<PAGE>
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented on December 17, 1999
AGGRESSIVE BALANCED-EQUITY FUND
ASSET ALLOCATION FUND
GROWTH BALANCED FUND
INDEX ALLOCATION FUND
LIFEPATH OPPORTUNITY FUND
LIFEPATH 2010 FUND
LIFEPATH 2020 FUND
LIFEPATH 2030 FUND
LIFEPATH 2040 FUND
MODERATE BALANCED FUND
STRATEGIC INCOME FUND
Class A, Class B, Class C and Institutional Class
Wells Fargo Funds Trust (the "Trust") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about eleven funds in the Wells Fargo Funds Trust family of funds
(each, a "Fund" and collectively, the "Funds") -- the Aggressive Balanced-
Equity, Asset Allocation, Growth Balanced, Index Allocation, LifePath
Opportunity, LifePath 2010, LifePath 2020, LifePath 2030, LifePath 2040,
Moderate Balanced and Strategic Income Funds. Each Fund is considered
diversified under the Investment Company Act of 1940, as amended (the "1940
Act"). Each Fund offers Class A, Class B, Class C and Institutional Class
shares, with the exception of the Index Allocation, Aggressive Balanced-Equity,
Moderate Balanced and Strategic Income Funds. The Index Allocation Fund offers
only Class A, Class B and Class C shares, and the Aggressive Balanced-Equity,
Moderate Balanced and Strategic Income Funds offer only Institutional Class
shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 8, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained free of charge by calling 1-800-222-8222 or
writing to Wells Fargo Funds, P.O. Box 8266, Boston, MA 02266-8266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................................ 1
Investment Policies.................................................... 2
Investment Models...................................................... 5
LifePath Funds......................................................... 7
Additional Permitted Investment Activities and Associated Risks........ 8
Management............................................................. 24
Performance Calculations............................................... 40
Determination of Net Asset Value....................................... 47
Additional Purchase and Redemption Information......................... 48
Portfolio Transactions................................................. 49
Fund Expenses.......................................................... 50
Federal Income Taxes................................................... 51
Capital Stock.......................................................... 56
Other.................................................................. 63
Counsel................................................................ 63
Independent Auditors................................................... 63
Financial Information.................................................. 63
Appendix............................................................... A1
</TABLE>
<PAGE>
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach"),
the Board of Trustees of Stagecoach Trust and the Board of Trustees of the Trust
approved Agreements and Plans of Reorganization providing for, among other
things, the transfer of the assets and stated liabilities of various predecessor
Norwest, Stagecoach and Stagecoach Trust portfolios to the Funds (the
"Reorganization"). Prior to November 5, 1999, the effective date of the
Reorganization of the Funds and the predecessor Norwest, Stagecoach and
Stagecoach Trust portfolios, the Funds had only nominal assets.
The Funds described in this SAI were created as part of the Reorganization
of the Stagecoach family of funds, advised by Wells Fargo Bank, N.A. ("Wells
Fargo Bank" or "Advisor"), and the Norwest Advantage family of funds, advised by
Norwest Investment Management, Inc. ("NIM"), into a single mutual fund complex.
The Reorganization followed the merger of the advisors' parent companies.
The chart below indicates the predecessor Stagecoach and Norwest Funds that
are the accounting survivors of the Wells Fargo Funds.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Wells Fargo Funds Predecessor Fund
- -------------------------------------------------------------------------------------------------
<S> <C>
Aggressive Balanced-Equity Fund Norwest Aggressive Balanced-Equity Fund
- -------------------------------------------------------------------------------------------------
Asset Allocation Fund Stagecoach Asset Allocation Fund
Stagecoach Balanced Fund
- -------------------------------------------------------------------------------------------------
Growth Balanced Fund Norwest Growth Balanced Fund
- -------------------------------------------------------------------------------------------------
Index Allocation Fund Stagecoach Index Allocation Fund
- -------------------------------------------------------------------------------------------------
LifePath Opportunity Fund Stagecoach Trust LifePath Opportunity Fund
- -------------------------------------------------------------------------------------------------
LifePath 2010 Fund Stagecoach Trust LifePath 2010 Fund
- -------------------------------------------------------------------------------------------------
LifePath 2020 Fund Stagecoach Trust LifePath 2020 Fund
- -------------------------------------------------------------------------------------------------
LifePath 2030 Fund Stagecoach Trust LifePath 2030 Fund
- -------------------------------------------------------------------------------------------------
LifePath 2040 Fund Stagecoach Trust LifePath 2040 Fund
- -------------------------------------------------------------------------------------------------
Moderate Balanced Fund Norwest Moderate Balanced Fund
- -------------------------------------------------------------------------------------------------
Strategic Income Fund Norwest Strategic Income Fund
- -------------------------------------------------------------------------------------------------
</TABLE>
The Aggressive Balanced-Equity Fund commenced operations on November 8,
1999, as successor to the Norwest Aggressive Balanced-Equity Fund. The Norwest
Aggressive Balanced-Equity Fund commenced operations on December 2, 1997.
