<PAGE>
STAGECOACH FUNDS-registered trademark-
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
June 30, 1999
<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.................................18
Variable Rate Government Fund...............................23
PORTFOLIOS OF INVESTMENTS
Corporate Bond Fund.........................................28
Short-Intermediate U.S. Government Income Fund..............32
Strategic Income Fund.......................................36
U.S. Government Income Fund.................................41
Variable Rate Government Fund...............................45
INCOME FUNDS
Statement of Assets and Liabilities.........................48
Statement of Operations.....................................50
Statements of Changes in Net Assets.........................52
Financial Highlights........................................56
Notes to Financial Statements...............................67
INDEPENDENT AUDITOR'S REPORT....................................83
SUPPLEMENTAL INFORMATION........................................84
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
- ------------------------------------------------------------------------
DEAR VALUED SHAREHOLDER:
Thank you for investing in the Stagecoach Funds.
We are pleased to present this annual report to you for the period ended June
30, 1999. This 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.
Recent events in the U.S. economy may signal a turning point for domestic and
international markets. Concerned that strong domestic growth and low
unemployment could spark higher inflation, the Federal Reserve Board ("the Fed")
raised its target for the federal funds rate 25 basis points to 5 percent in
June. Fear of such a rate increase threw the Dow Jones Industrial Average (DJIA)
into a spin during May. However, when the Fed raised rates and announced it
would return to a neutral position in terms of the future direction of interest
rates, the news was well-received on Wall Street, and the stock and bond markets
responded positively.
Overall, a period of relative calm returned to global markets due to Asia's
improving economic condition. After a brief scare late last summer, U.S.
financial markets shook off any threats to domestic prosperity, with the DJIA
climbing 3,000 points from October 1998 through April 1999 to a record high of
11,000. Thanks to the combination of low unemployment, low inflation and strong
consumer spending, the nation's "Goldilock's" economy seemed just right -- at
least through most of the period.
Although higher interest rates typically help cool the nation's strong
economic growth, economies from Asia to Latin America are concerned about the
prospect of a tightening U.S. monetary policy. Higher interest rates translate
into higher bond yields, raising the debt service burden throughout emerging
markets. So while the health of the world's economies remains questionable,
signs of optimism are emerging.
Whatever the market conditions, we recommend that you continually review your
investment portfolio with your financial consultant to determine an appropriate
1
<PAGE>
Income Funds LETTER TO SHAREHOLDERS
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mix of investments to meet your ongoing needs. We appreciate your business and
strive to deliver personalized service along with an array of investment options
to help you achieve your financial goals. If you have any questions or need
information, please contact us at 1-800-552-9612.
Again, thank you for choosing the Stagecoach Funds.
Sincerely,
[SIGNATURE]
Michael J. Hogan
Executive Vice President,
Mutual Fund Group
Wells Fargo Bank, N.A.
[SIGNATURE]
R. Greg Feltus
Chairman and President of
Stagecoach Funds
<PAGE>
PERFORMANCE AT A GLANCE Corporate Bond Fund
- ------------------------------------------------------------------------
CORPORATE BOND FUND
AVERAGE ANNUAL TOTAL RETURN (%) (as of June 30, 1999)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (4/1/98)
<S> <C> <C>
CLASS A 2.45 3.57
CLASS B 1.68 2.81
CLASS C 1.67 2.77
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (4/1/98)
<S> <C> <C>
CLASS A (2.13) (0.17)
CLASS B (3.11) (0.26)
CLASS C 0.71 2.77
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR
<S> <C> <C>
LEHMAN BROTHERS CORPORATE LONG BOND INDEX (1.06)
</TABLE>
GROWTH OF A $10,000 INVESTMENT(2)
- ----------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH CORPORATE
BOND FUND LEHMAN BROTHERS CORPORATE
CLASS A SHARES LONG BOND INDEX (1)
<S> <C> <C>
Inception $9,550 $10,000
Apr-98 $9,548 $10,073
May-98 $9,649 $10,246
Jun-98 $9,739 $10,354
Jul-98 $9,767 $10,286
Aug-98 $9,767 $10,295
Sep-98 $10,102 $10,668
Oct-98 $9,989 $10,379
Nov-98 $10,167 $10,759
Dec-98 $10,219 $10,766
Jan-99 $10,313 $10,907
Feb-99 $10,078 $10,523
Mar-99 $10,182 $10,554
Apr-99 $10,207 $10,567
May-99 $10,041 $10,381
Jun-99 $9,978 $10,244
</TABLE>
3
<PAGE>
Corporate Bond Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
CORPORATE BOND FUND
The Stagecoach Corporate Bond Fund (the "Fund") seeks to provide investors
with a high level of current income consistent with prudent risk, by investing
primarily in corporate debt securities and U.S. government obligations. Managing
primarily for income, the Fund's portfolio managers can invest in securities of
any maturity in the corporate bond market.
A team of portfolio managers actively manage the Fund's portfolio. Graham
Allen, who specializes in global and high-yield securities, has more than 22
years of experience in the securities industry and 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 Stagecoach Corporate Bond Fund's Class A net asset value decreased from
$10.03 on June 30, 1998 to $9.62 on June 30, 1999. The Fund's Class A shares
distributed $0.62 per share in dividend income and $0.04 per share in capital
gains during the period. Keep in mind that past performance is not predictive of
future trends, and distributions will vary based on the Fund's portfolio
earnings.
The Fund's distribution rate for Class A shares for the 12-month period ended
June 30, 1999 was 5.91%.
For the 12-month period ended June 30, 1999, the Fund posted a 2.45%
cumulative total return for Class A shares, exclusive of sales charges. The Fund
outperformed its benchmark, the Lehman Brothers Corporate Long Bond Index, which
returned -1.06%.
4
<PAGE>
INVESTMENT ADVISOR COMMENTARY Corporate Bond Fund
- ------------------------------------------------------------------------
PORTFOLIO DATA (as of June 30, 1999)
- ---------------------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 115%
NUMBER OF HOLDINGS 64
</TABLE>
FUND CHARACTERISTICS(3)
- ---------------------------------------------
<TABLE>
<S> <C>
AVERAGE CREDIT QUALITY Baa2
WEIGHTED AVERAGE COUPON 7.79%
ESTIMATED WEIGHTED AVERAGE MATURITY 12.49 years
ESTIMATED DURATION 6.15 years
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 9.62 9.62 9.62
DISTRIBUTION RATE 5.91% 5.43% 5.45%
SEC YIELD 6.63% 6.18% 6.20%
</TABLE>
PORTFOLIO ALLOCATION
(as of June 30, 1999)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Foreign Government Bonds 4%
Other 2%
Corporate Bonds and Notes 91%
Cash Equivalents 3%
</TABLE>
PORTFOLIO REVIEW
The Fund is managed with a top-down strategy involving both a global and
domestic overview. Research is focused on how global events affect the U.S.
economy and how these factors affect the different sectors within the corporate
bond market.
The Fund invests in a broad range of corporate securities providing
diversification that seeks to reduce the impact that a single bond or sector's
performance may have on the Fund. The Fund's top ten holdings represent
corporate securities issued by well-known, established companies. When selecting
new issues for the Fund, we specifically select the debt securities of companies
with improving growth and earnings while carefully reviewing maturity, credit
and high yield potential of such securities.
On June 30, 1999, 91% of the Fund's portfolio was invested in corporate bonds
and notes. This allowed the Fund to capture opportunities for high yield. As
interest rates increased during the reporting period, duration was shortened to
insulate the Fund from price erosion. The duration at June 30, 1999, was
approximately equal to that of the Lehman Brothers Corporate Long Bond Index.
5
<PAGE>
Corporate Bond Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
STRATEGIC OUTLOOK
We continue to see great opportunity with corporate bonds. Our management
strategy is based on sector rotation, which means we move among industry sectors
within the corporate bond market that present attractive opportunities for high
income. We intend to continue purchasing bonds within corporate sectors that
show the most potential for high current income.
We believe global economies will continue to grow at a moderate pace. Latin
America and much of Asia should begin to see positive growth, albeit from a very
low base. This, in combination with moderate global inflation, will continue to
benefit corporate profitability. Y2K concerns in the fourth quarter of 1999 may
create heightened volatility with some foreign issuers and sovereigns.
U.S. inflationary rates remain low, and given an already substantial rise in
interest rates this year, we expect only moderate upward pressure on interest
rates near term, giving way to lower interest rates by year-end. The Fund will
remain neutral from a duration standpoint with a bias to extend as the year
progresses and the Federal Reserve Board's monetary policy becomes clearer.
Corporate bonds may be lessened within the portfolio as we move into the fourth
quarter of 1999 in favor of Treasuries as we take a more cautious approach with
regard to Y2K concerns and a potential slowing of the domestic economy.
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 such
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
6
<PAGE>
INVESTMENT ADVISOR COMMENTARY Corporate Bond Fund
- ------------------------------------------------------------------------
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
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 returns for Class B and Class C shares of the Corporate Bond Fund will
vary from the results shown due to different expenses and load structures.
The accompanying chart compares the performance of the Stagecoach Corporate
Bond Fund Class A shares since inception with the Lehman Brothers Corporate
Long Bond Index. The chart assumes a hypothetical $10,000 initial investment
in Class A shares and reflects all operating expenses and assumes the maximum
initial sales charge of 4.50%. The Fund is a professionally managed mutual
fund.
3 The formula used to calculate the SEC yield is described in the Fund's
Statement of Additional Information and is designed to standardize the yield
calculations so that all mutual fund companies with the same or similar
portfolios use a uniform method to obtain yield figures for their non-money
market fund advertisements. SEC yields include the actual amount of interest
earned adjusted by any gain or loss realized from 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.
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 RETURN (%) (as of June 30, 1999)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (10/27/93)
<S> <C> <C> <C>
CLASS A 3.37 5.77 5.07
CLASS B 2.65 5.13 4.41
INSTITUTIONAL CLASS 3.38 5.79 5.09
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (10/27/93)
<S> <C> <C> <C>
CLASS A 0.26 5.13 4.51
CLASS B (2.23) 4.80 4.27
INSTITUTIONAL CLASS N/A N/A N/A
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR 5-YEAR
<S> <C> <C> <C>
LEHMAN BROTHERS INTERMEDIATE TREASURY BOND
INDEX 4.49 6.86
</TABLE>
GROWTH OF A $10,000 INVESTMENT(2)
- ----------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH SHORT-INTERMEDIATE STAGECOACH SHORT-INTERMEDIATE
U.S. GOVERNMENT U.S. GOVERNMENT
INCOME FUND INCOME FUND INSTITUTIONAL LEHMAN BROTHERS
CLASS A SHARES CLASS SHARES INTERMEDIATE TREASURY BOND INDEX (1)
<S> <C> <C> <C>
Inception $9,700 $10,000 $10,000
11/93 $9,715 $10,015 $9,950
12/93 $9,745 $10,047 $9,991
1/94 $9,807 $10,110 $10,090
2/94 $9,748 $10,050 $9,948
3/94 $9,695 $9,995 $9,804
4/94 $9,661 $9,960 $9,741
5/94 $9,689 $9,989 $9,748
6/94 $9,697 $9,997 $9,750
7/94 $9,756 $10,058 $9,877
8/94 $9,753 $10,055 $9,906
9/94 $9,632 $9,930 $9,824
10/94 $9,626 $9,924 $9,827
11/94 $9,570 $9,866 $9,782
12/94 $9,608 $9,905 $9,813
1/95 $9,759 $10,061 $9,973
2/95 $9,937 $10,244 $10,163
3/95 $9,988 $10,297 $10,219
4/95 $10,074 $10,385 $10,337
5/95 $10,300 $10,619 $10,629
6/95 $10,361 $10,681 $10,699
7/95 $10,364 $10,684 $10,704
8/95 $10,434 $10,756 $10,790
9/95 $10,495 $10,819 $10,862
10/95 $10,597 $10,924 $10,983
11/95 $10,710 $11,041 $11,117
12/95 $10,825 $11,160 $11,228
1/96 $10,919 $11,257 $11,325
2/96 $10,825 $11,160 $11,204
3/96 $10,762 $11,095 $11,149
4/96 $10,720 $11,052 $11,117
5/96 $10,695 $11,026 $11,111
6/96 $10,796 $11,130 $11,221
7/96 $10,825 $11,159 $11,255
8/96 $10,823 $11,158 $11,269
9/96 $10,971 $11,301 $11,414
10/96 $11,108 $11,445 $11,600
11/96 $11,265 $11,609 $11,739
12/96 $11,216 $11,557 $11,675
1/97 $11,288 $11,631 $11,719
2/97 $11,327 $11,672 $11,736
3/97 $11,253 $11,593 $11,667
4/97 $11,382 $11,740 $11,798
5/97 $11,456 $11,818 $11,890
6/97 $11,549 $11,915 $11,991
7/97 $11,764 $12,128 $11,215
8/97 $11,707 $12,068 $12,166
9/97 $11,825 $12,192 $12,299
10/97 $11,950 $12,322 $12,443
11/97 $11,970 $12,344 $12,471
12/97 $12,065 $12,444 $12,573
1/98 $12,229 $12,618 $12,742
2/98 $12,204 $12,591 $12,725
3/98 $12,230 $12,619 $12,764
4/98 $12,284 $12,674 $12,824
5/98 $12,376 $12,771 $12,912
6/98 $12,419 $12,815 $12,999
7/98 $12,472 $12,871 $13,049
8/98 $12,693 $13,103 $13,308
9/98 $13,016 $13,442 $13,628
10/98 $12,978 $13,402 $13,656
11/98 $12,947 $13,368 $13,605
12/98 $12,982 $13,405 $13,657
1/99 $13,056 $13,481 $13,717
2/99 $12,828 $13,241 $13,517
3/99 $12,916 $13,333 $13,606
4/99 $12,956 $13,374 $13,644
5/99 $12,829 $13,254 $13,557
6/99 $12,838 $13,248 $13,581
</TABLE>
8
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
SHORT-INTERMEDIATE
U.S. GOVERNMENT INCOME FUND
The Stagecoach Short-Intermediate U.S. Government Income Fund (the "Fund")
seeks to provide investors with current income while preserving capital by
investing primarily in short to intermediate-term securities issued or
guaranteed by the U.S. government, its agencies and instrumentalities. Targeting
bonds within this range helps to maximize the Fund's income potential.
The Fund is managed by Paul Single and Jacqueline Flippin. Ms. Flippin
replaced Madeline Gish on the taxable short-duration team beginning in March of
1999.
PERFORMANCE SUMMARY
The Stagecoach Short-Intermediate U.S. Government Income Fund's Class A share
net asset value decreased from $9.97 on June 30, 1998 to $9.74 on June 30, 1999.
The Fund's Class A shares distributed $0.57 per share in dividend income and no
capital gains during this period. Keep in mind that past performance is not
predictive of future trends, and distributions will vary based on the Fund's
portfolio earnings.
The Fund's distribution rate for Class A shares for the 12-month period ended
June 30, 1999 was 5.65%.
For the 12-month period ended June 30, 1999, the Fund's Class A shares
returned 3.37%, exclusive of sales charges, while the Fund's Institutional class
shares returned 3.38%. Overall, the Fund underperformed its benchmark, the
Lehman Brothers Intermediate Treasury Bond Index, which returned 5.03% in the
same period.
The Fund's duration, longer than its peers, helped boost performance in the
second half of 1998. As interest rates increased in the first half of 1999, we
reduced portfolio duration and reduced the Fund's exposure to corporate
securities.
9
<PAGE>
Short-Intermediate U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
PORTFOLIO DATA (as of June 30, 1999)
- ---------------------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 116%
NUMBER OF HOLDINGS 55
</TABLE>
FUND CHARACTERISTICS(3)
- ---------------------------------------------
<TABLE>
<S> <C>
AVERAGE CREDIT QUALITY AAA
WEIGHTED AVERAGE COUPON 5.94%
ESTIMATED WEIGHTED AVERAGE MATURITY 4.09 years
ESTIMATED DURATION 3.21 years
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS I
<S> <C> <C> <C>
NAV 9.74 9.74 9.55
DISTRIBUTION RATE 5.65% 5.12% 5.88%
SEC YIELD 5.08% 4.54% 5.30%
</TABLE>
PORTFOLIO ALLOCATION
(as of June 30, 1999)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Other 1%
Federal Agencies 43%
Corporate Bonds 32%
U.S. Treasury Securities 20%
Cash (4) 4%
</TABLE>
PORTFOLIO REVIEW
Investment quality, maturity and duration are carefully examined as the Fund's
managers employ a top-down approach. This approach involves analysis of
historical interest rate shifts in an attempt to predict changes in Federal
Reserve policy, which would ultimately affect the strategy of the Fund.
