecoach Short-Intermediate U.S. Government Income Fund in exchange for shares
of designated classes of the Stagecoach Short-Intermediate U.S. Government
Income Fund.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
- -------------------------------
768,335 0 0
</TABLE>
83
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
84
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
85
<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
FRN -- Floating Rate Notes
FSA -- Financial Security Assurance, Inc
GNMA -- Government National Mortgage Association
GO -- General Obligation
HFA -- Housing Finance Authority
HFFA -- Health Facilities Financing Authority
IDA -- Industrial Development Authority
LIBOR -- London Interbank Offered Rate
LOC -- Letter of Credit
MBIA -- Municipal Bond Insurance Association
MFHR -- Multi-Family Housing Revenue
MUD -- Municipal Utility District
MTN -- Medium Term Note
PCFA -- Pollution Control Finance Authority
PCR -- Pollution Control Revenue
PFA -- Public Finance Authority
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>
86
<PAGE>
Wells Fargo provides investment advisory services, shareholder services, and
certain other services for Stagecoach Funds. The Funds are 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 SAR (2/99)