The Asset Allocation Fund commenced operations on November 8, 1999, as
successor to the Asset Allocation and Balanced Funds of Stagecoach. The
predecessor Stagecoach Asset Allocation Fund commenced operations on January 2,
1992, as successor to the Asset Allocation Fund of the Wells Fargo Investment
Trust for Retirement Programs ("WFIT"), which commenced operations on November
13, 1986. The predecessor Stagecoach Balanced Fund was originally organized on
July 1, 1990 as the Pacifica Balanced Fund, an investment portfolio of Pacifica
Funds Trust ("Pacifica"). On September 6, 1996, the Pacifica Balanced Fund was
reorganized as the Stagecoach Balanced Fund. For accounting purposes, the
Stagecoach Asset Allocation predecessor portfolio is considered the surviving
entity, and the financial highlights shown for
1
<PAGE>
periods prior to November 8, 1999 are the financial highlights of the Stagecoach
Asset Allocation Fund.
The Growth Balanced Fund commenced operations on November 8, 1999, as
successor to the Norwest Growth Balanced Fund. The predecessor Norwest Growth
Balanced Fund commenced operations on April 30, 1989.
The Index Allocation Fund commenced operations on November 8, 1999, as
successor to the Index Allocation Fund of Stagecoach. The predecessor
Stagecoach Index Allocation Fund was originally organized on April 7, 1988 as
the Asset Allocation Fund of Overland Express Funds, Inc. ("Overland"). The
Overland Asset Allocation Fund changed its name to the Index Allocation Fund on
February 14, 1997. On December 12, 1997, the Overland Index Allocation Fund was
reorganized into the Stagecoach Index Allocation Fund.
The LifePath Opportunity, LifePath 2010, LifePath 2020, LifePath 2030 and
LifePath 2040 Funds (collectively, the "LifePath Funds") commenced operations on
November 8, 1999, as successors to the LifePath Funds of Stagecoach Trust. The
predecessor Stagecoach Trust LifePath Funds offered Class A, Class B and
Institutional Class shares. The Class B shares of the LifePath Opportunity Fund
commenced operations on June 30, 1998. The Class B shares of all other LifePath
Funds commenced operations on March 3, 1997. Prior to June 24, 1998, the
LifePath Opportunity Fund of Stagecoach Trust was named the LifePath 2000 Fund.
The Moderate Balanced Fund commenced operations on November 8, 1999, as
successor to the Norwest Moderate Balanced Fund. The predecessor Norwest
Moderate Balanced Fund commenced operations on April 30, 1989.
The Strategic Income Fund commenced operations on November 8, 1999, as
successor to the Norwest Strategic Income Fund. The predecessor Norwest
Strategic Income Fund commenced operations on April 30, 1989.
INVESTMENT POLICIES
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment policies, all of which are
fundamental policies; that is, they may not be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund.
The Funds may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of a Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that this
restriction does not limit a Fund's: (i) investments in securities of other
2
<PAGE>
investment companies, (ii) investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or (iii) investments in
repurchase agreements, and provided further that: (x) the Asset Allocation and
Index Allocation Funds reserve the right to concentrate in any industry in which
the S&P 500 Index becomes concentrated to the same degree during the same
period, and (y) the Asset Allocation Fund and the Index Allocation Fund reserve
the right to concentrate in obligations of domestic banks (to the extent
permitted by the U.S. Securities and Exchange Commission (the "SEC") or its
staff and as such term is interpreted by the SEC or its staff);
(2) purchase securities of any issuer if, as a result, with respect to 75%
of a Fund's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer, provided that
this restriction does not limit a Fund's investments in securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder;
(4) issue senior securities, except to the extent permitted under the 1940
Act, including the rules, regulations and exemptions thereunder;
(5) make loans to other parties if, as a result, the aggregate value of
such loans would exceed one-third of a Fund's total assets. For the purposes of
this limitation, entering into repurchase agreements, lending securities and
acquiring any debt securities are not deemed to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business); nor
(8) purchase or sell commodities, provided that (i) currency will not be
deemed to be a commodity for purposes of this restriction, (ii) this restriction
does not limit the purchase or sale of futures contracts, forward contracts or
options, and (iii) this restriction does not limit the purchase or sale of
securities or other instruments backed by commodities or the purchase or sale of
commodities acquired as a result of ownership of securities or other
instruments.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by the Trustees of the Trust or at any time without approval of such
Fund's shareholders.
3
<PAGE>
(1) Each Fund may invest in shares of other investment companies, to the
extent permitted under the 1940 Act, including the rules, regulations and
exemptions thereunder.
(2) Each Fund may not invest or hold more than 15% of the Fund's net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) Each Fund may invest in futures or options contracts regulated by the
CFTC for (i) bona fide hedging purposes within the meaning of the rules of the
CFTC and (ii) for other purposes if, as a result, no more than 5% of the Fund's
net assets would be invested in initial margin and premiums (excluding amounts
"in-the-money") required to establish the contracts.
(4) Each Fund may lend securities from its portfolio to approved brokers,
dealers and financial institutions, to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder, which currently
limit such activities to one-third of the value of a Fund's total assets
(including the value of the collateral received). Any such loans of portfolio
securities will be fully collateralized based on values that are marked-to-
market daily.
(5) Each Fund may not make investments for the purpose of exercising
control or management, provided that this restriction does not limit a Fund's
investments in securities of other investment companies or in entities created
under the laws of foreign countries to facilitate investment in securities in
that country.
(6) Each Fund may not purchase securities on margin (except for short-term
credits necessary for the clearance of transactions).
(7) Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
General
-------
Notwithstanding the foregoing policies, any other investment companies in
which the Funds may invest have adopted their own investment policies, which may
be more or less restrictive than those listed above, thereby allowing a Fund to
participate in certain investment strategies indirectly that are prohibited
under the fundamental and non-fundamental investment policies listed above.