As of June 30, 1999, the Fund's allocation in federal agency securities helped
to maintain a degree of stability and credit quality for the Fund.
The Funds corporate holdings were affected by the global economic slowdown in
1998, as well as the Korean marketplace rebound in 1999. As of June 30, 1999,
the Fund held 32% of the portfolio in corporate bonds. Third quarter 1998 showed
corporate securities underperforming other sectors as a "flight-to-quality"
trade hit the market. Following aggressive easing of monetary policy by the
Federal Reserve Board (the "Fed") in September and October of 1998, calm and
stability returned to the markets and corporate spreads narrowed back to their
pre-crisis levels.
To maintain liquidity, we held 20% of the portfolio in U.S. Treasury notes as
of June 30, 1999. In this interest rate environment, we determined it prudent to
use these
10
<PAGE>
INVESTMENT ADVISOR COMMENTARY Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
liquid assets to alter the Fund's duration. This strategy allowed the Fund to
capture increased current income while preserving capital.
STRATEGIC OUTLOOK
We believe the Fed may keep monetary policy relatively tight until they are
convinced that inflation is stable. This, in turn, will most likely keep upward
pressure on interest rates until there is a sign of slower domestic spending.
Based on this outlook, we intend to position the Fund with a longer duration to
capture the potential for income and capital preservation. Our management team
has extensive experience in the bond market, enabling us to respond quickly to
economic conditions and market events. Corporate holdings are well below the
maximum amount, and fixed- rate mortgage and asset-backed holdings are
performing well. As always, we will continue our focus on providing investors
with current income and preservation of capital.
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 such
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 Intermediate Treasury Bond Index is an unmanaged index
composed of U.S. Treasury securities in the 1- to 10-year range. 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.
11
<PAGE>
Short-Intermediate U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
2 The returns for Class B shares of the Short-Intermediate U.S. Government
Income Fund will vary from the results shown due to different expenses and
load structures.
The accompanying chart compares the performance of the Stagecoach
Short-Intermediate U.S. Government Income Fund Class A and Class I shares
since inception with the Lehman Brothers Intermediate Treasury Bond Index. The
chart assumes a hypothetical $10,000 initial investment in Class A and Class I
shares and, for Class A shares, reflects all operating expenses and assumes
the maximum initial sales charge of 3.00%. The Fund is a professionally
managed mutual fund.
3 The formula used to calculate the SEC yield is described in the Fund's
Statement of Additional Information and is designed to standardize the yield
calculations so that all mutual fund companies with the same or similar
portfolios use a uniform method to obtain yield figures for their non-money
market fund advertisements. SEC yields include the actual amount of interest
earned adjusted by any gain or loss realized from 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.
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.
4 "Cash" represents repurchase agreements and U.S. Treasury Bills.
12
<PAGE>
PERFORMANCE AT A GLANCE Strategic Income Fund
- ------------------------------------------------------------------------
STRATEGIC INCOME FUND
TOTAL RETURN (%) (as of June 30, 1999)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
(7/13/98)
<S> <C>
CLASS A 2.52
CLASS B 1.87
CLASS C 1.87
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
(7/13/98)
<S> <C>
CLASS A (2.10)
CLASS B (2.95)
CLASS C 0.90
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE (7/98)
<S> <C>
LEHMAN BROTHERS AGGREGATE BOND INDEX 3.15
S&P 500 INDEX 22.76
</TABLE>
GROWTH OF A $10,000 INVESTMENT(2)
- ----------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH STRATEGIC LEHMAN BROTHERS AGGREGATE
INCOME FUND CLASS A SHARES BOND INDEX (1) S & P 500 INDEX (1)
<S> <C> <C> <C>
Inception $9,550 $10,000 $10,000
7/98 $9,513 $10,030 $9,893
8/98 $9,383 $9,607 $8,462
9/98 $9,710 $9,824 $9,005
10/98 $9,638 $9,593 $9,737
11/98 $9,845 $9,686 $10,327
12/98 $9,883 $10,002 $10,922
1/99 $9,945 $10,185 $11,382
2/99 $9,764 $9,961 $11,027
3/99 $9,810 $10,066 $11,468
4/99 $9,977 $10,197 $11,911
5/99 $9,856 $10,008 $11,630
6/99 $9,791 $9,944 $12,263
</TABLE>
13
<PAGE>
Strategic Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
STRATEGIC INCOME FUND
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. We shift assets 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 is on securities issued by companies in
industries that tend to pay high ongoing dividends. The Fund may purchase
preferred stock and other convertible securities, as well as common stock of any
size company. We have modified our approach to maximizing income by reducing
portfolio exposure to equities, which is now generally limited to 10 percent of
the portfolio.
A team of portfolio managers manage the Fund to provide investors a
potentially high level of income. Graham Allen, who specializes in global and
high-yield securities, has more than 22 years of experience in the securities
industry and 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
Since its inception in July 1998, the Strategic Income Fund's Class A share
net asset value decreased from $12.50 to $12.04 on June 30, 1999. The Fund's
Class A shares distributed $0.77 per share in dividend income, and no capital
gains during the period. Keep in mind that past performance is not predictive of
future trends, and distributions will vary based on Fund portfolio earnings.
14
<PAGE>
INVESTMENT ADVISOR COMMENTARY Strategic Income Fund
- ------------------------------------------------------------------------
PORTFOLIO DATA (as of June 30, 1999)
- --------------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 176%
NUMBER OF HOLDINGS 92
</TABLE>
FUND CHARACTERISTICS(3)
- --------------------------------------------------
<TABLE>
<S> <C>
AVERAGE CREDIT QUALITY Baa3
WEIGHTED AVERAGE COUPON 8.23%
ESTIMATED WEIGHTED AVERAGE MATURITY 8.47 years
ESTIMATED DURATION 5.03 years
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
NAV 12.04 12.05 12.05
DISTRIBUTION RATE 6.68% 6.25% 6.25%
SEC YIELD 7.32% 6.91% 6.89%
</TABLE>
The Fund reported a cumulative total return of 2.52% since inception for the
Class A shares, excluding sales charges, as of June 30, 1999. Generally
speaking, the fund has performed well against other fixed-income indexes such as
the Lehman Brothers Aggregate Bond Index.
Through diversification, the Fund performed extremely well in the third
quarter of 1998, when its high-yield holdings significantly outperformed the
peer group and the high-yield indexes. PORTFOLIO ALLOCATION
(as of June 30, 1999)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash 1%
Foreign Bonds 4%
Federal Agencies 2%
Corp. Bonds 79%
Other 6%
Common Stocks 4%
Preferred Stocks 2%
U.S. Treasury Notes 2%
</TABLE>
PORTFOLIO REVIEW
In an attempt to limit volatility, the Fund may invest across several types of
securities, including corporate and government bonds, high-yield bonds, U.S.
Treasury bills, income-producing stocks, and foreign securities.
We have taken some profits on our equity holdings, which performed well during
the period. We remain in higher-yield securities that reflect good yields and
excellent domestic U.S. fundamentals. As we move toward the year 2000, we will
likely increase our exposure of U.S. Treasuries in anticipation of a late-year
Treasury rally reflecting a Y2K flight to quality as the year closes.
15
<PAGE>
Strategic Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
STRATEGIC OUTLOOK
The global markets could have a significant detrimental effect on the U.S.
economy, although the global market influence has positively affected U.S. debt
markets for the last year. Strong U.S. growth has definitely underpinned many of
the world's less robust economies. The danger for U.S. interest rates, and hence
the U.S. economy going forward, is that the perception of a global turnaround
heightens fears of a return of global inflation. We believe that the Federal
Reserve Board may raise interest rates again this year, despite its neutral
stance toward interest rate movements as of June 30, 1999.
We continue to value the high-yield market and expect to maintain a high level
of exposure. Towards year end, liquidity is likely to decrease in these markets
as nervous traders assess effects of the millennium change. Corporate spreads
may also widen, which will not reflect poor fundamentals, but rather a lack of
market liquidity. This may cause U.S. Treasuries to outperform during the
remainder of 1999. Overall, we feel the Fund is well positioned to maximize
income in the coming months.
Please remember that 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 such
reductions will continue.
16
<PAGE>
INVESTMENT ADVISOR COMMENTARY Strategic Income Fund
- ------------------------------------------------------------------------
For Class A shares, the maximum front-end sales charge is 4.50%. The maximum
contingent deferred sales charge for Class B shares is 5.00%. 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 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.
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 returns for Class B and Class C shares of the Strategic Income Fund will
vary from the results shown due to different expenses and load structures.
The accompanying chart compares the performance of the Stagecoach Strategic
Income Fund Class A shares since inception with the Lehman Brothers Aggregate
Bond Index. The chart assumes a hypothetical $10,000 initial investment in
Class A shares and reflects all operating expenses and assumes the maximum
initial sales charge of 4.50%. The Fund is a professionally managed mutual
fund.
3 The formula used to calculate the SEC yield is described in the Fund's
Statement of Additional Information and is designed to standardize the yield
calculations so that all mutual fund companies with the same or similar
portfolios use a uniform method to obtain yield figures for their non-money
market fund advertisements. SEC yields include the actual amount of interest
earned adjusted by any gain or loss realized from 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.
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.
17
<PAGE>
U.S. Government Income Fund PERFORMANCE AT A GLANCE
- ------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND
AVERAGE ANNUAL TOTAL RETURN (%) (as of June 30, 1999)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR
<S> <C> <C> <C>
CLASS A 2.52 6.47 7.67
CLASS B 1.75 5.69 6.98
CLASS C 1.85 5.71 6.99
INSTITUTIONAL CLASS 2.49 6.47 7.67
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR
<S> <C> <C> <C>
CLASS A (2.14) 5.49 7.18
CLASS B (3.11) 5.39 6.98
CLASS C 0.87 5.71 6.99
INSTITUTIONAL CLASS N/A N/A N/A
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR 5-YEAR 10-YEAR
<S> <C> <C> <C>
LEHMAN BROTHERS U.S. GOVERNMENT LONG BOND INDEX (0.32) 9.87 9.36
</TABLE>
GROWTH OF A $10,000 INVESTMENT(2)
- ----------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH U.S. GOVERNMENT STAGECOACH U.S. GOVERNMENT LEHMAN BROTHERS U.S. GOVERNMENT
INCOME FUND CLASS A SHARES INCOME FUND INSTITUTIONAL CLASS SHARES LONG BOND INDEX (1)
<S> <C> <C> <C>
6/89 $9,550 $10,000 $10,000
7/89 $9,741 $10,200 $10,236
8/89 $9,575 $10,026 $9,962
9/89 $9,645 $10,100 $9,991
10/89 $9,907 $10,374 $10,393
11/89 $10,007 $10,479 $10,489
12/89 $10,037 $10,510 $10,469
1/90 $9,935 $10,403 $10,088
2/90 $9,981 $10,451 $10,058
3/90 $10,006 $10,478 $10,014
4/90 $9,902 $10,369 $9,769
5/90 $10,252 $10,735 $10,228
6/90 $10,422 $10,913 $10,466
7/90 $10,541 $11,038 $10,565
8/90 $10,247 $10,730 $10,113
9/90 $10,364 $10,852 $10,229
10/90 $10,544 $11,041 $10,466
11/90 $10,854 $11,365 $10,908
12/90 $11,058 $11,579 $11,125
1/91 $11,243 $11,773 $11,258
2/91 $11,299 $11,832 $11,312
3/91 $11,312 $11,845 $11,357
4/91 $11,446 $11,985 $11,501
5/91 $11,470 $12,011 $11,492
6/91 $11,406 $11,943 $11,405
7/91 $11,609 $12,157 $11,585
8/91 $11,961 $12,525 $11,987
9/91 $12,304 $12,884 $12,365
10/91 $12,318 $12,898 $12,385
11/91 $12,343 $12,924 $12,452
12/91 $13,057 $13,673 $13,205
1/92 $12,703 $13,301 $12,791
2/92 $12,729 $13,329 $12,869
3/92 $12,629 $13,224 $12,730
4/92 $12,625 $13,220 $12,716
5/92 $12,964 $13,575 $13,077
6/92 $13,132 $13,751 $13,261
7/92 $13,525 $14,162 $13,817
8/92 $13,627 $14,269 $13,912
9/92 $13,767 $14,416 $14,122
10/92 $13,543 $14,181 $13,826
11/92 $13,621 $14,263 $13,889
12/92 $13,876 $14,529 $14,274
1/93 $14,128 $14,794 $14,681
2/93 $14,395 $15,073 $15,180
3/93 $14,437 $15,118 $15,216
4/93 $14,520 $15,204 $15,329
5/93 $14,550 $15,235 $15,380
6/93 $14,931 $15,635 $16,035
7/93 $15,029 $15,737 $16,304
8/93 $15,387 $16,112 $16,974
9/93 $15,473 $16,202 $17,030
10/93 $15,517 $16,248 $17,156
11/93 $15,283 $16,003 $16,712
12/93 $15,355 $16,079 $16,764
1/94 $15,556 $16,289 $17,164
2/94 $15,246 $15,965 $16,461
3/94 $14,855 $15,555 $15,736
4/94 $14,720 $15,413 $15,549
5/94 $14,699 $15,392 $15,442
6/94 $14,621 $15,310 $15,290
7/94 $14,907 $15,610 $15,813
8/94 $14,901 $15,604 $15,692
9/94 $14,605 $15,293 $15,196
10/94 $14,529 $15,213 $15,140
11/94 $14,482 $15,165 $15,235
12/94 $14,616 $15,305 $15,468
1/95 $14,902 $15,605 $15,870
2/95 $15,236 $15,954 $16,324
3/95 $15,295 $16,016 $16,465
4/95 $15,509 $16,240 $16,757
5/95 $16,174 $16,936 $18,049
6/95 $16,375 $17,147 $18,260
7/95 $16,248 $17,014 $17,963
8/95 $16,464 $17,239 $18,366
9/95 $16,648 $17,433 $18,707
10/95 $16,909 $17,706 $19,229
11/95 $17,189 $17,999 $19,722
12/95 $17,440 $18,262 $20,248
1/96 $17,560 $18,388 $20,242
2/96 $16,977 $17,776 $19,260
3/96 $16,787 $17,578 $18,881
4/96 $16,594 $17,375 $18,564
5/96 $16,539 $17,318 $18,467
6/96 $16,704 $17,491 $18,864
7/96 $16,745 $17,534 $18,874
8/96 $16,739 $17,528 $18,634
9/96 $16,958 $17,757 $19,154
10/96 $17,332 $18,148 $19,909
11/96 $17,626 $18,456 $20,577
12/96 $17,422 $18,242 $20,079
1/97 $17,482 $18,306 $19,935
2/97 $17,481 $18,304 $19,947
3/97 $17,284 $18,098 $19,438
4/97 $17,524 $18,350 $19,911
5/97 $17,686 $18,519 $20,134
6/97 $17,882 $18,725 $20,524
7/97 $18,260 $19,121 $21,731
8/97 $18,160 $19,016 $21,131
9/97 $18,410 $19,278 $21,706
10/97 $18,647 $19,526 $22,435
11/97 $18,690 $19,571 $22,736
12/97 $18,897 $19,782 $23,116
1/98 $19,115 $20,010 $23,580
2/98 $19,090 $19,980 $23,415
3/98 $19,142 $20,034 $23,464
4/98 $19,191 $20,098 $23,554
5/98 $19,384 $20,292 $24,003
6/98 $19,508 $20,438 $24,560
7/98 $19,587 $20,514 $24,452
8/98 $19,851 $20,799 $25,535
9/98 $20,227 $21,192 $26,452
10/98 $20,135 $21,089 $26,034
11/98 $20,183 $21,138 $26,261
12/98 $20,287 $21,243 $26,213
1/99 $20,411 $21,388 $26,452
2/99 $20,124 $21,087 $25,177
3/99 $20,236 $21,199 $25,107
4/99 $20,317 $21,277 $25,137
5/99 $20,125 $21,086 $24,750
6/99 $20,000 $20,946 $24,480
</TABLE>
18
<PAGE>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND
The Stagecoach U.S. Government Income Fund (the "Fund") seeks to achieve a
long-term rate of total return through preserving capital and earning high
interest income. The Fund invests in mortgage-backed securities guaranteed by
the U.S. Government, providing the stability of a high credit quality portfolio.
Paul Single and Scott Smith co-manage the U.S. Government Income Fund.
Managing fixed-income global portfolios for Wells Fargo Bank since 1988, Mr.
Single specializes in asset-backed securities and fixed-income investing. Mr.
Smith has 13 years of experience in the securities industry with a specialty in
intermediate corporate and government bonds. Together, they bring fixed-income
expertise to the Fund.
PERFORMANCE SUMMARY
The Stagecoach U.S. Government Income Fund's Class A net asset value decreased
from $10.93 on June 30, 1998 to $10.62 on June 30, 1999. The Fund's Class A
shares distributed $0.59 per share in dividend income and no capital gains
during this period. Keep in mind that past performance is not predictive of
future trends, and distributions will vary based on Fund portfolio earnings.
The Fund's distribution rate for the 12-month period ended June 30, 1999 was
5.78% for the Class A shares.
For the 12-month period ended June 30, 1999, the Fund's Class A shares
returned 2.52%, exclusive of sales charges, and the Fund's Institutional Class
shares returned 2.49%. Overall, the Fund outperformed its benchmark, the Lehman
Brothers U.S. Government Long Bond Index, which returned -0.32% in the same
period. Compared to the benchmark index, the Fund holds a longer duration
profile than its peer group. In the rising interest rate environment of the
reporting period, the longer maturity profile negatively impacted the Fund's
performance. The continued strategic move to maintain a focus on lower coupon
mortgage securities allowed the Fund to outperform higher coupon funds for the
year to date.
19
<PAGE>
U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
PORTFOLIO DATA (as of June 30, 1999)
- ---------------------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 57%
NUMBER OF HOLDINGS 78
</TABLE>
FUND CHARACTERISTICS(3)
- ---------------------------------------------
<TABLE>
<S> <C>
AVERAGE CREDIT QUALITY AAA
WEIGHTED AVERAGE COUPON 7.07%
ESTIMATED WEIGHTED AVERAGE MATURITY 8.52 years
ESTIMATED DURATION 4.51 years
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS I
<S> <C> <C> <C> <C>
NAV 10.62 10.45 10.46 15.33
DISTRIBUTION
RATE 5.78% 5.35% 5.35% 6.11%
SEC YIELD 5.53% 5.08% 5.09% 5.84%
</TABLE>
PORTFOLIO ALLOCATION
(as of June 30, 1999)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Cash Equivalents 1%
U.S. Treasury Securities 9%
Federal Agencies 90%
</TABLE>
PORTFOLIO REVIEW
The Fund is managed with a total return strategy that balances reasonable risk
with competitive income and capital preservation. The Fund's portfolio mangers
carefully review investment quality, maturity and duration in an attempt to
provide consistent income and strong performance over time. With an expertise in
the economic factors that can affect mortgage-backed securities, the Fund's
portfolio managers employ a top-down approach and closely manage duration to
provide stability and high-interest income for the Fund.
Overall, we have taken a conservative approach to the Fund's portfolio, which
is part of our total return strategy. As of June 30, 1999, the Fund had invested
90% of its assets in federal agency securities. This investment-grade portfolio
helps the Fund provide regular income, preserve capital and maintain liquidity.
As of June 30, 1999, the portfolio was heavily weighted in mortgage-backed
securities, which represented 85% of the Fund's assets. This allocation could
change, however, depending on the direction of the U.S. economy, specifically
interest rates. Based on our management style, we search for bonds based on
their value
20
<PAGE>
INVESTMENT ADVISOR COMMENTARY U.S. Government Income Fund
- ------------------------------------------------------------------------
and expected performance. In addition, we continually examine our
mortgage-backed and U.S. Treasury securities exposure.
STRATEGIC OUTLOOK
We believe global economies will continue to grow at a moderate pace. Latin
America and much of Asia will begin to see positive growth, albeit from a very
low base. Moderate inflation, combined with a slowdown in the domestic economy,
will pave the way for lower interest rates in the latter part of 1999. Given an
already substantial rise in interest rates this year, and a low inflation
outlook, we expect only moderate pressure on rates near term, giving way to
lower rates by year-end. We intend to maintain the Fund at its current
positioning, with a bias toward remaining 5-10% long from a duration standpoint.
The Fund will also continue to focus on lower-coupon mortgages as this sector
of the mortgage market has become undervalued. As we look for rates to decline
towards year-end the fund will add exposure to U.S. Treasury securities.
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 the Fund can be
found in the 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 such
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 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 to 25 years. The Index
21
<PAGE>
U.S. Government Income Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
does not incur expenses and is not available directly for investment. Had the
Index incurred operating expenses, its performance would have been lower.
2 The returns for Class B and Class C shares of the U.S. Government Income Fund
will vary from the results shown due to different expenses and load
structures.
The accompanying chart compares the performance of the Stagecoach U.S.
Government Income Fund Class A and Class I shares for the past 10 years with
the Lehman Brothers U.S. Government Long Bond Index. The chart assumes a
hypothetical $10,000 initial investment in Class A and Class I shares and
reflects all operating expenses and, for Class A shares, assumes the maximum
initial sales charge of 4.50%. The Fund is a professionally managed mutual
fund.
3 The formula used to calculate the SEC yield is described in the Fund's
Statement of Additional Information and is designed to standardize the yield
calculations so that all mutual fund companies with the same or similar
portfolios use a uniform method to obtain yield figures for their non-money
market fund advertisements. SEC yields include the actual amount of interest
earned adjusted by any gain or loss realized from 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.
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.
22
<PAGE>
PERFORMANCE AT A GLANCE Variable Rate Government Fund
- ------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
AVERAGE ANNUAL TOTAL RETURN (%) (as of June 30, 1999)(1)
- ----------------------------------------------------------------
EXCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (11/1/90)
<S> <C> <C> <C>
CLASS A 2.17 3.86 4.39
</TABLE>
INCLUDING SALES CHARGES
- ----------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (11/1/90)
<S> <C> <C> <C>
CLASS A (0.85) 3.23 4.03
</TABLE>
BENCHMARK
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1-YEAR 5-YEAR
<S> <C> <C> <C>
LEHMAN BROTHERS ARMS INDEX 4.54 6.77
</TABLE>
GROWTH OF A $10,000 INVESTMENT(2)
- ----------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STAGECOACH VARIABLE RATE GOVERNMENT FUND CLASS A SHARES LEHMAN BROTHERS ARMS INDEX (1)
<S> <C> <C>
Inception $9,700 $10,000
11/90 $9,878 $10,086
12/90 $9,967 $10,197
1/91 $10,085 $10,291
2/91 $10,184 $10,360
3/91 $10,220 $10,432
4/91 $10,271 $10,527
5/91 $10,384 $10,587
6/91 $10,395 $10,635
7/91 $10,454 $10,719
8/91 $10,533 $10,847
9/91 $10,620 $10,947
10/91 $10,675 $11,057
11/91 $10,739 $11,163
12/91 $10,825 $11,309
1/92 $10,876 $11,381
2/92 $10,916 $11,409
3/92 $10,933 $11,364
4/92 $10,993 $11,487
5/92 $11,061 $11,590
6/92 $11,128 $11,711
7/92 $11,192 $11,762
8/92 $11,245 $11,862
9/92 $11,273 $11,927
10/92 $11,232 $11,829
11/92 $11,259 $11,846
12/92 $11,282 $11,958
1/93 $11,337 $12,080
2/93 $11,413 $12,186
3/93 $11,465 $12,241
4/93 $11,508 $12,313
5/93 $11,539 $12,343
6/93 $11,628 $12,472
7/93 $11,695 $12,530
8/93 $11,759 $12,605
9/93 $11,790 $12,607
10/93 $11,797 $12,612
11/93 $11,779 $12,578
12/93 $11,831 $12,673
1/94 $11,896 $12,758
2/94 $11,876 $12,717
3/94 $11,797 $12,616
4/94 $11,729 $12,549
5/94 $11,636 $12,539
6/94 $11,652 $12,567
7/94 $11,645 $12,644
8/94 $11,677 $12,706
9/94 $11,623 $12,654
10/94 $11,586 $12,643
11/94 $11,440 $12,608
12/94 $11,380 $12,674
1/95 $11,482 $12,884
2/95 $11,587 $13,143
3/95 $11,673 $13,206
4/95 $11,739 $13,346
5/95 $11,847 $13,562
6/95 $11,871 $13,618
7/95 $11,937 $13,667
8/95 $11,994 $13,676
9/95 $12,039 $13,773
10/95 $12,108 $13,859
11/95 $12,215 $13,977
12/95 $12,255 $14,083
1/96 $12,348 $14,181
2/96 $12,335 $14,213
3/96 $12,308 $14,238
4/96 $12,332 $14,257
5/96 $12,359 $14,298
6/96 $12,440 $14,400
7/96 $12,470 $14,470
8/96 $12,527 $14,557
9/96 $12,623 $14,669
10/96 $12,672 $14,836
11/96 $12,747 $14,979
12/96 $12,796 $15,027
1/97 $12,857 $15,114
2/97 $12,917 $15,198
3/97 $12,968 $15,227
4/97 $13,071 $15,346
5/97 $13,148 $15,441
6/97 $13,224 $15,543
7/97 $13,273 $15,677
8/97 $13,272 $15,718
9/97 $13,341 $15,847
10/97 $13,413 $15,951
11/97 $13,429 $15,956
12/97 $13,491 $16,064
1/98 $13,522 $16,172
2/98 $13,563 $16,208
3/98 $13,626 $16,316
4/98 $13,671 $16,386
5/98 $13,740 $16,465
6/98 $13,783 $16,547
7/98 $13,796 $16,612
8/98 $13,869 $16,698
9/98 $13,912 $16,790
10/98 $13,878 $16,782
11/98 $13,919 $16,872
12/98 $13,974 $16,911
1/99 $14,030 $17,006
2/99 $13,958 $17,081
3/99 $14,070 $17,183
4/99 $14,119 $17,248
5/99 $14,092 $17,273
6/99 $14,082 $17,298
</TABLE>
23
<PAGE>
Variable Rate Government Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
VARIABLE RATE GOVERNMENT FUND
The Stagecoach Variable Rate Government Fund (the "Fund") seeks to earn a high
level of current income, while reducing principal volatility, by investing
primarily in adjustable rate mortgage (ARM) securities issued or guaranteed by
the U.S. Government, its instrumentalities or agencies. The Fund is managed to
achieve high monthly income while reducing principle volatility.
Paul Single and Scott Smith co-manage the Variable Rate Government Fund.
Managing fixed-income portfolios for Wells Fargo Bank since 1988, Mr. Single
specializes in asset-backed securities and fixed-income investing. Mr. Smith has
13 years of experience in the securities industry with a specialty in
intermediate corporate and government bonds. Together, they bring fixed-income
expertise to the Fund.
PERFORMANCE SUMMARY
The Stagecoach Variable Rate Government Fund's Class A share net asset value
decreased from $9.19 on June 30, 1998, to $8.96 on June 30, 1999. The Fund
distributed $0.43 per share in dividend income and no capital gains during this
period. Keep in mind that past distributions are not predictive of future
trends, as distributions will vary based on Fund portfolio earnings.
The Fund's distribution rate for Class A shares for the 12-month period ended
June 30, 1999 was 4.43%.
For the 12-month period ended June 30, 1999, the Fund's Class A shares
returned 2.17%, exclusive of sales charges. The Fund underperformed its
benchmark, the Lehman Brothers ARMs Index, which returned 4.54% for the same
period. Prepayments of ARMs in the past 12 months have been at record levels,
almost three times the average rate of the past 10 years. This resulted from
all-time low interest rates, which made it attractive for homeowners to
refinance out of ARMs and into fixed-rate mortgages. This made ownership of ARMs
unattractive to most investors. The Fund, unlike other funds
24
<PAGE>
INVESTMENT ADVISOR COMMENTARY Variable Rate Government Fund
- ------------------------------------------------------------------------
in its benchmark, cannot hedge against prepayment risk, and as a result it
underperformed during this period of high prepayment rates.
PORTFOLIO DATA (as of June 30, 1999)
- ---------------------------------------------------------
<TABLE>
<S> <C>
PORTFOLIO TURNOVER 80%
NUMBER OF HOLDINGS 21
</TABLE>
FUND CHARACTERISTICS(3)
- ---------------------------------------------
<TABLE>
<S> <C>
AVERAGE CREDIT QUALITY AGY
WEIGHTED AVERAGE COUPON 6.32%
ESTIMATED WEIGHTED AVERAGE MATURITY 3.26 years
ESTIMATED DURATION 1.15 years
<CAPTION>
CLASS A
<S> <C>
NAV 8.96
DISTRIBUTION RATE 4.43%
SEC YIELD 4.64%
</TABLE>
PORTFOLIO ALLOCATION
(as of June 30, 1999)
- ----------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Federal Agencies 99%
U.S. Treasury Securities 1%
</TABLE>
PORTFOLIO REVIEW
The Fund's managers employ a top-down strategy, examining overall conditions
and interest rate movements. Utilizing this information, the Fund's portfolio
allocation and duration is managed on an ongoing basis. The Fund's management
team has extensive experience in the ARMs market and is able to respond quickly
to economic conditions and market events.
As of June 30, 1999, we decreased overall exposure to ARMs within the
portfolio to 91%. In this low interest rate environment, ARMs have a significant
amount of prepayment risk. As a defensive measure, we maintained a significant
portion of seasoned ARMs. These are older ARMS which, although they experience
periods of lower interest rates, did not have a high rate of prepayment. While
this allocation may slightly reduce income, the steps we have taken should help
to maintain overall stability during this period of low interest rates.
The bonds selected in the Fund help maintain our strategy to manage prepayment
risk. Overall, these securities have minimal prepayment risk and provide solid
diversification, which may help to reduce principal vola-
25
<PAGE>
Variable Rate Government Fund INVESTMENT ADVISOR COMMENTARY
- ------------------------------------------------------------------------
tility and maximize the Fund's income of mortgage securities, which provide
additional diversification within the ARMs market.
STRATEGIC OUTLOOK
The Federal Reserve Board is expected to keep monetary policy relatively
tight. We believe this will keep interest rates low and prepayments relatively
high at their current level.
Based on this outlook, we will continue our strategy of managing prepayment
risk by further reducing the Fund's exposure to ARMs. Currently, the ARM portion
of the portfolio is relatively low and the holdings are "seasoned" bonds,
meaning they have been through several prepayment waves and prepayments within
these holdings are relatively low. Should interest rates remain low or continue
to drift lower, we will continue these steps to help reduce principal volatility
and maximize the Fund's income potential.
1 Performance 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 a 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 such
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 the Index incurred operating expenses,
its performance would have been lower.
2 The accompanying chart compares the performance of the Stagecoach Variable
Rate Government Fund Class A shares since inception with the Lehman Brothers
ARMs Index. The chart assumes a hypothetical $10,000 initial investment in
Class A shares
26
<PAGE>
INVESTMENT ADVISOR COMMENTARY Variable Rate Government Fund
- ------------------------------------------------------------------------
and reflects all operating expenses and assumes the maximum initial sales
charge of 3.00%. The Fund is a professionally managed mutual fund.
3 The formula used to calculate the SEC yield is described in the Fund's
Statement of Additional Information and is designed to standardize the yield
calculations so that all mutual fund companies with the same or similar
portfolios use a uniform method to obtain yield figures for their non-money
market fund advertisements. SEC yields include the actual amount of interest
earned adjusted by any gain or loss realized from 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.
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.