4
<PAGE>
INVESTMENT MODELS
-----------------
This section contains supplemental information about the proprietary
investment models used by Barclays Global Fund Advisors ("BGFA") to manage the
Asset Allocation and Index Allocation Funds' portfolios.
Asset Allocation Model. BGFA compares the Asset Allocation Fund's
----------------------
investments daily to the Asset Allocation Model's recommended allocation. The
investment model recommends allocations among each asset class in 5% increments
only. Any recommended reallocation will be implemented in accordance with
trading policies that have been designed to take advantage of market
opportunities and to reduce transaction costs. Under current trading policies
employed by BGFA, recommended reallocations may be implemented promptly upon
receipt of recommendations or may not be acted upon for as long as two or three
months thereafter depending on factors such as the percentage change from
previous recommendations and the consistency of recommended reallocations over a
period of time. In addition, the Asset Allocation Fund generally will invest the
net proceeds from the sale of shares of the Fund and will liquidate existing
Fund investments to meet net redemption requirements in a manner that best
allows the Fund's existing asset allocation to follow that recommended by the
Model. Notwithstanding any recommendation of the Model to the contrary, the
Asset Allocation Fund will generally maintain at least that portion of its
assets in money market instruments reasonably considered necessary to meet
redemption requirements. In general, cash maintained for short-term liquidity
needs is only invested in U.S. Treasury bills, shares of other mutual funds and
repurchase agreements. There is no requirement that the Fund maintain positions
in any particular asset class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Asset Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to different
equilibrium asset mix assumptions used for the various portfolios, timing
differences in the implementation of the model's recommendations and differences
in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. Standard & Poor's Ratings Group ("S&P") occasionally
makes changes in the S&P 500 Index based on its criteria for inclusion of stocks
in the S&P 500 Index. The S&P 500 Index is market-capitalization-weighted so
that each stock in the S&P 500 Index represents its proportion of the total
market value of all stocks in the S&P 500 Index. In making its stock
investments, the policy of the Asset Allocation Fund is to invest its assets in
substantially the same stocks, and in substantially the same percentages, as the
S&P 500 Index, including Wells Fargo & Company stock.
A key component of the Asset Allocation Model is a set of assumptions
concerning expected risk and return and investor attitudes toward risk which are
incorporated into the asset allocation decision. The principal inputs of
financial data to the Asset Allocation Model currently are (i) consensus
estimates of the earnings, dividends and payout ratios on a broad cross-section
of common stocks as reported by independent financial reporting services which
survey a broad cross-section of Wall Street analysts, (ii) the estimated current
yield to maturity
5
<PAGE>
on new long-term corporate bonds rated "AA" by S&P, (iii) the present yield on
money market instruments, (iv) the historical statistical standard deviation in
investment return for each class of asset, and (v) the historical statistical
correlation of investment returns among the various asset classes in which the
Asset Allocation Fund invests. Using these data, the Asset Allocation Model is
run daily to determine the recommended asset allocation. The model's
recommendations are presently made in 5% increments.
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
Index Allocation Model. BGFA compares the Index Allocation Fund's
----------------------
investments daily to the Index Allocation Model's recommended allocation. The
investment model recommends allocations among each asset class in 5% increments
only. Any recommended reallocation will be implemented in accordance with
trading policies that have been designed to take advantage of market
opportunities and to reduce transaction costs. Under current trading policies
employed by BGFA, recommended reallocations may be implemented promptly upon
receipt of recommendations or may not be acted upon for as long as two or three
months thereafter depending on factors such as the percentage change from
previous recommendations and the consistency of recommended reallocations over a
period of time. In addition, the Index Allocation Fund generally will invest
the net proceeds from the sale of shares of the Fund and will liquidate existing
Fund investments to meet net redemption requirements in a manner that best
allows the Fund's existing asset allocation to follow that recommended by the
Model. Notwithstanding any recommendation of the Model to the contrary, the
Index Allocation Fund will generally maintain at least that portion of its
assets in money market instruments reasonably considered necessary to meet
redemption requirements. In general, cash maintained for short-term liquidity
needs is only invested in U.S. Treasury bills, shares of other mutual funds and
repurchase agreements. There is no requirement that the Fund maintain positions
in any particular asset class or classes.
Wells Fargo Bank and BGFA manage other portfolios which also invest in
accordance with the Index Allocation Model. The performance of each of those
other portfolios is likely to vary among themselves and from the performance of
the Fund. Such variation in performance is primarily due to different
equilibrium asset mix assumptions used for the various portfolios, timing
differences in the implementation of the model's recommendations and differences
in expenses and liquidity requirements.
There are 500 common stocks, including Wells Fargo & Company stock, which
make up the S&P 500 Index. S&P occasionally makes changes in the S&P 500 Index
based on its criteria for inclusion of stocks in the S&P 500 Index. The S&P 500
Index is market-capitalization-weighted so that each stock in the S&P 500 Index
represents its proportion of the total market value of all stocks in the S&P 500
Index. In making its stock investments, the policy of the Index Allocation Fund
is to invest its assets in substantially the same stocks, and in substantially
the
6
<PAGE>
same percentages, as the S&P 500 Index, including Wells Fargo & Company stock.
The Lehman Brothers 20+ Treasury Bond Index (the "LBT Bond Index") is an
unmanaged index comprised of U.S. Treasury Securities with remaining maturities
of twenty years or more. The portion of the Fund's portfolio allocated to bonds
is invested so as to replicate the performance characteristics of the LBT Bond
Index.
A key component of the Index Allocation Model is a set of assumptions
concerning expected risk and return and investor attitudes toward risk which are
incorporated into the index allocation decision. The principal inputs of
financial data to the Index Allocation Model currently are (i) consensus
estimates of the earnings, dividends and payout ratios on a broad cross-section
of common stocks as reported by independent financial reporting services which
survey a broad cross-section of Wall Street analysts, (ii) the estimated current
yield to maturity on new long-term corporate bonds rated "AA" by S&P, (iii) the
present yield on money market instruments, (iv) the historical statistical
standard deviation in investment return for each class of asset, and (v) the
historical statistical correlation of investment returns among the various asset
classes in which the Index Allocation Fund invests. Using these data, the Index
Allocation Model is run daily to determine the recommended asset allocation.
Although BGFA intends to use the Model as bases for its investment
decisions, BGFA may change from time to time the criteria and methods it uses to
implement the Model's recommendations if it believes such a change is desirable
for the Fund. Nevertheless, Wells Fargo Bank has continuing and exclusive
authority over the management of the Fund, the conduct of its affairs and the
disposition of the Funds' assets, and Wells Fargo Bank has the right to reject
BGFA's investment decisions for the Fund if Wells Fargo Bank determines that any
such decision is not consistent with the best interests of the Fund.
LIFEPATH FUNDS
--------------
Each LifePath Fund seeks to achieve its investment objective by investing
all of its assets in a corresponding LifePath Master Portfolio of Master
Investment Portfolio ("MIP"). The LifePath Opportunity Fund invests its assets
in the LifePath 2000 Master Portfolio. The Funds and other entities investing
in a Master Portfolio are each liable for all obligations of the Master
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and MIP itself is unable to meet its obligations. Accordingly, the
Trust's Board of Trustees believes that neither a Fund nor its shareholders will
be adversely affected by investing Fund assets in the Master Portfolio. However,
if a mutual fund or other investor withdraws its investment from the Master
Portfolio, the economic efficiencies (e.g., spreading fixed expenses among a
larger asset base) that the Board believes may be available through investment
in the Master Portfolio may not be fully achieved. In addition, given the
relative novelty of the master/feeder structure, accounting or operational
difficulties, although unlikely, could arise. See "Organization and Management
of the Funds" in the Prospectus for additional description of the Funds' and
Master Portfolios' expenses and management.
Each LifePath Fund may withdraw its investment in the corresponding Master
Portfolio only if the Trust's Board of Trustees determines that such action is
in the best interests of such
7
<PAGE>
Fund and its shareholders. Upon such withdrawal, the Board would consider
alternative investments, including investing all of the Fund's assets in another
investment company with the same investment objective as the Fund or hiring an
investment advisor to manage the Fund's assets in accordance with the investment
policies described below with respect to the Master Portfolio.
The investment objective and other fundamental policies of a Master
Portfolio cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Master Portfolio's outstanding interests. See
"Investment Objectives" and "Investment Strategies" in the Prospectus. Whenever
a Fund, as an interestholder of a Master Portfolio, is requested to vote on any
matter submitted to interestholders of the Master Portfolio, the Fund will hold
a meeting of its shareholders to consider such matters. The Fund will cast its
votes in proportion to the votes received from its shareholders. Shares for
which the Fund receives no voting instructions will be voted in the same
proportion as the votes received from the other Fund shareholders.
Certain policies of a Master Portfolio which are non-fundamental may be
changed by vote of a majority of MIP's Trustees without interestholder approval.
If a Master Portfolio's investment objective or fundamental or non-fundamental
policies are changed, the corresponding LifePath Fund may elect to change its
objective or policies to correspond to those of the Master Portfolio. The Fund
may also elect to redeem its interests in the Master Portfolio and either seek a
new investment company with a matching objective in which to invest or retain
its own investment advisor to manage the Fund's portfolio in accordance with its
objective. In the latter case, a Fund's inability to find a substitute
investment company in which to invest or equivalent management services could
adversely affect shareholders' investments in the Fund. Each Fund will provide
shareholders with 30 days' written notice prior to the implementation of any
change in the investment objective of the Fund or the Master Portfolio, to the
extent possible.
The LifePath Funds contain both "strategic" and "tactical" components, with
the strategic component weighted more heavily than the tactical component. The
strategic component of the Funds evaluates the risk that investors, on average,
may be willing to accept given their investment time horizons. The strategic
component thus determines the changing investment risk level of each LifePath
Fund as time passes. The tactical component addresses short-term market
conditions. The tactical component thus adjusts the amount of investment risk
taken by each LifePath Fund without regard to horizon, but rather in
consideration of the relative risk-adjusted short-term attractiveness of various
asset classes.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND ASSOCIATED RISKS
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. Some of the Funds in this SAI are "gateway"
funds in a "core and gateway structure" or "feeder" funds in a "master/feeder"
structure. References to the activities of a gateway Fund or a feeder Fund are
understood to refer to the investments of the core or master portfolios in which
it invests. For purposes of monitoring the investment policies and restrictions
of the Funds (with the exception of the loans of portfolio securities policy
described below), the amount of any securities lending collateral held by a Fund
will be excluded in calculating total assets.