27
<PAGE>
Corporate Bond Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 4.18%
FOREIGN GOVERNMENTS - 4.18%
$ 100,000 Quebec Province 8.80 % 04/15/03 $ 107,566
130,000 Republic of Argentina++ 11.00 10/09/06 120,088
115,000 Republic of Colombia 9.75 04/23/09 94,588
340,000 Republic of Poland++ 7.13 07/01/04 343,400
130,000 United Mexican States 8.63 03/12/08 120,250
--------------
TOTAL FOREIGN GOVERNMENTS $ 785,892
(Cost $808,518)
CORPORATE BONDS & NOTES - 91.36%
BANK & FINANCE - 25.68%
$ 300,000 American Telephone & Telegraph Capital
Corporation 6.60 % 05/15/05 $ 291,750
100,000 Associates Corporation of North America 6.73 09/30/02 100,463
490,000 Camden Properties Trust 6.63 02/15/01 487,697
300,000 Citicorp Capital II 8.02 02/15/27 297,375
100,000 Discover Credit Corporation Series II 9.14 03/13/12 115,843
700,000 Fremont General Corporation 7.88 03/17/09 663,250
100,000 General Motors Acceptance Corporation 6.13 01/22/08 94,500
481,000 Homeside Incorporated Private Placement 11.25 05/15/03 551,948
500,000 Household Finance Corporation 6.40 06/17/08 474,375
500,000 Korea Development Bank 6.63 11/21/03 480,625
500,000 Mack-Cali Realty LP 7.00 03/15/04 491,875
500,000 Midamerican Funding LLC 6.34 03/01/09 476,250
300,000 Transamerica Finance Corporation 6.13 11/01/01 298,500
--------------
$ 4,824,451
</TABLE>
28
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 Corporate Bond Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
ENERGY & RELATED - 10.10%
$ 400,000 K N Energy Incorporated 6.80 % 03/01/08 $ 376,000
205,000 Occidental Petroleum Corporation 10.13 11/15/01 219,606
500,000 Pennzoil-Quaker State Company 7.38 04/01/29 471,875
500,000 Petroleum Geo Services 7.13 03/30/28 448,125
400,000 Trans-Canada Pipelines 6.49 01/21/09 383,000
--------------
$ 1,898,606
ENTERTAINMENT & LEISURE - 5.82%
$ 250,000 Carmike Cinemas Incorporated Private Placement 9.38 % 02/01/09 $ 244,375
250,000 Cinemark USA Incorporated 9.63 08/01/08 248,125
250,000 Loews Cineplex Entertainment 8.88 08/01/08 242,500
250,000 Regal Cinemas Incorporated Private Placement 9.50 06/01/08 233,750
125,000 Sun International Hotels Limited 9.00 03/15/07 125,313
--------------
$ 1,094,063
FOOD & RELATED - 4.72%
$ 200,000 Marsh Supermarkets Incorporated++ 8.88 % 08/01/20 $ 203,500
500,000 Pepsi Bottling Group 7.00 03/01/29 469,375
200,000 Randalls Food Markets Incorporated 9.38 07/01/07 213,500
--------------
$ 886,375
HEALTHCARE - 2.40%
$ 200,000 Tenet Healthcare Corporation++ 8.13 % 12/01/08 $ 192,500
250,000 Vista Eyecare Incorporated 12.75 10/15/05 258,125
--------------
$ 450,625
INDUSTRIALS - 21.91%
$ 250,000 Applied Power Incorporated 8.75 % 04/01/09 $ 241,875
400,000 Cendant Corporation 7.75 12/01/03 404,000
300,000 Chrysler Corporation 7.45 02/01/97 298,125
250,000 D. R. Horton Incorporated 8.00 02/01/09 235,625
200,000 D. R. Horton Incorporated 10.00 04/15/06 210,250
300,000 Enserch Corporation 6.56 07/01/05 293,250
</TABLE>
29
<PAGE>
Corporate Bond Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
$ 300,000 ERP Operating Limited Partnership++ 6.63 % 04/13/05 $ 289,457
500,000 Imperial Tobacco Overseas 7.13 04/01/09 485,625
100,000 International Business Machines 8.38 11/01/19 113,625
250,000 News America Holdings Incorporated 9.25 02/01/13 284,687
200,000 News America Incorporated++ 6.70 05/21/04 197,750
500,000 Prologis Trust 7.10 04/15/08 476,250
100,000 Raytheon Corporation 6.55 03/15/10 96,375
500,000 Rouse Company 8.00 04/30/09 489,375
--------------
$ 4,116,269
RETAIL & RELATED - 8.11%
$ 100,000 Dayton Hudson Corporation 7.25 % 09/01/04 $ 103,250
400,000 J.C. Penny & Company 7.65 08/15/16 395,000
500,000 Jones Apparel Group 7.88 06/15/06 500,000
250,000 K-Mart Corporation 8.25 01/01/22 251,250
300,000 Tyco International Group 6.88 01/15/29 273,375
--------------
$ 1,522,875
TELECOMMUNICATIONS - 11.08%
$ 100,000 Adelphia Communications Corporation++ 9.88 % 03/01/07 $ 105,750
250,000 Bresnan Communications Group 8.00 02/01/09 246,875
100,000 Cable & Wireless Communications 6.75 03/06/08 96,625
100,000 Century Communications Corporation 8.88 01/15/07 100,000
500,000 Comcast Cellular Holdings 9.50 05/01/07 561,875
200,000 CSC Holdings Incorporated 9.88 05/15/06 213,500
100,000 CSC Holdings Incorporated 10.50 05/15/16 112,750
200,000 Frontiervision Operating Partners++ 11.00 10/15/06 220,000
400,000 Tele Communications Incorporated 7.88 02/15/26 424,000
--------------
$ 2,081,375
TRANSPORTATION - 1.54%
$ 300,000 Union Pacific Corporation 6.63 % 02/01/08 $ 289,500
--------------
TOTAL CORPORATE BONDS & NOTES $ 17,164,139
(Cost $17,790,603)
</TABLE>
30
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 Corporate Bond Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 3.12%
REPURCHASE AGREEMENTS - 3.12%
$ 577,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.92 07/01/99 $ 577,000
8,000 JP Morgan Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.90 07/01/99 8,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 585,000
(Cost $585,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $19,184,121)* (Notes 1 and 3) 98.66% $ 18,535,031
Other Assets and Liabilities, Net 1.34 251,734
------ --------------
TOTAL NET ASSETS 100.00% $ 18,786,765
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
++ THESE SECURITIES ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933.
ALL 144A PROGRAMS ARE EVALUATED FOR LIQUIDITY BASED UPON REVIEW OF THE
PROSPECTUS WHICH INDICATES THE PROBABLE REGISTRATION DATE AND WERE
DEEMED TO BE "LIQUID BY FUND MANAGEMENT." IN ADDITION, 144A SECURITIES
ARE FREQUENTLY TRADED PRIOR TO THE EFFECTIVE REGISTRATION DATE. ALL
144A SECURITIES CAN ONLY BE PURCHASED AND/OR SOLD TO QUALIFIED
INSTITUTIONAL BUYERS.
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 15,278
Gross Unrealized Depreciation (664,368)
--------------
NET UNREALIZED DEPRECIATION $ (649,090)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
PORTFOLIO OF INVESTMENTS -
Short-Intermediate U.S. Government Income Fund JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES - 31.96%
BANK & FINANCE - 17.31%
$ 500,000 AT&T Capital Corporation 6.25 % 05/15/01 $ 495,625
200,000 Banc One Corporation 7.00 03/25/02 203,000
250,000 Bank of America Corporation 8.38 03/15/02 261,875
3,060,000 Chase Mahattan Corporation 5.75 04/15/04 2,964,375
1,125,000 CITRV Trust 6.16 06/15/13 1,112,828
2,226,000 Discover Card Master Trust I 6.05 01/17/06 2,184,953
3,750,000 Distribution Financial Services Trust 5.84 10/15/11 3,718,359
1,966,729 Enterprise Mortgage Acceptance Company 6.42 09/15/08 1,943,856
500,000 Equity Residential Properties 6.15 09/15/00 497,740
2,500,000 Korea Development Bank 6.63 11/21/03 2,403,125
1,500,000 Mack-Cali Realty LP 7.00 03/15/04 1,475,625
500,000 National Australia Bank 6.40 12/10/07 491,855
1,000,000 Nynex Credit Company 6.25 06/13/02 1,000,000
1,715,000 Onyx Acceptance Auto Trust 5.78 02/15/03 1,704,058
2,450,000 Premier Auto Trust 6.27 04/08/03 2,453,063
--------------
$ 22,910,337
ENERGY & RELATED - 2.88%
$ 3,400,000 Pennzoil-Quaker State Company 6.75 % 04/01/09 $ 3,259,750
500,000 Public Service Electric & Gas Company 9.13 07/01/05 551,875
--------------
$ 3,811,625
INDUSTRIALS - 3.41%
$ 2,250,000 Cendant Corporation 7.75 % 12/01/03 $ 2,272,500
1,800,000 Imperial Tobacco Overseas 7.13 04/01/09 1,748,250
500,000 News America Incorporated++ 6.70 05/21/04 494,375
--------------
$ 4,515,125
TELECOMMUNICATIONS - 3.37%
$ 2,000,000 Cable & Wire Communications PLC 6.38 % 03/06/03 $ 1,971,700
2,500,000 MCI Worldcom 6.13 08/15/01 2,487,500
--------------
$ 4,459,200
</TABLE>
32
<PAGE>
PORTFOLIO OF INVESTMENTS -
JUNE 30, 1999 Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
TRANSPORTATION - 4.99%
$ 4,018,875 Federal Express Corporation 6.85 % 01/15/19 $ 3,881,108
2,805,000 Hertz Corporation 6.50 05/15/06 2,727,863
--------------
$ 6,608,971
TOTAL CORPORATE BONDS & NOTES $ 42,305,258
(Cost $43,232,886)
U.S. GOVERNMENT AGENCY SECURITIES - 43.00%
FEDERAL AGENCY - OTHER - 1.53%
$ 2,000,000 Tennessee Valley Authority 6.50 % 08/20/01 $ 2,028,120
FEDERAL FARM CREDIT BANKS - 1.47%
$ 2,000,000 Federal Farm Credit Bank 5.75 % 02/09/05 $ 1,945,620
FEDERAL HOME LOAN BANKS - 5.95%
$ 8,000,000 FHLB 5.53 % 01/15/03 $ 7,871,440
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 30.72%
$12,000,000 FNMA 4.63 % 10/15/01 $ 11,698,080
15,000,000 FNMA 5.13 02/13/04 14,418,000
386,289 FNMA #190843 7.00 06/01/09 388,317
292,438 FNMA #303905 6.50 05/01/11 288,718
2,599,325 FNMA #313644 7.00 08/01/27 2,570,654
2,396,609 FNMA #50761 6.00 07/01/08 2,313,471
5,000,000 FNMA MTN 6.18 06/23/00 5,034,950
2,000,000 FNMA MTN 6.69 08/07/01 2,032,200
1,955,253 FNMA #411023 6.50 03/01/13 1,927,938
--------------
$ 40,672,328
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.33%
$ 103,454 GNMA #157247 9.50 % 05/20/16 $ 110,117
789,558 GNMA #336930 7.50 03/15/23 799,143
1,008,729 GNMA #417389 7.00 05/15/26 996,049
1,134,105 GNMA #418261 6.50 04/15/26 1,091,576
1,432,530 GNMA #423779 7.00 05/15/26 1,414,165
--------------
$ 4,411,050
</TABLE>
33
<PAGE>
PORTFOLIO OF INVESTMENTS -
Short-Intermediate U.S. Government Income Fund JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES (CONTINUED)
REAL ESTATE MORTGAGE INVESTMENT CONDUITS - 0.00%
$ 3,533 FNMA 1993-G19-/- 6.50 % 04/25/23 $ 3,715
--------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 56,932,273
(Cost $57,228,643)
U.S. TREASURY SECURITIES - 20.30%
U.S. TREASURY NOTES - 20.30%
$ 1,500,000 U.S. Treasury Notes 5.25 % 08/15/03 $ 1,474,455
3,500,000 U.S. Treasury Notes 5.38 06/30/03 3,457,895
500,000 U.S. Treasury Notes 5.75 08/15/03 500,310
1,400,000 U.S. Treasury Notes 6.00 07/31/02 1,414,658
11,000,000 U.S. Treasury Notes 6.13 12/31/01 11,132,330
50,000 U.S. Treasury Notes 6.38 03/31/01 50,719
500,000 U.S. Treasury Notes 6.50 08/15/05 515,390
300,000 U.S. Treasury Notes 7.25 08/15/04 319,125
4,000,000 U.S. Treasury Notes 7.88 11/15/04 4,375,000
3,500,000 U.S. Treasury Notes 8.50 11/15/00 3,640,560
--------------
TOTAL U.S. TREASURY SECURITIES $ 26,880,442
(Cost $27,224,341)
SHORT-TERM INSTRUMENTS - 3.89%
REPURCHASE AGREEMENTS - 0.90%
$ 734,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.92 07/01/99 $ 734,000
453,000 JP Morgan Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.90 07/01/99 453,000
--------------
$ 1,187,000
</TABLE>
34
<PAGE>
PORTFOLIO OF INVESTMENTS -
JUNE 30, 1999 Short-Intermediate U.S. Government Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
YIELD TO MATURITY
PRINCIPAL SECURITY NAME MATURITY DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS (CONTINUED)
U.S. TREASURY BILLS - 2.99%
$ 4,000,000 U.S. Treasury Bills 4.66 % 09/16/99 $ 3,961,240
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 5,148,240
(Cost $5,149,270)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $132,835,140)* (Notes 1 and 3) 99.15% $ 131,266,213
Other Assets and Liabilities, Net 0.85 1,121,760
------ --------------
TOTAL NET ASSETS 100.00% $ 132,387,973
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
++ THESE SECURITIES ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933.
ALL 144A PROGRAMS ARE EVALUATED FOR LIQUIDITY BASED UPON REVIEW OF THE
PROSPECTUS WHICH INDICATES THE PROBABLE REGISTRATION DATE AND WERE
DEEMED TO BE "LIQUID BY FUND MANAGEMENT". IN ADDITION, 144A SECURITIES
ARE FREQUENTLY TRADED PRIOR TO THE EFFECTIVE REGISTRATION DATE". ALL
144A SECURITIES CAN ONLY BE PURCHASED AND/OR SOLD TO QUALIFIED
INSTITUTIONAL BUYERS.
- -/- 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 $ 209,868
Gross Unrealized Depreciation (1,778,795)
--------------
NET UNREALIZED DEPRECIATION $ (1,568,927)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Strategic Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY NAME COST VALUE
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - 4.25%
REAL ESTATE INVESTMENT TRUSTS - 4.19%
9,300 Archstone Communities Trust $ 183,558 $ 204,019
9,900 Arden Realty Group Incorporated 217,147 243,788
9,700 Duke Realty Investments Incorporated 213,535 218,856
3,700 Equity Residential Properties Trust 150,284 166,731
8,000 Health Care Property Investors Incorporated 249,086 231,000
7,600 Highwoods Properties Incorporated 197,227 208,525
7,600 Indymac Mortgage Holdings Incorporated 62,544 121,600
10,900 Kilroy Realty Corporation 226,000 265,006
11,700 Nationwide Health Properties Incorporated 217,374 223,031
6,400 Post Properties Incorporated 234,487 262,400
------------ --------------
$ 1,951,242 $ 2,144,956
UTILITIES - 0.06%
400 GTE Corporation $ 22,857 $ 30,275
------------ --------------
TOTAL COMMON STOCKS $ 1,974,099 $ 2,175,231
PREFERRED STOCKS - 2.18%
CONVERTIBLES - 2.18%
800 Aetna Incorporated $ 58,514 $ 59,400
22,000 Duke Capital Financing 551,500 537,625
5,000 Enterprise Capital Trust III 123,125 114,063
5,000 PSCO Capital Trust I 128,438 121,563
3,000 Texas Utilities Company 157,408 165,000
5,000 U.S. Bancorp Capitol II 125,000 118,750
------------ --------------
TOTAL PREFERRED STOCKS $ 1,143,985 $ 1,116,401
INTERNATIONAL STOCKS - 0.36%
MANUFACTURING PROCESSING - 0.36%
4,000 British Steel PLC ADR (UK) $ 66,865 $ 104,250
2,000 Imperial Chemical Industries PLC ADR (UK) 74,495 79,500
------------ --------------
TOTAL INTERNATIONAL STOCKS $ 141,360 $ 183,750
</TABLE>
36
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 Strategic Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
FOREIGN GOVERNMENTS - 3.37%
FOREIGN GOVERNMENTS - 3.37%
$ 340,000 Republic of Argentina++ 11.00 % 10/09/06 $ 314,075
600,000 Republic of Colombia 9.75 04/23/09 493,500
170,000 Republic of Poland++ 7.13 07/01/04 171,700
440,000 Republic of the Philippines 8.88 04/15/08 433,400
335,000 United Mexican States 8.63 03/12/08 309,875
--------------
TOTAL FOREIGN GOVERNMENTS $ 1,722,550
(Cost $1,639,397)
CORPORATE BONDS & NOTES - 78.52%
BANK & FINANCE - 13.85%
$ 500,000 American General Finance Corporation 8.13 % 08/15/09 $ 536,250
1,250,000 Chancellor Media Corporation 8.00 11/01/08 1,238,001
940,000 Chase Mahattan Corporation 5.75 04/15/04 910,625
1,000,000 Fleet National Bank 5.75 01/15/09 911,250
1,000,000 Fremont General Corporation 7.88 03/17/09 947,500
500,000 Homeside Incorporated Private Placement 11.25 05/15/03 573,750
1,290,000 Korea Development Bank 6.63 11/21/03 1,240,013
750,000 Willis Corroon Corporation 9.00 02/01/09 725,625
--------------
$ 7,083,014
ENERGY & RELATED - 1.99%
$ 1,060,000 Pennzoil-Quaker State Company 6.75 % 04/01/09 $ 1,016,275
ENTERTAINMENT & LEISURE - 8.55%
$ 1,000,000 Carmike Cinemas Incorporated Private Placement 9.38 % 02/01/09 $ 977,500
1,000,000 Cinemark USA Incorporated 9.63 08/01/08 992,500
1,000,000 Loews Cineplex Entertainment 8.88 08/01/08 970,000
1,000,000 Regal Cinemas Incorporated Private Placement 9.50 06/01/08 935,000
500,000 Sun International Hotels Limited 9.00 03/15/07 501,250
--------------
$ 4,376,250
</TABLE>
37
<PAGE>
Strategic Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
FOOD & RELATED - 3.58%
$ 750,000 Marsh Supermarkets Incorporated++ 8.88 % 08/01/20 $ 763,125
1,000,000 Randalls Food Markets Incorporated 9.38 07/01/07 1,067,500
--------------
$ 1,830,625
FOREIGN CORPORATE BONDS - 0.49%
$ 250,000 TM Group Holdings PLC 11.00 % 05/15/08 $ 251,875
HEALTHCARE - 2.96%
$ 500,000 Tenet Healthcare Corporation++ 8.13 % 12/01/08 $ 481,250
1,000,000 Vista Eyecare Incorporated 12.75 10/15/05 1,032,500
--------------
$ 1,513,750
INDUSTRIALS - 18.83%
$ 500,000 American Standard Incorporated 7.13 % 06/01/06 $ 515,158
500,000 Applied Power Incorporated 8.75 04/01/09 483,750
1,430,000 Cendant Corporation 7.75 12/01/03 1,444,300
500,000 Chiquita Brands International Incorporated 10.25 11/01/06 507,500
250,000 D. R. Horton Incorporated 8.00 02/01/09 235,625
1,000,000 D. R. Horton Incorporated 10.00 04/15/06 1,051,250
500,000 Garden State Newspapers 8.63 07/01/11 468,750
500,000 Hollinger International Publishing Incorporated 9.25 03/15/07 510,000
1,200,000 Imperial Tobacco Overseas 7.13 04/01/09 1,165,500
750,000 Kaufman & Broad Home Corporation 9.63 11/15/06 776,250
1,000,000 News America Holdings Incorporated 8.00 10/17/16 1,013,750
250,000 Packaging Corporation of America 9.63 04/01/09 251,875
1,000,000 Prologis Trust 7.10 04/15/08 952,500
250,000 Simmons Company 10.25 03/15/09 254,375
--------------
$ 9,630,583
REAL ESTATE INVESTMENT TRUSTS - 0.99%
$ 525,000 Simon Property Group Incorporated 6.75 % 02/09/04 $ 509,250
</TABLE>
38
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 Strategic Income Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
RETAIL & RELATED - 6.51%
$ 750,000 Ames Department Stores Incorporated 10.00 % 04/15/06 $ 733,125
125,000 Home Interiors Gifts 10.13 06/01/08 124,688
1,000,000 Jones Apparel Group 7.88 06/15/06 1,000,000
1,000,000 K-Mart Corporation 8.25 01/01/22 1,005,000
500,000 Revlon Consumer Products Corporation 8.63 02/01/08 466,250
--------------
$ 3,329,063
TELECOMMUNICATIONS - 14.82%
$ 500,000 Adelphia Communications Corporation++ 9.88 % 03/01/07 $ 528,750
500,000 Adelphia Communications Corporation Series B 10.50 07/15/04 535,000
1,300,000 Cable & Wireless Communications 6.75 03/06/08 1,256,125
250,000 Cadmus Communication Corporation 9.75 06/01/09 250,313
500,000 Charter Communications Holdings LLC 8.63 04/01/09 480,000
1,000,000 Comcast Cellular Holdings 9.50 05/01/07 1,123,750
500,000 Comcast Corporation 9.50 01/15/08 525,000
500,000 CSC Holdings Incorporated 9.88 02/15/13 540,000
500,000 CSC Holdings Incorporated 10.50 05/15/16 563,750
250,000 Frontiervision Operating Partners++ 11.00 10/15/06 275,000
1,000,000 Sprint Capital Corporation 6.13 11/15/08 932,500
500,000 TCI Communications Incorporated 8.75 08/01/15 572,500
--------------
$ 7,582,688
TRANSPORTATION - 5.95%
$ 250,000 Avis Rent A Car Incorporated 11.00 % 05/01/09 $ 250,313
1,000,000 Budget Group Incorporated 9.13 04/01/06 935,000
1,274,277 Federal Express Corporation 6.85 01/15/19 1,230,595
650,000 Union Pacific Corporation 6.63 02/01/08 627,250
--------------
$ 3,043,158
TOTAL CORPORATE BONDS & NOTES $ 40,166,531
(Cost $41,462,998)
</TABLE>
39
<PAGE>
Strategic Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 2.33%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.33%
$ 1,206,945 FNMA Pool #411023 6.50 % 03/01/13 $ 1,190,084
(Cost $1,216,940)
U.S. TREASURY SECURITIES - 1.91%
U.S. TREASURY NOTES - 1.91%
$ 1,000,000 U.S. Treasury Notes 5.50 % 05/15/09 $ 976,870
(Cost $993,594)
SHORT-TERM INSTRUMENTS - 0.89%
REPURCHASE AGREEMENTS - 0.89%
$ 455,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.92 07/01/99 $ 455,000
(Cost $455,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $49,027,373)* (Notes 1 and 3) 93.81% $ 47,986,417
Other Assets and Liabilities, Net 6.19 3,165,947
------ --------------
TOTAL NET ASSETS 100.00% $ 51,152,364
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
++ THESE SECURITIES ARE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933.
ALL 144A PROGRAMS ARE EVALUATED FOR LIQUIDITY BASED UPON REVIEW OF THE
PROSPECTUS WHICH INDICATES THE PROBABLE REGISTRATION DATE AND WERE
DEEMED TO BE "LIQUID BY FUND MANAGEMENT." IN ADDITION, 144A SECURITIES
ARE FREQUENTLY TRADED PRIOR TO THE EFFECTIVE REGISTRATION DATE. ALL
144A SECURITIES CAN ONLY BE PURCHASED AND/OR SOLD TO QUALIFIED
INSTITUTIONAL BUYERS.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $49,035,889 AND NET UNREALIZED
DEPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 439,370
Gross Unrealized Depreciation (1,488,842)
--------------
NET UNREALIZED DEPRECIATION $ (1,049,472)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 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 - 89.72%
FEDERAL AGENCY - OTHER - 4.43%
$ 4,000,000 Tennessee Valley Authority 6.38 % 06/15/05 $ 4,015,640
5,000,000 Tennessee Valley Authority 6.75 11/01/25 4,979,750
--------------
$ 8,995,390
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.30%
$ 5,000,000 FHLMC 7.10 % 04/10/07 $ 5,199,200
1,437,552 FHLMC #G00683 8.50 12/01/25 1,502,314
--------------
$ 6,701,514
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 59.21%
$ 5,000,000 FNMA 5.75 % 02/15/08 $ 4,780,450
4,000,000 FNMA 5.88 04/23/04 3,915,000
3,706,528 FNMA #251906 7.50 07/01/28 3,745,891
9,944,671 FNMA #252211 6.00 01/01/28 9,344,411
2,527,198 FNMA #376272 7.00 02/01/12 2,540,870
3,202,099 FNMA #417768 6.50 03/01/28 3,090,154
424,539 FNMA #421867 6.50 04/01/28 409,697
5,916,235 FNMA #424815 6.50 04/01/28 5,709,403
4,187,190 FNMA #426032 7.50 06/01/28 4,231,658
9,327,561 FNMA #430040 6.50 06/01/28 9,001,469
9,170,553 FNMA #430194 7.00 06/01/28 9,069,402
3,952,622 FNMA #70765 9.00 03/01/21 4,189,107
6,949,039 FNMA #251615 7.50 04/01/28 7,022,838
9,068,905 FNMA #251700 6.00 05/01/13 8,763,918
8,773,012 FNMA #251700 6.50 05/01/13 8,650,453
8,777,266 FNMA #415789 6.00 05/01/28 8,247,470
5,101,526 FNMA #430540 7.00 06/01/28 5,045,256
4,241,102 FNMA #432484 7.00 06/01/28 4,194,322
9,555,966 FNMA #440447 6.00 09/01/28 8,979,168
9,622,899 FNMA #443908 6.50 11/01/28 9,286,482
--------------
$ 120,217,419
</TABLE>
41
<PAGE>
U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<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 - 22.78%
$ 288,612 GNMA #0058 9.00 % 07/20/22 $ 305,767
221,288 GNMA #0864 6.50 02/20/08 220,247
85,523 GNMA #1168 9.00 04/20/19 90,980
101,698 GNMA #157247 9.50 05/20/16 108,248
61,336 GNMA #158583 9.00 09/20/16 65,174
331,250 GNMA #170928 9.00 09/20/16 347,812
214,035 GNMA #1740 9.00 12/20/21 227,290
17,193 GNMA #223618 10.00 01/15/19 18,327
159,376 GNMA #227132 9.00 07/20/17 167,345
1,341,975 GNMA #291124 7.50 06/15/25 1,411,167
2,028,580 GNMA #306052 9.00 06/15/21 2,161,817
1,954,732 GNMA #319413 7.25 12/15/18 2,012,749
701,829 GNMA #336930 7.50 03/15/23 710,350
1,882,899 GNMA #358863 7.25 01/15/29 1,938,783
1,562,665 GNMA #362589 6.88 01/15/29 1,560,212
1,655,051 GNMA #430800 7.00 05/15/25 1,634,247
2,551,004 GNMA #450871 8.00 05/15/27 2,625,723
7,190,086 GNMA #467791 7.50 04/15/28 7,272,916
11,164 GNMA #766 9.50 05/20/17 11,881
3,176,554 GNMA II #002496 7.00 10/20/27 3,121,727
115,848 GNMA II #1236 9.50 08/20/19 123,254
496,117 GNMA II #1239 11.00 08/20/19 544,796
573,969 GNMA II #1273 9.50 10/20/19 610,662
191,344 GNMA II #1420 11.00 06/20/20 209,976
15,523 GNMA II #1436 10.00 07/20/20 16,614
105,089 GNMA II #1454 10.00 08/20/20 112,478
77,767 GNMA II #1456 11.00 08/20/20 85,397
159,438 GNMA II #1472 10.00 09/20/20 170,648
109,284 GNMA II #1526 10.00 12/20/20 116,968
120,019 GNMA II #1544 10.00 01/20/21 128,458
63,132 GNMA II #1579 9.50 03/20/21 67,143
67,279 GNMA II #1580 9.00 04/20/21 71,446
769,227 GNMA II #1580 10.00 03/20/21 823,311
606,307 GNMA II #1616 10.00 05/20/21 648,936
120,901 GNMA II #173 10.00 07/20/14 129,016
</TABLE>
42
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 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)
$ 81,050 GNMA II #1848 10.00 % 06/20/22 $ 86,748
1,392,623 GNMA II #2268 7.50 08/20/26 1,400,449
1,169,288 GNMA II #2303 7.50 10/20/26 1,175,860
56,149 GNMA II #340045 8.00 03/20/23 57,680
262,551 GNMA II #418627 8.50 11/20/25 274,127
18,114 GNMA II #495 10.00 02/20/16 19,344
1,167 GNMA II #60 10.00 12/20/13 1,243
47,516 GNMA II #811 8.00 02/20/23 48,812
1,060,714 GNMA #352961 6.50 05/15/24 1,026,824
2,199,567 GNMA #414636 7.50 10/15/25 2,223,521
10,449,170 GNMA #486724 6.50 12/15/28 10,056,490
--------------
$ 46,242,963
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 182,157,286
(Cost $186,172,571)
U.S. TREASURY SECURITIES - 8.91%
U.S. TREASURY BONDS - 7.96%
$ 1,500,000 U.S. Treasury Bonds 5.25 % 11/15/28 $ 1,329,615
1,500,000 U.S. Treasury Bonds 5.25 02/15/29 1,347,660
5,000,000 U.S. Treasury Bonds 5.50 08/15/28 4,578,100
7,000,000 U.S. Treasury Bonds 10.38 11/15/12 8,919,540
--------------
$ 16,174,915
U.S. TREASURY NOTES - 0.95%
$ 2,000,000 U.S. Treasury Notes 4.75 % 02/15/04 $ 1,923,740
--------------
TOTAL U.S. TREASURY SECURITIES $ 18,098,655
(Cost $19,450,740)
</TABLE>
43
<PAGE>
U.S. Government Income Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 1.09%
REPURCHASE AGREEMENTS - 1.09%
$ 1,888,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.92 07/01/99 $ 1,888,000
157,000 JP Morgan Securities Incorporated Repurchase
Agreement - 102% Collateralized by U.S.
Government Securities 4.90 07/01/99 157,000
157,000 Morgan Stanley & Company Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.80 07/01/99 157,000
--------------
TOTAL SHORT-TERM INSTRUMENTS $ 2,202,000
(Cost $2,202,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $207,825,311)* (Notes 1 and 3) 99.72% $ 202,457,941
Other Assets and Liabilities, Net 0.28 571,691
------ --------------
TOTAL NET ASSETS 100.00% $ 203,029,632
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* COST FOR FEDERAL INCOME TAX PURPOSES IS THE SAME AS FOR FINANCIAL
STATEMENT PURPOSES AND NET UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 412,670
Gross Unrealized Depreciation (5,780,040)
--------------
NET UNREALIZED DEPRECIATION $ (5,367,370)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 Variable Rate Government Fund
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 98.80%
ADJUSTABLE RATE MORTGAGES - 90.88%
$ 5,886,947 FHLMC #610303 7.00 % 04/01/18 $ 6,020,345
2,354,478 FHLMC #840118 7.63 09/01/18 2,458,969
13,424 FHLMC #845410 (CMT) 6.89 07/01/23 13,699
5,337 FHLMC #845613 (CMT)-/- 6.99 01/01/24 5,577
8,573,756 FHLMC #846150 (CMT) 7.07 04/01/21 8,940,799
5,506,780 FHLMC #846602 6.97 04/01/27 5,724,463
20,000,000 FNMA 5.13 02/13/04 19,224,000
5,980,278 FNMA #136014 (COFI) 5.87 05/01/18 5,841,954
6,519,245 FNMA #57733 5.74 02/01/17 6,336,902
2,608,501 FNMA #57775 5.77 05/01/18 2,533,924
8,432,045 FNMA #66397 5.90 03/01/18 8,202,777
8,391,109 FNMA #323186 7.20 09/01/25 8,763,507
5,515,850 FNMA #323382 6.90 10/01/28 5,674,431
4,534,711 GNMA II #80205 5.00 06/20/28 4,569,447
6,128,324 GNMA II #8076 6.13 11/20/22 6,227,910
7,684,468 GNMA II #8121 (CMT) 6.37 01/20/23 7,792,512
--------------
$ 98,331,216
REAL ESTATE MORTGAGE INVESTMENT CONDUITS - 7.92%
$ 1,540,910 FHLMC #1534 6.39 % 06/15/23 $ 1,569,309
7,200,000 FNMA 1999-31 5.53 05/25/28 7,000,891
--------------
$ 8,570,200
TOTAL U.S. GOVERNMENT AGENCY SECURITIES $ 106,901,416
(Cost $108,421,987)
U.S. TREASURY SECURITIES - 0.91%
U.S. TREASURY NOTES - 0.91%
$ 1,000,000 U.S. Treasury Notes 5.38 % 06/30/03 $ 987,970
(Cost $1,044,650)
</TABLE>
45
<PAGE>
Variable Rate Government Fund PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST MATURITY
PRINCIPAL SECURITY NAME RATE DATE VALUE
<C> <S> <C> <C> <C> <C>
SHORT-TERM INSTRUMENTS - 0.22%
REPURCHASE AGREEMENTS - 0.22%
$ 241,000 Goldman Sachs Pooled Repurchase Agreement -
102% Collateralized by U.S. Government
Securities 4.92 07/01/99 $ 241,000
(Cost $241,000)
TOTAL INVESTMENTS IN SECURITIES
</TABLE>
<TABLE>
<C> <S> <C> <C>
(Cost $109,707,637)* (Notes 1 and 3) 99.93% $ 108,130,386
Other Assets and Liabilities, Net 0.07 72,236
------ --------------
TOTAL NET ASSETS 100.00% $ 108,202,622
------ --------------
------ --------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -/- THESE VARIABLE RATE SECURITIES ARE SUBJECT TO A DEMAND FEATURE WHICH
REDUCES THE REMAINING MATURITY.