8
<PAGE>
Asset-Backed Securities
-----------------------
The Funds may invest in various types of asset-backed securities. Asset-
backed securities are securities that represent an interest in an underlying
security. The asset-backed securities in which the Funds invest may consist of
undivided fractional interests in pools of consumer loans or receivables held in
trust. Examples include certificates for automobile receivables (CARS) and
credit card receivables (CARDS). Payments of principal and interest on these
asset-backed securities are "passed through" on a monthly or other periodic
basis to certificate holders and are typically supported by some form of credit
enhancement, such as a surety bond, limited guaranty, or subordination. The
extent of credit enhancement varies, but usually amounts to only a fraction of
the asset-backed security's par value until exhausted. Ultimately, asset-backed
securities are dependent upon payment of the consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse to the entity
that originated the loans or receivables. The actual maturity and realized yield
will vary based upon the prepayment experience of the underlying asset pool and
prevailing interest rates at the time of prepayment. Asset-backed securities are
relatively new instruments and may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, the secondary market
for certain asset-backed securities may not be as liquid as the market for other
types of securities, which could result in a Fund experiencing difficulty in
valuing or liquidating such securities. The Funds may also invest in securities
backed by pools of mortgages. The investments are described under the heading
"Mortgage-Related Securities."
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of domestic issuers. Such risks include possible future political
and economic developments, the possible imposition of foreign withholding taxes
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers'
9
<PAGE>
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The other short-term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-interest rates.
Below Investment Grade Investments
----------------------------------
The Aggressive Balanced-Equity, Growth Balanced, Moderate Balanced and
Strategic Income Funds may invest in debt securities that are in low or below
investment grade categories, or are unrated or in default at the time of
purchase (also known as high yield securities or "junk bonds"). Such debt
securities have a much greater risk of default (or in the case of bond currently
in default, of not returning principal) and are more volatile than higher-rated
securities of similar maturity. The value of such debt securities will be
affected by overall economic conditions, interest rates, and the
creditworthiness of the individual issuers. Additionally, these lower rated
debt securities may be less liquid and more difficult to value than higher rated
securities. Stocks of the smaller and medium-sized companies in which the Fund
may invest may be more volatile than larger company stocks. Investments in
foreign markets may also present special risks, including currency, political,
diplomatic, regulatory and liquidity risks.
Bonds
-----
Certain of the debt instruments purchased by the Funds may be bonds. A
bond is an interest-bearing security issued by a company or governmental unit.
The issuer of a bond has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal (the bond's face value)
periodically or on a specified maturity date. An issuer may have the right to
redeem or "call" a bond before maturity, in which case the investor may have to
reinvest the proceeds at lower market rates. The value of fixed-rate bonds will
tend to fall when interest rates rise and rise when interest rates fall. The
value of "floating-rate" or "variable-rate" bonds, on the other hand, fluctuate
much less in response to market interest rate movements than the value of fixed
rate bonds.
Bonds may be senior or subordinated obligations. Senior obligations
generally have the first claim on a corporation's earnings and assets and, in
the event of liquidation, are paid before subordinated debt. Bonds may be
unsecured (backed only by the issuer's general creditworthiness) or secured
(also backed by specified collateral).
Borrowing
---------
The Funds may borrow money for temporary or emergency purposes, including
the meeting of redemption requests. Borrowing involves special risk
considerations. Interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
10
<PAGE>
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
Convertible Securities
----------------------
The Funds may invest in convertible securities. A convertible security is
generally a debt obligation or preferred stock that may be converted within a
specified period of time into a certain amount of common stock of the same or a
different user. A convertible security provides a fixed-income stream and the
opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in its underlying common
stock. As with a straight fixed-income security, a convertible security tends
to increase in market value when interest rates decline and decrease in value
when interest rates rise. Like a common stock, the value of a convertible
security also tends to increase as the market value of the underlying stock
rises, and it tends to decrease as the market value of the underlying stock
declines. Because its value can be influenced by both interest rate and market
movements, a convertible security is not as sensitive to interest rates as a
similar fixed-income security, nor is it as sensitive to changes in share price
as its underlying stock.
The creditworthiness of the issuer of a convertible security may be
important in determining the security's true value. This is because the holder
of a convertible security will have recourse only to the issuer. In addition, a
convertible security may be subject to redemption by the issuer, but only after
a specified date and under circumstances established at the time the security is
issued.
While the Funds use the same criteria to rate a convertible debt security
that it uses to rate a more conventional debt security, a convertible preferred
stock is treated like a preferred stock for a Funds' financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated
to all debt obligations in the event of insolvency, and an issuer's failure to
make a dividend payment is generally not an event of default entitling the
preferred shareholder to take action. A preferred stock generally has no
maturity date, so that its market value is dependent on the issuer's business
prospects for an indefinite period of time. In addition, distributions from
preferred stock are dividends, rather than interest payments, and are usually
treated as such for corporate tax purposes.
Derivative Securities
---------------------
The Funds may invest in various instruments that may be considered
"derivatives," including structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices or financial indicators ("References") or the relative
change in two or more References. Some derivative securities represent
relatively recent innovations in the bond markets, and the trading market for
these instruments is less developed than the markets for traditional types of
debt instruments. It is uncertain how these instruments will perform under
different economic and interest rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss.