* COST FOR FEDERAL INCOME TAX PURPOSES IS $109,772,793 AND NET
UNREALIZED DEPRECIATION CONSISTS OF:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 209,951
Gross Unrealized Depreciation (1,802,358)
--------------
NET UNREALIZED DEPRECIATION $ (1,592,407)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
47
<PAGE>
Income Funds STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1999
- ------------------------------------------------------------------------
<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) $18,535,031 $131,266,213
Cash 6,212 5,959
RECEIVABLES:
Dividends and interest 343,691 1,600,283
Fund shares sold 66,859 421,763
Investment securities sold 0 0
Cash collateral for security loaned
(Note 4) 0 0
Prepaid expenses 46,223 16,970
Appreciation of foreign currency forward
contracts 0 0
TOTAL ASSETS 18,998,016 133,311,188
LIABILITIES
Payables:
Distribution to shareholders 86,741 632,324
Fund shares redeemed 27,274 135,274
Cash collateral for security loaned
(Note 4) 0 0
Due to distributor (Note 2) 7,153 10,307
Due to adviser (Note 2) 10,826 54,144
Other 79,257 91,166
TOTAL LIABILITIES 211,251 923,215
TOTAL NET ASSETS $18,786,765 $132,387,973
NET ASSETS CONSIST OF:
Paid-in capital $19,560,558 $150,061,801
Undistributed net investment income
(loss) 12,515 0
Undistributed net realized gain (loss)
on investments (137,218) (16,104,901)
Net unrealized appreciation
(depreciation) of investments and
translation of assets and
liabilities in foreign currency (649,090) (1,568,927)
Net unrealized appreciation
(depreciation) of foreign currency
forward contracts 0 0
TOTAL NET ASSETS $18,786,765 $132,387,973
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net assets - Class A $ 5,481,804 $ 42,955,950
Shares outstanding - Class A 569,970 4,412,340
Net asset value per share - Class A $ 9.62 $ 9.74
Maximum offering price per share - Class
A $ 10.07(1) $ 10.04(2)
Net assets - Class B $11,310,960 $ 9,643,333
Shares outstanding - Class B 1,175,816 990,439
Net asset value and offering price per
share - Class B $ 9.62 $ 9.74
Net assets - Class C $ 1,994,001 N/A
Shares outstanding - Class C 207,355 N/A
Net asset value and offering price per
share - Class C $ 9.62 N/A
Net assets - Institutional Class N/A $ 79,788,690
Shares outstanding - Institutional Class N/A 8,352,686
Net asset value and offering price per
share - Institutional Class N/A $ 9.55
INVESTMENT AT COST (NOTE 3) $19,184,121 $132,835,140
- -------------------------------------------------------------------------
</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.
48
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1999 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) $47,986,417 $202,457,941 $108,130,386
Cash 3,826 5,620 39,021
RECEIVABLES:
Dividends and interest 999,187 1,499,458 884,513
Fund shares sold 208,107 736,301 51,364
Investment securities sold 2,304,454 0 337,690
Cash collateral for security loaned
(Note 4) 738,388 8,713,535 1,044,431
Prepaid expenses 44,693 9,025 3,144
Appreciation of foreign currency forward
contracts 14,103 0 0
TOTAL ASSETS 52,299,175 213,421,880 110,490,549
LIABILITIES
Payables:
Distribution to shareholders 268,697 988,784 424,067
Fund shares redeemed 36,807 289,636 30,096
Cash collateral for security loaned
(Note 4) 738,388 8,713,535 1,044,431
Due to distributor (Note 2) 28,116 125,707 600,022
Due to adviser (Note 2) 28,505 132,189 66,625
Other 46,298 142,397 122,686
TOTAL LIABILITIES 1,146,811 10,392,248 2,287,927
TOTAL NET ASSETS $51,152,364 $203,029,632 $108,202,622
NET ASSETS CONSIST OF:
Paid-in capital $52,711,915 $224,256,041 $255,742,350
Undistributed net investment income
(loss) 84,559 0 0
Undistributed net realized gain (loss)
on investments (617,257) (15,859,039) (145,962,477)
Net unrealized appreciation
(depreciation) of investments and
translation of assets and
liabilities in foreign currency (1,040,956) (5,367,370) (1,577,251)
Net unrealized appreciation
(depreciation) of foreign currency
forward contracts 14,103 0 0
TOTAL NET ASSETS $51,152,364 $203,029,632 $108,202,622
COMPUTATION OF NET ASSET VALUE AND
OFFERING PRICE PER SHARE
Net assets - Class A $11,223,402 $154,122,052 $108,202,622
Shares outstanding - Class A 932,344 14,515,664 12,077,405
Net asset value per share - Class A $ 12.04 $ 10.62 $ 8.96
Maximum offering price per share - Class
A $ 12.61(1) $ 11.12(1) $ 9.24(2)
Net assets - Class B $36,891,598 $ 36,780,010 N/A
Shares outstanding - Class B 3,062,458 3,519,717 N/A
Net asset value and offering price per
share - Class B $ 12.05 $ 10.45 N/A
Net assets - Class C $ 3,037,364 $ 4,628,686 N/A
Shares outstanding - Class C 252,129 442,703 N/A
Net asset value and offering price per
share - Class C $ 12.05 $ 10.46 N/A
Net assets - Institutional Class N/A $ 7,498,884 N/A
Shares outstanding - Institutional Class N/A 489,039 N/A
Net asset value and offering price per
share - Institutional Class N/A $ 15.33 N/A
INVESTMENT AT COST (NOTE 3) $49,027,373 $207,825,311 $109,707,637
- ------------------------------------------------------------------------------------------
</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.
49
<PAGE>
STATEMENT OF OPERATIONS -
Income Funds FOR THE YEAR ENDED JUNE 30, 1999
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE
U.S.
CORPORATE GOVERNMENT
BOND FUND INCOME FUND
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 0 $ 0
Interest 1,095,858 9,219,109
TOTAL INVESTMENT INCOME 1,095,858 9,219,109
EXPENSES (NOTE 2)
Advisory fees 76,788 696,188
Administration fees 12,808 112,334
Custody fees 2,565 27,052
Shareholder servicing fees 38,394 370,653
Portfolio accounting fees 34,749 89,345
Transfer agency fees 21,500 126,674
Distribution fees 81,211 65,964
Organization costs 0 6,244
Legal and audit fees 57,702 54,380
Registration fees 29,620 52,294
Directors' fees 4,543 1,370
Shareholder reports 12,786 34,124
Other 13,036 3,629
TOTAL EXPENSES 385,702 1,640,251
Less:
Waived fees and reimbursed expenses (163,180) (284,939)
Net Expenses 222,522 1,355,312
NET INVESTMENT INCOME (LOSS) 873,336 7,863,797
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investments (93,479) 29,922
Foreign currency transactions 651 0
Net change in unrealized appreciation
(depreciation) of:
Investments (689,154) (3,516,889)
Translation of assets and
liabilities in foreign currencies 0 0
Foreign currency forward contracts 0 0
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (781,982) (3,486,967)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 91,354 $ 4,376,830
- -----------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30,
1999.
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
STATEMENT OF OPERATIONS -
FOR THE YEAR ENDED JUNE 30, 1999 Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
STRATEGIC U.S. RATE
INCOME GOVERNMENT GOVERNMENT
FUND (1) INCOME FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 339,097 $ 0 $ 0
Interest 2,630,458 14,128,416 7,505,993
TOTAL INVESTMENT INCOME 2,969,555 14,128,416 7,505,993
EXPENSES (NOTE 2)
Advisory fees 207,018 1,118,280 684,217
Administration fees 32,646 179,769 108,812
Custody fees 6,416 108,701 32,854
Shareholder servicing fees 96,048 665,037 379
Portfolio accounting fees 49,955 106,228 88,866
Transfer agency fees 53,787 306,666 191,580
Distribution fees 226,730 273,563 342,487
Organization costs 0 0 0
Legal and audit fees 37,185 49,227 41,268
Registration fees 44,351 78,220 2,019
Directors' fees 4,641 1,370 1,555
Shareholder reports 18,307 107,664 36,772
Other 8,840 10,600 15,958
TOTAL EXPENSES 785,924 3,005,325 1,546,767
Less:
Waived fees and reimbursed expenses (283,866) (605,634) (480,389)
Net Expenses 502,058 2,399,691 1,066,378
NET INVESTMENT INCOME (LOSS) 2,467,497 11,728,725 6,439,615
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from:
Investments (617,257) 954,140 (1,468,711)
Foreign currency transactions 1,690 0 0
Net change in unrealized
appreciation (depreciation) of:
Investments (1,041,954) (7,016,388) (1,882,277)
Translation of assets and
liabilities in foreign
currencies 998 0 0
Foreign currency forward contracts 14,103 0 0
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (1,642,420) (6,062,248) (3,350,988)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 825,077 $ 5,666,477 $ 3,088,627
- ----------------------------------------------------------------------------------------
</TABLE>
(1) FOR THE PERIOD FROM JULY 13, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30,
1999.
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
Income Funds STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BOND FUND
-----------------------------
FROM APRIL
1, 1998
(COMMENCEMENT
OF
FOR THE OPERATIONS)
YEAR ENDED TO
JUNE 30, JUNE 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 873,336 $ 97,942
Net realized gain (loss) on sale of
investments and foreign currency
transactions (92,828) 14,604
Net change in unrealized appreciation
(depreciation) of investments and
translation of assets in foreign
currency (689,154) 40,064
Net change in unrealized appreciation
(depreciation) of foreign currency
forward contracts 0 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 91,354 152,610
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (301,656) (59,155)
CLASS B (494,210) (36,202)
CLASS C (78,121) (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 (4,732) 0
INSTITUTIONAL CLASS N/A N/A
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A 4,298,862 5,486,114
Reinvestment of dividends - Class A 127,714 25,324
Cost of shares redeemed - Class A (4,188,224) (35,386)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS A 238,352 5,476,052
Proceeds from shares sold - Class B 8,152,989 4,674,276
Reinvestment of dividends - Class B 350,463 10,428
Cost of shares redeemed - Class B (1,310,668) (115,854)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS B 7,192,784 4,568,850
Proceeds from shares sold - Class C 2,076,396 296,460
Reinvestment of dividends - Class C 66,082 1,192
Cost of shares redeemed - Class C (344,908) 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS C 1,797,570 297,652
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 8,389,543 10,397,222
NET ASSETS:
Beginning net assets 10,397,222 0
ENDING NET ASSETS $ 18,786,765 $ 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.
52
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC
INCOME FUND
------------
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND FROM JULY
---------------------------------------------- 13, 1998
(COMMENCEMENT
FOR THE OF
FOR THE THREE FOR THE OPERATIONS)
YEAR ENDED MONTHS ENDED YEAR ENDED TO
JUNE 30, JUNE 30, MARCH 31, JUNE 30,
1999 (1) 1998 (2) 1998 1999
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 7,863,797 $ 1,204,587 $ 4,631,025 $ 2,467,497
Net realized gain (loss) on sale of
investments and foreign currency
transactions 29,922 197,277 8,966 (615,567)
Net change in unrealized appreciation
(depreciation) of investments and
translation of assets in foreign
currency (3,516,889) (315,497) 2,861,633 (1,040,956)
Net change in unrealized appreciation
(depreciation) of foreign currency
forward contracts 0 0 0 14,103
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 4,376,830 1,086,367 7,501,624 825,077
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (2,552,631) (411,840) (1,633,537) (592,308)
CLASS B (435,667) (16,670)(3) N/A (1,634,801)
CLASS C N/A N/A N/A (157,519)
INSTITUTIONAL CLASS (4,875,499) (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 35,462,628 11,342,063 5,448,204 17,861,432
Reinvestment of dividends - Class A 1,958,664 298,853 1,300,551 471,992
Cost of shares redeemed - Class A (31,334,933) (3,209,710) (11,996,563) (6,778,268)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS A 6,086,359 8,431,206 (5,247,808) 11,555,156
Proceeds from shares sold - Class B 4,909,279 7,582,398(3) N/A 47,027,538
Reinvestment of dividends - Class B 374,047 5(3) N/A 1,158,652
Cost of shares redeemed - Class B (2,896,538) (27,179)(3) N/A (10,161,143)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS B 2,386,788 7,555,224(3) N/A 38,025,047
Proceeds from shares sold - Class C N/A N/A N/A 4,318,436
Reinvestment of dividends - Class C N/A N/A N/A 130,309
Cost of shares redeemed - Class C N/A N/A N/A (1,317,033)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS C N/A N/A N/A 3,131,712
Proceeds from shares sold -
Institutional Class 16,076,383 43,495,528 5,679,146 N/A
Reinvestment of dividends -
Institutional Class 2,114,406 182,366 880,516 N/A
Cost of shares redeemed -
Institutional Class (26,597,579) (5,405,311) (16,585,172) N/A
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS -
INSTITUTIONAL CLASS (8,406,790) 38,272,583 (10,025,510) N/A
INCREASE (DECREASE) IN NET ASSETS (3,420,610) 54,140,793 (12,402,719) 51,152,364
NET ASSETS:
Beginning net assets 135,808,583 81,667,790 94,070,509 0
ENDING NET ASSETS $132,387,973 $135,808,583 $ 81,667,790 $ 51,152,364
ENDING BALANCE OF UNDISTRIBUTED NET
INVESTMENT INCOME (LOSS) $ 0 $ 0 $ 0 $ 84,559
- ------------------------------------------------------------------------------------------------------------
</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.
53
<PAGE>
Income Funds STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
----------------------------------------------
FOR THE FOR THE SIX FOR THE
YEAR ENDED MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DEC. 31,
1999 1998 1997 (1)
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 11,728,725 $ 6,425,799 $ 5,631,623
Net realized gain (loss) on sale of
investments and foreign currency
transactions 954,140 1,653,357 (16,017,813)
Net change in unrealized appreciation
(depreciation) of investments and
translation of assets in foreign
currency (7,016,388) (498,541) 2,148,328
Net change in unrealized appreciation
(depreciation) of foreign currency
forward contracts 0 0 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 5,666,477 7,580,615 (8,237,862)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (9,480,367) (5,483,277) (5,440,321)
CLASS B (1,633,869) (679,047) (22,232)(2)
CLASS C (177,288) (50,459) (164,423)
INSTITUTIONAL CLASS (437,201) (213,016) (4,647)(2)
From net realized gain on sale of
investments
CLASS A 0 0 0
CLASS B 0 0 0(2)
CLASS C 0 0 0
INSTITUTIONAL CLASS 0 0 0(2)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold - Class A 15,824,525 14,893,331 180,455,427
Reinvestment of dividends - Class A 6,974,109 3,684,634 4,095,456
Cost of shares redeemed - Class A (56,694,570) (34,573,811) (39,630,894)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS A (33,895,936) (15,995,846) 144,919,989
Proceeds from shares sold - Class B 16,947,460 6,603,948 26,085,390(2)
Reinvestment of dividends - Class B 1,068,576 353,766 289(2)
Cost of shares redeemed - Class B (9,934,886) (3,623,776) (260,384)(2)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS B 8,081,150 3,333,938 25,825,295(2)
Proceeds from shares sold - Class C 4,200,594 854,024 313,936
Reinvestment of dividends - Class C 104,174 18,640 40,188
Cost of shares redeemed - Class C (1,782,857) (391,003) (893,744)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS C 2,521,911 481,661 (539,620)
Proceeds from shares sold -
Institutional Class 1,216,988 1,378,641 7,130,458(2)
Reinvestment of dividends -
Institutional Class 100,369 52,382 0(2)
Cost of shares redeemed -
Institutional Class (1,906,768) (416,683) (10,496)(2)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS -
INSTITUTIONAL CLASS (589,411) 1,014,340 7,119,962(2)
INCREASE (DECREASE) IN NET ASSETS (29,944,534) (10,011,091) 163,456,141
NET ASSETS:
Beginning net assets 232,974,166 242,985,257 79,529,116
ENDING NET ASSETS $203,029,632 $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) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
(3) "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.
(4) THIS CLASS OF SHARES CEASED OPERATIONS ON JULY 13, 1998.