Derivative securities and their underlying instruments may experience periods of
illiquidity, which could cause a Fund to hold a security it might otherwise sell
or could force the sale of a security at
11
<PAGE>
inopportune times or for prices that do not reflect current market value. The
possibility of default by the issuer or the issuer's credit provider may be
greater for these structured and derivative instruments than for other types of
instruments. As new types of derivative securities are developed and offered to
investors, the advisor will, consistent with the Funds' investment objective,
policies and quality standards, consider making investments in such new types of
derivative securities.
Dollar Roll Transactions
------------------------
The Funds may enter into "dollar roll" transactions wherein the Fund sells
fixed income securities, typically mortgage-backed securities, and makes a
commitment to purchase similar, but not identical, securities at a later date
from the same party. Like a forward commitment, during the roll period no
payment is made for the securities purchased and no interest or principal
payments on the security accrue to the purchaser, but the Fund assumes the risk
of ownership. A Fund is compensated for entering into dollar roll transactions
by the difference between the current sales price and the forward price for the
future purchase, as well as by the interest earned on the cash proceeds of the
initial sale. Like other when-issued securities or firm commitment agreements,
dollar roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the price at which a Fund is
committed to purchase similar securities. In the event the buyer of securities
under a dollar roll transaction becomes insolvent, the Funds use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Funds obligation to
repurchase the securities. The Funds will engage in roll transactions for the
purpose of acquiring securities for its portfolio and not for investment
leverage.
Fixed-Income Securities
-----------------------
Investors should be aware that even though interest-bearing securities are
investments which promise a stable stream of income, the prices of such
securities are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. Long-term securities are
affected to a greater extent by interest rates than shorter-term securities.
The values of fixed-income securities also may be affected by changes in the
credit rating or financial condition of the issuing entities. Once the rating
of a portfolio security has been changed to a rating below investment grade, the
particular Fund considers all circumstances deemed relevant in determining
whether to continue to hold the security. Certain securities that may be
purchased by the Fund, such as those rated "Baa" by Moody's Investors Service,
Inc. ("Moody's") and "BBB" by Standard & Poor's Ratings Group ("S&P"), Fitch
Investors Service, Inc. ("Fitch") and Duff & Phelps Credit Rating Co. ("Duff"),
may be subject to such risk with respect to the issuing entity and to greater
market fluctuations than certain lower yielding, higher rated fixed-income
securities. Securities which are rated "Baa" by Moody's are considered medium-
grade obligations; they are neither highly protected nor poorly secured, and are
considered by Moody's to have speculative characteristics. Securities rated
"BBB" by S&P are regarded as having adequate capacity to pay interest and repay
principal, and, while such debt securities ordinarily exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for securities in this category than in higher rated categories. Securities
rated "BBB" by Fitch are considered investment grade and of satisfactory credit
quality; however, adverse changes in economic
12
<PAGE>
conditions and circumstances are more likely to have an adverse impact on these
securities and, therefore, impair timely payment. Securities rated "BBB" by Duff
have below average protection factors but nonetheless are considered sufficient
for prudent investment. If a security held by a Fund is downgraded to a rating
below investment grade, such Fund may continue to hold the security until such
time as the Advisor determines it to be advantageous for the Fund to sell the
security.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations such as
demand notes and bonds. Variable-rate demand notes include master demand notes
that are obligations that permit a Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. The issuer of such obligations ordinarily has a right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Frequently, such obligations are secured by
letters of credit or other credit support arrangements provided by banks.
There generally is no established secondary market for these obligations
because they are direct lending arrangements between the lender and borrower.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if the Advisor determines that
at the time of investment the obligations are of comparable quality to the other
obligations in which such Fund may invest. The Advisor, on behalf of each Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Fund's portfolio.
Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
Foreign Securities
------------------
The Funds may invest in foreign company stocks which may lose value or be
more difficult to trade as a result of adverse changes in currency exchange
rates or other developments in the issuer's home country. Concentrated
investment in any single country, especially a less developed country, would
make the Fund's value more sensitive to economic, currency and regulatory
changes within that country. The Funds may also invest in securities of
companies located or operating in countries considered developing or to have
"emerging" stock markets. Emerging market countries are often dependent on
international trade and are therefore often vulnerable to events in other
countries. They may have less developed financial systems and volatile
currencies and may be
13
<PAGE>
more sensitive than more mature markets to a variety of economic factors.
Emerging market securities may also be less liquid than securities of more
developed countries, which may make them more difficult to sell, particularly
during a market downturn.
Each Fund may invest in high-quality, short-term debt obligations of
foreign branches of U.S. banks, U.S. branches of foreign banks and short-term
debt obligations of foreign governmental agencies that are denominated in and
pay interest in U.S. dollars. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer and the available information may be less
reliable. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries. The Funds may invest in
securities denominated in currencies other than the U.S. dollar and may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies. Therefore, the Funds may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates influence values within a Fund from the perspective of
U.S. investors. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors.