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
-------------------------------------------------
FOR THE
YEAR ENDED FOR THE SIX FOR THE
JUNE 30, MONTHS ENDED YEAR ENDED
1999 (3) JUNE 30, 1998 DEC. 31, 1997
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income (loss) $ 6,439,615 $ 4,927,547 $ 18,370,862
Net realized gain (loss) on sale of
investments and foreign currency
transactions (1,468,711) 12,439 1,330,949
Net change in unrealized appreciation
(depreciation) of investments and
translation of assets in foreign
currency (1,882,277) (1,051,658) (325,594)
Net change in unrealized appreciation
(depreciation) of foreign currency
forward contracts 0 0 0
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 3,088,627 3,888,328 19,376,217
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
CLASS A (6,432,666) (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 93,797,081 48,964,576 68,881,115
Reinvestment of dividends - Class A 959,349 817,437 3,028,668
Cost of shares redeemed - Class A (148,197,189) (111,124,094) (239,536,408)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM
CAPITAL SHARE TRANSACTIONS - CLASS A (53,440,759) (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 (61,417,295) (62,190,839) (167,653,114)
NET ASSETS:
Beginning net assets 169,619,917 231,810,756 399,463,870
ENDING NET ASSETS $ 108,202,622 $ 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) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
(3) "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.
(4) THIS CLASS OF SHARES CEASED OPERATIONS ON JULY 13, 1998.
The accompanying notes are an integral part of these financial statements.
55
<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
------------------------------ ------------------------------
PERIOD PERIOD
YEAR ENDED ENDED YEAR ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 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) 0.62 0.17 0.55 0.15
Net realized and unrealized gain
(loss) on investments (0.37) 0.03 (0.37) 0.03
------------- ------------ ------------ -------------
TOTAL FROM INVESTMENT OPERATIONS 0.25 0.20 0.18 0.18
LESS DISTRIBUTIONS:
Dividends from net investment income (0.62) (0.17) (0.55) (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 (0.66) (0.17) (0.59) (0.15)
------------- ------------ ------------ -------------
NET ASSET VALUE, END OF PERIOD $9.62 $10.03 $9.62 $10.03
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
TOTAL RETURN (NOT ANNUALIZED)* 2.45% 1.98% 1.68% 1.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $5,482 $5,503 $11,311 $4,595
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to average net
assets 0.93% 0.56% 1.68% 1.35%
Ratio of net investment income to
average net assets 6.21% 6.47% 5.43% 5.47%
Portfolio turnover 115% 33% 115% 33%
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets
prior to waived fees and reimbursed
expenses 2.10% 3.74% 2.65% 4.30%
Ratio of net investment income (loss) to
average net assets prior to waived
fees and reimbursed expenses 5.04% 3.29% 4.46% 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.
56
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT
CORPORATE BOND FUND(1) INCOME FUND
(CONT.) CLASS A
CLASS C ----------------------------------------------
---------------------- THREE
PERIOD MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1999 1998 1999 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) 0.55 0.15 0.57 0.13 0.51 0.34
Net realized and
unrealized gain (loss)
on investments (0.37) 0.03 (0.23) 0.02 0.31 (0.09)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.18 0.18 0.34 0.15 0.82 0.25
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.55) (0.15) (0.57) (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 (0.59) (0.15) (0.57) (0.13) (0.51) (0.34)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $9.62 $10.03 $9.74 $9.97 $9.95 $9.64
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 1.67% 1.78% 3.37% 1.54% 8.69% 2.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $1,994 $299 $42,956 $38,149 $29,694 $33,920
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 1.70% 1.34% 0.96% 0.96% 0.78% 0.71%
Ratio of net investment
income to average net
assets 5.39% 5.57% 5.66% 5.36% 5.19% 6.96%
Portfolio turnover 115% 33% 116% 12% 48% 52%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 2.94% 8.58% 1.21% 1.24% 1.30% 1.12%
Ratio of net investment
income (loss) to average
net assets prior to waived
fees and reimbursed
expenses 4.15% (1.67)% 5.41% 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.
57
<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 (3) 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 MARCH 31 TO JUNE 30.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO SEPTEMBER 30.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
(5) THIS CLASS OF SHARES COMMENCED OPERATIONS ON SEPTEMBER 6, 1996.
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>
SHORT-INTERMEDIATE U.S. GOVERNMENT
INCOME FUND (CONT.)
INSTITUTIONAL CLASS
CLASS B ----------------------------------------------------------
---------------------- THREE
PERIOD MONTHS SIX MONTHS PERIOD
YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31, SEPT. 30,
1999 1998 (4) 1999 1998 (1) 1998 1997 (2) 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) 0.50 0.02 0.56 0.13 0.51 0.34 0.03
Net realized and
unrealized gain (loss)
on investments (0.23) (0.06) (0.23) 0.02 0.31 (0.09) 0.08
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.27 (0.04) 0.33 0.15 0.82 0.25 0.11
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.50) (0.02) (0.56) (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 (0.50) (0.02) (0.56) (0.13) (0.51) (0.34) (0.03)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $9.74 $9.97 $9.55 $9.78 $9.76 $9.45 $9.54
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 2.65% (0.38)% 3.38% 1.56% 8.85% 2.58% 1.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $9,643 $7,514 $79,789 $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 4.95% 5.08% 5.72% 5.44% 5.28% 7.01% 5.14%
Portfolio turnover 116% 12% 116% 12% 48% 52% 389%
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.99% 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 4.62% 4.77% 5.55% 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 MARCH 31 TO JUNE 30.
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM SEPTEMBER 30 TO MARCH 31.
(3) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO SEPTEMBER 30.
(4) THIS CLASS OF SHARES COMMENCED OPERATIONS ON JUNE 15, 1998.
(5) THIS CLASS OF SHARES COMMENCED OPERATIONS ON SEPTEMBER 6, 1996.
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>
STRATEGIC INCOME FUND (1)
CLASS A CLASS B CLASS C
---------- ---------- ----------
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1999 1999 1999
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.50 $12.50 $12.50
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.77 0.68 0.68
Net realized and unrealized gain (loss) on investments (0.46) (0.45) (0.45)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.31 0.23 0.23
LESS DISTRIBUTIONS:
Dividends from net investment income (0.77) (0.68) (0.68)
Distributions from net realized gain 0.00 0.00 0.00
Tax return of capital 0.00 0.00 0.00
---------- ---------- ----------
TOTAL FROM DISTRIBUTIONS (0.77) (0.68) (0.68)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $12.04 $12.05 $12.05
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 2.52% 1.87% 1.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $11,223 $36,892 $3,037
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 0.66% 1.50% 1.47%
Ratio of net investment income to average net assets 6.95% 6.25% 6.23%
Portfolio turnover 176% 176% 176%
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses 1.62% 2.14% 2.49%
Ratio of net investment income (loss) to average net assets prior to
waived fees and reimbursed expenses 5.99% 5.61% 5.21%
- ----------------------------------------------------------------------------------------------------------
</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.
60
<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
----------------------------------------------------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 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) 0.59 0.30 0.64 0.66 0.73 0.74
Net realized and
unrealized gain (loss)
on investments (0.31) 0.05 0.23 (0.69) 1.18 (1.28)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.28 0.35 0.87 (0.03) 1.91 (0.54)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.59) (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 (0.59) (0.30) (0.64) (0.66) (0.73) (0.74)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $10.62 $10.93 $10.88 $10.65 $11.34 $10.16
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 2.52% 3.23% 8.73% (0.11)% 19.32% (4.81)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $154,122 $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 5.37% 5.51% 6.01% 6.07% 6.79% 6.84%
Portfolio turnover 57% 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 5.11% 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.
61
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND(1)
(CONT.)
CLASS B
----------------------------------
SIX MONTHS PERIOD
YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, DEC. 31,
1999 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) 0.50 0.26 0.03
Net realized and unrealized gain (loss) on investments (0.31) 0.06 (0.02)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.19 0.32 0.01
LESS DISTRIBUTIONS:
Dividends from net investment income (0.50) (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 (0.50) (0.26) (0.03)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $10.45 $10.76 $10.70
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 1.75% 2.98% 0.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $36,780 $29,867 $26,401
RATIOS TO AVERAGE NET ASSETS (ANNUALIZED):
Ratio of expenses to average net assets 1.66% 1.59% 1.58%
Ratio of net investment income to average net assets 4.66% 4.78% 5.75%
Portfolio turnover 57% 245% 306%
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses 1.99% 1.90% 1.87%
Ratio of net investment income (loss) to average net assets prior to
waived fees and reimbursed expenses 4.33% 4.47% 5.46%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(2) 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.
(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.
62
<PAGE>
FINANCIAL HIGHLIGHTS Income Funds
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND(1) (CONT.)
CLASS C (2)
----------------------------------------------------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 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) 0.50 0.26 0.55 0.58 0.64 0.65
Net realized and
unrealized gain (loss)
on investments (0.30) 0.05 0.22 (0.68) 1.16 (1.25)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.20 0.31 0.77 (0.10) 1.80 (0.60)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.50) (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 (0.50) (0.26) (0.55) (0.58) (0.64) (0.65)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $10.46 $10.76 $10.71 $10.49 $11.17 $10.01
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 1.85% 2.88% 7.56% (0.79)% 18.54% (5.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $4,629 $2,262 $1,772 $2,290 $2,793 $3,722
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED):
Ratio of expenses to
average net assets 1.66% 1.59% 1.62% 1.62% 1.62% 1.37%
Ratio of net investment
income to average net
assets 4.66% 4.76% 5.27% 5.50% 6.07% 6.14%
Portfolio turnover 57% 245% 306% 240% 95% 50%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.91% 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 4.41% 3.89% 3.83% 3.73% 5.40% 5.64%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(2) 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.
(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.
63
<PAGE>
Income Funds FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND(1)
(CONT.)
INSTITUTIONAL CLASS
----------------------------------
SIX MONTHS PERIOD
YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, DEC. 31,
1999 1998 (2) 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) 0.86 0.43 0.05
Net realized and unrealized gain (loss) on investments (0.46) 0.08 (0.02)
---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.40 0.51 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.86) (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 (0.86) (0.43) (0.05)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $15.33 $15.79 $15.71
---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (NOT ANNUALIZED)* 2.49% 3.32% 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s) $7,499 $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 5.42% 5.56% 6.58%
Portfolio turnover 57% 245% 306%
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets prior to waived fees and
reimbursed expenses 1.35% 1.18% 1.16%
Ratio of net investment income (loss) to average net assets prior to
waived fees and reimbursed expenses 4.97% 5.21% 6.19%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(3) 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>
VARIABLE RATE GOVERNMENT FUND
CLASS A
----------------------------------------------------------------------
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1999 1998 (2) 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) 0.43 0.24 0.51 0.50 0.53 0.43
Net realized and
unrealized gain (loss)
on investments (0.23) (0.04) (0.02) (0.10) 0.16 (0.80)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS 0.20 0.20 0.49 0.40 0.69 (0.37)
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.43) (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 (0.43) (0.24) (0.51) (0.50) (0.53) (0.43)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD $8.96 $9.19 $9.23 $9.25 $9.35 $9.19
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN (NOT
ANNUALIZED)* 2.17% 2.16% 5.43% 4.41% 7.69% (3.81)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $108,203 $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 4.71% 5.21% 5.55% 5.36% 5.71% 4.40%
Portfolio turnover 80% 45% 92% 277% 317% 164%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets prior to waived
fees and reimbursed
expenses 1.13% 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 4.36% 4.88% 5.27% 5.26% 5.59% 4.25%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURNS DO NOT INCLUDE ANY SALES CHARGES.
(1) PERIODS PRIOR TO DECEMBER 31, 1997 HAVE BEEN RESTATED TO GIVE EFFECT
TO THE CONVERSION RATIOS APPLIED IN THE CONSOLIDATION OF OVERLAND
EXPRESS FUNDS, INC. AND STAGECOACH FUNDS, INC. (0.95041322 FOR CLASS A
SHARES AND 1.31902985 FOR CLASS C SHARES)
(2) THE FUND CHANGED ITS FISCAL YEAR-END FROM DECEMBER 31 TO JUNE 30.
(3) THIS CLASS OF SHARES COMMENCED OPERATIONS ON DECEMBER 15, 1997.
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
THIS PAGE IS INTENTIONALLY LEFT BLANK --
66
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Stagecoach Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company. The Company commenced operations on January 1,
1992 and currently offers thirty-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
67
<PAGE>
Income Funds NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
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
68
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
exchange or the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market are valued at the last reported sales price on the
day of valuation. Debt securities are generally traded in the over-the-counter
market and are valued at a price deemed best to reflect fair value as quoted by
dealers who make markets in those securities or by an independent pricing
source. U.S. Government obligations are valued at the last reported bid price.
In the absence of any sale of such securities on the valuation date and in the
case of other securities, excluding money market instruments maturing in 60 days
or less, the valuations are based on latest quoted bid prices. Debt securities
maturing in 60 days or less are valued at amortized cost. The amortized cost
method involves valuing a security at its cost, plus accretion of discount or
minus amortization of premium over the period until maturity, which approximates
market value. Securities for which quotations are not readily available are
valued at fair value as determined by policies set by the Company's Board of
Directors.
SECURITY TRANSACTIONS AND INCOME RECOGNITION
Securities transactions are recorded on a trade date basis. Dividend income is
recognized on the ex-dividend date and 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 with the exception of the
Corporate Bond Fund which does not amortize premiums under provisions of the
Internal Revenue Code of 1986, as amended (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.
FORWARD FOREIGN CURRENCY CONTRACT
At June 30, 1999, the Strategic Income Fund had entered into a forward foreign
currency contract under which it is obligated to exchange currencies at a
69
<PAGE>
Income Funds NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
specified future date. The Fund had an outstanding contract was to sell
EURO$500,188 and receive $532,059 on August 25, 1999. Net unrealized
appreciation of $14,103 on this contract is included in the accompanying
financial statements. Risks arise from the possible inability of counterparties
to meet the terms of their contracts and from movements in currency values.
SECURITY LOANS
The Funds may receive compensation for lending securities in the form of fees
or by retaining a portion of interest on the investment securities or cash
received as collateral. A Fund also continues to receive interest or dividends
on the securities loaned. Security loans are secured at all times by collateral
equal to at least 102% of the market value of the securities loaned plus accrued
interest. Gain or loss in the market price of the securities loaned that may
occur during the term of the loan are reflected in the value of the Fund.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders from net investment income are declared daily and
distributed monthly. Any distributions to shareholders from net realized capital
gains, if any, are declared and distributed annually.
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for federal income tax purposes. It
is the policy of each Fund of the Company to continue to qualify as a regulated
investment company by complying with the provisions applicable to regulated
investment companies, as defined in the Code, and to make distributions of
substantially all of its investment company taxable income and any net realized
capital gains (after reduction for capital loss carryforwards) sufficient to
relieve
70
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
it from all, or substantially all, federal income taxes. Accordingly, no
provision for federal income taxes was required at June 30, 1999. The following
Funds had estimated net capital loss carryforwards at June 30, 1999:
<TABLE>
<CAPTION>
YEAR CAPITAL LOSS
FUND EXPIRES CARRYFORWARDS
- ---------------------------------------------------------------------------
<S> <C> <C>
Corporate Bond Fund 2007 $ 138,555
Short-Intermediate U.S. Government Income
Fund 2000 731,523
2001 17,986
2002 6,649,746
2003 7,074,103
2004 753,400
2006 107,704
2007 616,671
Strategic Income Fund 2007 31,798
U.S. Government Income Fund 2001 208,402
2002 11,205,131
2003 510,531
2004 3,893,014
2007 41,961
Variable Rate Government Fund 2000 14,819,786
2001 2,818,401
2002 119,628,012
2003 4,546,666
2004 2,482,931
2007 1,294,944
</TABLE>
Any loss carryforwards from merged Pacifica, Overland and Stagecoach Funds are
included in the Funds' 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
71
<PAGE>
Income Funds NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
tax basis are shown as excess distributions of net investment income and net
realized gain on sales of investments in the accompanying Statements of Changes
in Net Assets. 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 has entered into an advisory contract on behalf of the Funds with
WFB. Pursuant to the contracts, WFB has agreed to provide the Funds with daily
portfolio management. For 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. For 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.
On June 4, 1999, the Company entered into a contract on behalf of each Fund
with Norwest Bank Minnesota, N.A. ("Norwest Bank"), whereby Norwest Bank is
responsible for providing custody services for the Funds. Pursuant to the
contract, Norwest Bank is entitled to a monthly fee for custody services at an
72
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
annual rate of 0.0167% of the average daily net assets of each Fund and to an
additional fixed fee for certain funds. Prior to June 4, 1999, WFB performed the
above services for the same fees.