The Funds may enter into forward currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Funds from adverse changes in
the relationship between currencies or to enhance income. A forward contract is
an obligation to buy or sell a specific currency for an agreed price at a future
date which is individually negotiated and is privately traded by currency
traders and their customers. The Funds will either cover a position in such a
transaction or maintain, in a segregated account with their custodian bank, cash
or high-grade marketable money market securities having an aggregate value equal
to the amount of any such commitment until payment is made.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
-----------------------------------------------------------------
The Funds may purchase or sell securities on a when-issued or delayed
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. The Funds will establish a segregated
account in which they will maintain cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to each such
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, a Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
14
<PAGE>
Futures Contracts and Options Transactions
------------------------------------------
In General. The Funds may enter into and engage in futures contracts and
options transactions as discussed below. A futures transaction involves a firm
agreement to buy or sell a commodity or financial instrument at a particular
price on a specified future date, while an option transaction generally involves
a right, which may or may not be exercised, to buy or sell a commodity or
financial instrument at a particular price on a specified future date. Futures
contracts and options are standardized and exchange-traded, where the exchange
serves as the ultimate counterparty for all contracts. Consequently, the
primary credit risk on futures contracts is the creditworthiness of the
exchange. Futures contracts, however, are subject to market risk (i.e.,
exposure to adverse price changes).
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
Many futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single trading day. Once the
daily limit has been reached in a particular contract, no trades may be made
that day at a price beyond that limit or trading may be suspended for specified
periods during the trading day. Futures contract prices could move to the limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and potentially subjecting a
Fund to substantial losses. If it is not possible, or a Fund determines not to
close a futures position in anticipation of adverse price movements, the Fund
will be required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer (i.e., seller) of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option, the assumption
of offsetting futures positions by both the writer and the holder of the option
will be accompanied by delivery of the accumulated cash balance in the writer's
futures margin account in the amount by which the market price of the futures
contract, at exercise, exceeds (in the case of a call) or is less than (in the
case of a put) the exercise price of the option on the futures contract. The
potential loss related to the purchase of options on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because
the value of the option is fixed at the time of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option may change daily, and that change would be reflected in
the net asset value of the relevant Fund.
The Funds may trade futures contracts and options on futures contracts in
U.S. domestic markets, such as the Chicago Board of Trade and the International
Monetary Market of the Chicago Mercantile Exchange. The Funds' futures
transactions must constitute permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC"). Pursuant to
regulations and/or published positions of the SEC, a Fund may be required to
segregate cash or high-quality money-market instruments in connection with its
futures transactions in an amount generally equal to the entire value of the
underlying security.
15
<PAGE>
Initially, when purchasing or selling futures contracts a Fund will be
required to deposit with its custodian in the broker's name an amount of cash or
cash equivalents up to approximately 10% of the contract amount. This amount is
subject to change by the exchange or board of trade on which the contract is
traded, and members of such exchange or board of trade may impose their own
higher requirements. This amount is known as "initial margin" and is in the
nature of a performance bond or good faith deposit on the contract that is
returned to the Fund upon termination of the futures position, assuming all
contractual obligations have been satisfied. Subsequent payments, known as
"variation margin", to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable. At any
time prior to the expiration of a futures contract, a Fund may elect to close
the position by taking an opposite position, at the then prevailing price,
thereby terminating its existing position in the contract.
The Funds may engage in futures contracts sales to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term security prices. If, however, securities prices rise, a
Fund would realize a loss in closing out its futures contract sales that would
offset any increases in prices of the long-term securities they hold.
Another risk in employing futures contracts and options thereon to protect
against cash market price volatility is the possibility that futures prices will
correlate imperfectly with the behavior of the prices of the securities in such
portfolio (the portfolio securities will not be identical to the debt
instruments underlying the futures contracts).
Stock Index Options. The Funds may purchase and write (i.e., sell) put and
call options on stock indices only as a substitute for comparable market
positions in the underlying securities. A stock index fluctuates with changes
of the market values of the stocks included in the index. The effectiveness of
purchasing or writing stock index options will depend upon the extent to which
price movements of the securities in a Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether a Fund will realize a gain or loss from purchasing or
writing stock index options depends upon movements in the level of stock prices
in the stock market generally or, in the case of certain indices, in an industry
or market segment, rather than movements in the price of particular stock. When
a Fund writes an option on a stock index, such Fund will place in a segregated
account with the Fund's custodian cash or liquid securities in an amount at
least equal to the market value of the underlying stock index and will maintain
the account while the option is open or otherwise will cover the transaction.
Stock Index Futures and Options on Stock Index Futures. The Funds may
invest in stock index futures and options on stock index futures only as a
substitute for a comparable market position in the underlying securities. A
stock index future obligates the seller to deliver (and the purchaser to take),
effectively, an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect
to stock indices that are permitted investments, each Fund intends to purchase
and sell futures contracts on the stock index for which it can obtain the best
price with consideration also given to liquidity.
16
<PAGE>
Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. The Funds may invest in interest-rate futures contracts and options
on interest-rate futures contracts as a substitute for a comparable market
position in the underlying securities. The Funds may also sell options on
interest-rate futures contracts as part of closing purchase transactions to
terminate its options positions. No assurance can be given that such closing
transactions can be effected or as to the degree of correlation between price
movements in the options on interest-rate futures and price movements in the
Funds' portfolio securities which are the subject of the transaction.
The Funds may take advantage of opportunities in the areas of options and
futures contracts and options on futures contracts and any other derivative
investments which are not presently contemplated for use by the Fund or which
are not currently available but which may be developed, to the extent such
opportunities are both consistent with each Fund's investment objective and
legally permissible for the Fund. Before entering into such transactions or
making any such investment, the Fund would provide appropriate disclosure in its
Prospectus or this SAI.