The Company entered into contracts on behalf of each Fund with WFB, whereby
WFB is responsible portfolio accounting services for the Funds. For portfolio
accounting services, WFB is entitled to a monthly base fee from each Fund of
$2,000 plus an annual fee of 0.07% of the first $50 million of each Fund's
average daily net assets, 0.045% of the next $50 million, and 0.02% of each
Fund's average daily 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 year ended June 30,
1999 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bond Fund $ 6,794 $ 12,686 $ 2,020 N/A
Short-Intermediate U.S.
Government Income Fund 63,167 12,313 N/A $51,194
Strategic Income Fund* 12,282 37,834 3,671 N/A
U.S. Government Income Fund 247,495 49,014 5,318 4,839
Variable Rate Government Fund 191,580** N/A N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO JUNE 30, 1999.
** INCLUDES EXPENSES CHARGED TO THE FUND'S CLASS C SHARES PRIOR TO THEIR
CONVERSION TO CLASS A SHARES.
73
<PAGE>
Income Funds NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
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>
% OF AVERAGE DAILY NET ASSETS
---------------------------------------------
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bond Fund 0.25 0.25 0.25 N/A
Short-Intermediate U.S.
Government 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>
The shareholder servicing fees paid on behalf of the Funds for the year ended
June 30, 1999 were as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
FUND CLASS A CLASS B CLASS C CLASS
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bond Fund $ 12,132 $ 22,655 $ 3,607 N/A
Short-Intermediate U.S.
Government Income Fund 135,357 21,988 N/A $ 213,308
Strategic Income Fund* 21,933 67,560 6,555 N/A
U.S. Government Income Fund 530,346 105,031 9,497 20,163
Variable Rate Government Fund 379** N/A N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO JUNE 30, 1999.
** 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 Fund's 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.
On March 25, 1999, the Company entered into an Administration Agreement with
WFB on behalf of the Funds. Under the Administration Agreement, WFB will act as
sole Administrator of the Funds and is entitled to receive monthly fees at an
annual rate of 0.15% of the average daily net assets of the Funds. Prior to
March 25, 1999, the Company had entered into administration agreements on behalf
of the Funds whereby WFB as administrator and Stephens Inc. ("Stephens") as
co-administrator provided the
74
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
Funds with administrative services. For these services, WFB and Stephens were
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 pursuant to Rule 12b-1
under the 1940 Act (each, a "Plan") for the Class A shares of the
Short-Intermediate U.S. Government Income Funds and for all other Class A, Class
B, and Class C shares of the Funds.
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
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, but no fees are
paid under the Plan so long as fees are paid under the Administrative servicing
plan.
The Plan 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
75
<PAGE>
Income Funds NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
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 year ended June 30, 1999
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 $ 2,427 $ 67,963 $ 10,821
Short-Intermediate U.S. Government Income
Fund 0 65,964 N/A
Strategic Income Fund* 4,387 202,679 19,664
U.S. Government Income Fund 0 245,071 28,492
Variable Rate Government Fund 342,487** N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO JUNE 30, 1999.
** INCLUDES EXPENSES CHARGED TO THE FUND'S CLASS C SHARES PRIOR TO THEIR
CONVERSION TO CLASS A SHARES.
Registration fees paid on behalf of the Funds for the year ended June 30, 1999
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 $ 11,726 $ 10,068 $ 7,826 N/A
Short-Intermediate U.S.
Government Income Fund 9,098 10,525 N/A $ 32,671
Strategic Income Fund* 14,201 19,357 10,793 N/A
U.S. Government Income Fund 26,973 27,377 1,030 22,840
Variable Rate Government
Fund 2,019** N/A N/A N/A
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO JUNE 30, 1999.
** 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 year ended June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
EXPENSES FEES
REIMBURSED WAIVED BY
FUND BY STEPHENS WFB
- --------------------------------------------------------------------------
<S> <C> <C>
Corporate Bond Fund $ 42,875 $ 120,305
Short-Intermediate U.S. Government Income Fund 0 284,939
Strategic Income Fund* 49,722 234,144
U.S. Government Income Fund 0 605,634
Variable Rate Government Fund 0 480,389
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO JUNE 30, 1999.
76
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
Certain officers and one of the directors of the Company are also officers of
Stephens. As of June 30, 1999, Stephens owned 17 shares of the Corporate Bond
Fund, 3,557 shares of the Short-Intermediate U.S. Government Income Fund, 17
shares of the Strategic Income Fund, 3,423 shares of the U.S. Government Income
Fund and 16,028 shares of the Variable Rate Government Fund.
Stephens has retained $3,214,365 as sales charges from the proceeds of Class A
shares sold, $3,082,002 as proceeds from Class B shares redeemed by the Company
and $91,663 as proceeds from Class C shares redeemed by the Company for the year
ended June 30, 1999. Wells Fargo Securities Inc., a subsidiary of WFB, received
$2,732,550 as sales charges from the proceeds of Class A shares sold, $551,942
as proceeds from Class B shares redeemed by the Company and $0 as proceeds from
Class C shares redeemed by the Company for the year ended June 30, 1999.
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 year ended June 30, 1999, were as follows:
AGGREGATE PURCHASES AND SALES
<TABLE>
<CAPTION>
PURCHASES AT SALES
FUND COST PROCEEDS
- -------------------------------------------------------------------------
<S> <C> <C>
Corporate Bond Fund $ 25,653,406 $ 17,048,491
Short-Intermediate U.S. Government Income
Fund 153,753,937 158,553,881
Strategic Income Fund* 117,607,125 68,433,978
U.S. Government Income Fund 124,440,669 154,309,514
Variable Rate Government Fund 100,853,522 143,083,071
</TABLE>
* REPRESENTS THE PERIOD FROM JULY 13, 1998 TO JUNE 30, 1999.
4. PORTFOLIO SECURITIES LOANED
As of June 30, 1999 certain Funds had loaned securities in return for
securities and cash collateral which was invested in various short-term fixed
income securities. WFB receives transaction fees for providing services in
connection with the securities lending program. The risks to the funds of
77
<PAGE>
Income Funds NOTES TO THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
securities lending is that the borrower may not provide additional collateral
when required or return the securities when due. The value of the securities on
loan and the value of the related collateral were as follows:
<TABLE>
<CAPTION>
FUND SECURITIES COLLATERAL
- -----------------------------------------------------------------------
<S> <C> <C>
Strategic Income Fund $ 709,539 $ 738,388
U.S. Government Income Fund 8,376,825 8,713,535
Variable Rate Government Fund 988,116 1,044,431
</TABLE>
5. CAPITAL SHARE TRANSACTIONS
As of June 30, 1999, there were over 242 billion shares of $0.001 par value
capital stock authorized by the Company. As of June 30, 1999, 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
OF
FOR THE YEAR OPERATIONS)
ENDED JUNE TO
30, 1999 JUNE 30, 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 427,782 549,592
Shares issued in reinvestment of dividends
-- Class A 12,788 2,541
Shares redeemed -- Class A (419,200) (3,533)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING
-- CLASS A 21,370 548,600
Shares sold -- Class B 814,237 468,524
Shares issued in reinvestment of dividends
-- Class B 35,042 1,045
Shares redeemed -- Class B (131,436) (11,597)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING
-- CLASS B 717,845 457,972
Shares sold -- Class C 206,133 29,746
Shares issued in reinvestment of dividends
-- Class C 6,636 119
Shares redeemed -- Class C (35,279) 0
NET INCREASE (DECREASE) IN SHARES OUTSTANDING
-- CLASS C 177,490 29,865
</TABLE>
78
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME
FUND
-------------------------------------------
FOR THE
THREE
MONTHS
FOR THE YEAR ENDED JUNE FOR THE YEAR
ENDED JUNE 30, 30, ENDED MARCH
1999 (1) 1998 (2) 31, 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 3,504,267 1,131,614 552,800
Shares issued in reinvestment of dividends --
Class A 195,337 30,004 132,231
Shares redeemed -- Class A (3,111,992) (321,454) (1,220,467)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A 587,612 840,164 (535,436)
Shares sold -- Class B(3) 488,761 756,223 N/A
Shares issued in reinvestment of dividends --
Class B(3) 37,358 1 N/A
Shares redeemed -- Class B(3) (289,187) (2,717) N/A
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS B(3) 236,932 753,507 N/A
Shares sold -- Institutional Class 1,633,872 4,422,174 587,082
Shares issued in reinvestment of dividends --
Institutional Class 215,215 18,665 91,268
Shares redeemed -- Institutional Class (2,709,472) (552,996) (1,716,365)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
INSTITUTIONAL CLASS (860,385) 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 THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC INCOME
FUND
----------------
FROM JULY 13,
1998
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1999
- ----------------------------------------------------------------------------------
<S> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 1,437,339
Shares issued in reinvestment of dividends -- Class A 38,209
Shares redeemed -- Class A (543,204)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING -- CLASS A 932,344
Shares sold -- Class B 3,788,681
Shares issued in reinvestment of dividends -- Class B 93,706
Shares redeemed -- Class B (819,929)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING -- CLASS B 3,062,458
Shares sold -- Class C 347,631
Shares issued in reinvestment of dividends -- Class C 10,533
Shares redeemed -- Class C (106,035)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING -- CLASS C 252,129
</TABLE>
80
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS Income Funds
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT INCOME FUND
-------------------------------------------
FOR THE SIX
FOR THE YEAR MONTHS FOR THE YEAR
ENDED JUNE 30, ENDED JUNE ENDED DECEMBER
1999 30, 1998 31, 1997 (1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 1,439,795 1,364,621 15,150,976
Shares issued in reinvestment of dividends --
Class A 636,648 338,255 384,053
Shares redeemed -- Class A (5,175,208) (3,172,028) (3,703,910)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A (3,098,765) (1,469,152) 11,831,119
Shares sold -- Class B(2) 1,568,235 615,009 2,490,749
Shares issued in reinvestment of dividends --
Class B(2) 99,292 32,999 27
Shares redeemed -- Class B(2) (924,202) (338,048) (24,344)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS B(2) 743,325 309,960 2,466,432
Shares sold -- Class C 389,082 79,464 29,243
Shares issued in reinvestment of dividends --
Class C 9,690 1,739 3,838
Shares redeemed -- Class C (166,253) (36,508) (85,895)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS C 232,519 44,695 (52,814)
Shares sold -- Institutional Class(2) 76,596 87,456 462,544
Shares issued in reinvestment of dividends --
Institutional Class(2) 6,344 3,331 0
Shares redeemed -- Institutional Class(2) (120,116) (26,447) (669)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
INSTITUTIONAL CLASS(2) (37,176) 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 THE FINANCIAL STATEMENTS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE RATE GOVERNMENT FUND
------------------------------------------------
FOR THE SIX
FOR THE YEAR MONTHS ENDED FOR THE YEAR
ENDED JUNE 30, JUNE 30, ENDED DECEMBER
1999 (1) 1998 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHARES ISSUED AND REDEEMED:
Shares sold -- Class A 10,323,043 5,306,636 7,444,514
Shares issued in reinvestment of dividends --
Class A 105,348 88,803 327,188
Shares redeemed -- Class A (16,309,899) (12,066,556) (25,731,027)
NET INCREASE (DECREASE) IN SHARES OUTSTANDING --
CLASS A (5,881,508) (6,671,117) (17,959,325)
Shares sold -- Class C(2) (331,880) 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) (4,126) (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.
5. SUBSEQUENT EVENTS
On March 25, 1999, the Board of Directors of the Company approved the
reorganization of the Funds into new portfolios of Wells Fargo Funds Trust. The
reorganization is part of a larger plan to consolidate the Company with the
Norwest Advantage Funds following last November's merger of Wells Fargo &
Company and Norwest Corporation. The Company will present the reorganization to
Company's shareholders for their approval at a special shareholders' meeting
that is planned for August 1999.
On June 3, 1999, WFB and Forum Accounting Services ("Forum") entered into an
agreement, whereby WFB desires that Forum performs certain fund accounting
services for WFB with respect to each Fund and Class thereof. A monthly per fund
fee of $5,000 and an additional monthly fee for each additional Class of any
Fund above one of $1,000 will be charged to the Fund. In addition to the per
fund fees, a basis point fee of 0.0025% of the average annual daily net assets
of each Fund will also be charged to each Fund. The Company, on behalf of the
applicable Fund, reimburses Forum for all out-of-pocket and ancillary expenses
reasonably incurred in providing the services described in the Fund Accounting
Agreement.
On July 17, 1999, Boston Financial Data Services ("BFDS") replaced WFB as the
transfer agent for the Company. Under the transfer agency contract, BFDS is
entitled to receive, on a monthly basis, transfer agency fees based on the
number of accounts and transactions of each Fund. WFB will continue to provide
sub-transfer agency services to the Funds.
82
<PAGE>
INDEPENDENT AUDITORS' REPORT Income Funds
- ------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Stagecoach Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Corporate Bond Fund,
Short-Intermediate U.S. Government Income Fund, Strategic Income Fund, U.S.
Government Income Fund, and Variable Rate Government Fund (five of the funds
comprising Stagecoach Funds, Inc.) as of June 30, 1999, and the related
statements of operations for the year ended June 30, 1999, for all funds except
for the Strategic Income Fund, which is for the period from July 13, 1998
(commencement of operations) to June 30, 1999, the statements of changes in net
assets for the year ended June 30, 1999, the six months ended June 30, 1998, and
the year ended December 31, 1997, for all funds except the Corporate Bond Fund
which is for the year ended June 30, 1999, and the period from April 1, 1998
(commencement of operations) to June 30, 1998, the Short-Intermediate U.S.
Government Income Fund, which is for the year ended June 30, 1999, the three
months ended June 30, 1998, and the year ended March 31, 1998, and the Strategic
Income Fund, which is for the period from July 13, 1998 (commencement of
operations) to June 30, 1999, and financial highlights for the periods indicated
herein. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian and other appropriate audit
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned funds of Stagecoach Funds, Inc. as of June 30, 1999, the
results of their operations, the changes in their net assets, and their
financial highlights for the periods indicated herein, in conformity with
generally accepted accounting principles.
[KPMG LLP SIGNATURE]
San Francisco, California
July 26, 1999
83
<PAGE>
Income Funds SHAREHOLDERS' MEETING AND PROXY VOTING RESULTS
- ------------------------------------------------------------------------
SHAREHOLDERS' MEETING AND PROXY VOTING RESULTS (UNAUDITED)
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>
FEDERAL TAX STATUS OF DIVIDENDS DECLARED (UNAUDITED)
The percentage of qualifying dividends eligible for the corporate dividend
received deduction for the Strategic Income Fund was 13.47% for the period ended
June 30, 1999.
84
<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
CTF -- Common Trust Fund
DW&P -- Department of Water & Power
DWR -- Department of Water Resources
EDFA -- Education Finance Authority
FGIC -- Financial Guaranty Insurance Corporation
FHA -- Federal Housing Authority
FHLB -- Federal Home Loan Bank
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRN -- Floating Rate Notes
FSA -- Financial Security Assurance, Inc
GNMA -- Government National Mortgage Association
GO -- General Obligation
HFA -- Housing Finance Authority
HFFA -- Health Facilities Financing Authority
IDA -- Industrial Development Authority
LIBOR -- London Interbank Offered Rate
LLC -- Limited Liability Corporation
LOC -- Letter of Credit
LP -- Limited Partnership
MBIA -- Municipal Bond Insurance Association
MFHR -- Multi-Family Housing Revenue
MUD -- Municipal Utility District
MTN -- Medium Term Note
PCFA -- Pollution Control Finance Authority
PCR -- Pollution Control Revenue
PFA -- Public Finance Authority
PLC -- Private Placement
PSFG -- Public School Fund Guaranty
RAW -- Revenue Anticipation Warrants
RDA -- Redevelopment Authority
RDFA -- Redevelopment Finance Authority
R&D -- Research & Development
SFMR -- Single Family Mortgage Revenue
TBA -- To Be Announced
TRAN -- Tax Revenue Anticipation Notes
USD -- Unified School District
V/R -- Variable Rate
</TABLE>
85
<PAGE>
Wells Fargo Bank, N.A. provides investment advisory services, shareholder
services and/or certain other services for the Stagecoach Funds. Wells
Capital Management Incorporated ("WCM") provides investment sub-advisory
services for certain Stagecoach Funds. The Funds are distributed by STEPHENS
INC., Member NYSE/SIPC. Wells Fargo Bank, N.A. and WCM are not affiliated
with Stephens Inc.
This report and the financial statements contained herein are submitted for
the general information of the shareholders of the 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
1-800-260-5969. Read the prospectus carefully before you invest or send
money.
STAGECOACH FUNDS-Registered Trademark-
P.O. Box 7066
San Francisco, CA 94120-7066
DATED MATERIAL
PLEASE EXPEDITE