Interest-Rate and Index Swaps. The Funds may enter into interest-rate and
index swaps in pursuit of its investment objectives. Interest-rate swaps
involve the exchange by a Fund with another party of their commitments to pay or
receive interest (for example, an exchange of floating-rate payments for fixed-
rate payments). Index swaps involve the exchange by the Fund with another party
of cash flows based upon the performance of an index of securities or a portion
of an index of securities that usually include dividends or income. In each
case, the exchange commitments can involve payments to be made in the same
currency or in different currencies. A Fund will usually enter into swaps on a
net basis. In so doing, the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. If the Fund enters into a swap, it will maintain a segregated account
on a gross basis, unless the contract provides for a segregated account on a net
basis. If there is a default by the other party to such a transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
The use of interest-rate and index swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio security transactions. There is no limit, except as
provided below, on the amount of swap transactions that may be entered into by
the Funds. These transactions generally do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to swaps generally is limited to the net amount of payments
that the Fund is contractually obligated to make. There is also a risk of a
default by the other party to a swap, in which case a Fund may not receive net
amount of payments that such Fund contractually is entitled to receive.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the Securities Act
of 1933, as amended (the "1933 Act") and other securities subject to legal or
other restrictions on resale. Because such securities may be less liquid than
other investments, they may be difficult to sell promptly at an acceptable
price. Delay or difficulty in selling securities may result in a loss or be
costly to a Fund.
17
<PAGE>
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities pursuant to guidelines approved
by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the limits established by the 1940
Act.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested subject to the investment objectives,
principal investment strategies and policies of the Fund. In connection with
lending securities, a Fund may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail
to return the securities or may fail to provide additional collateral. In
either case, a Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur. A Fund may pay a portion of the interest or fees earned
from securities lending to a borrower or securities lending agent. Borrowers
and placing brokers may not be affiliated, directly or indirectly, with the
Trust, the Advisor, or the Distributor.
Money Market Instruments
------------------------
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moody's
or "A-1" or "A-1--" by S&P, or, if unrated, of comparable quality as determined
by BGFA, as investment advisor; and (iv) repurchase agreements. The Funds also
may invest in short-term U.S. dollar-denominated obligations of foreign banks
(including U.S. branches) that at the time of investment: (i) have more than $10
billion, or the equivalent in other currencies, in total assets; (ii) are among
the 75 largest foreign banks in the world as determined on the basis of assets;
(iii) have branches or agencies in the United States; and (iv) in the opinion of
the Advisor, are of comparable quality to obligations of U.S. banks which may be
purchased by the Funds.
18
<PAGE>
Mortgage-Related Securities
---------------------------
The Funds may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Payment of
principal and interest on some mortgage pass-through securities (but not the
market value of the securities themselves) may be guaranteed by the full faith
and credit of the U.S. Government or its agencies or instrumentalities.
Mortgage pass-through securities created by non- government issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers) may be supported
by various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance, and letters of credit, which may be issued by
governmental entities, private insurers or the mortgage poolers.
Prepayment Risk. The stated maturities of mortgage-related securities may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular mortgage-related security . Variations in the
maturities of mortgage-related securities will affect the yield of the Fund.
Early repayment of principal on mortgage-related securities may expose a Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities.
Collateralized Mortgage Obligations ("CMOs") and Adjustable Rate Mortgages
("ARMs"). The Funds may also invest in investment grade CMOs. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"). CMOs
are structured into multiple classes, with each class bearing a different stated
maturity. Payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
As new types of mortgage-related securities are developed and offered to
investors, the Advisor will, consistent with the Fund's investment objective,
policies and quality standards, consider making investments in such new types of
mortgage-related securities.
The Funds each may invest in ARMs issued or guaranteed by the GNMA, FNMA or
the FHLMC. The full and timely payment of principal and interest on GNMA ARMs is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMs are not backed by the full
faith and credit of the United States. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are generally considered to
be high quality investments that present minimal credit risks. The yields
provided by these ARMs have historically
19
<PAGE>
exceeded the yields on other types of U.S. Government securities with comparable
maturities, although there can be no assurance that this historical performance
will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMs issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
The interest rates on the mortgages underlying the ARMs and some of the
CMOs in which the Funds may invest generally are readjusted at periodic
intervals ranging from one year or less to several years in response to changes
in a predetermined commonly-recognized interest rate index. The adjustable rate
feature should reduce, but will not eliminate, price fluctuations in such
securities, particularly when market interest rates fluctuate. The net asset
value of a Funds' shares may fluctuate to the extent interest rates on
underlying mortgages differ from prevailing market interest rates during interim
periods between interest rate reset dates. Accordingly, investors could
experience some loss if they redeem their shares of a Fund or if the Funds sells
these portfolio securities before the interest rates on the underlying mortgages
are adjusted to reflect prevailing market interest rates. The holder of ARMs and
CMOs are also subject to repayment risk.
The Funds will not invest in CMOs that, at the time of purchase, are "high-
risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities. High-risk mortgage securities are generally those with long
durations or those which are likely to be more sensitive to interest-rate
fluctuations.
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act.
Currently, under the 1940 Act, a Fund that invests directly in a portfolio of
securities is limited to, subject to certain exceptions, (i) 3% of the total
voting stock of any one investment company, (ii) 5% of such Fund's total assets
with respect to any one investment company and (iii) 10% of such Fund's total
assets in aggregate. Gateway Funds, whose policies are to invest some or all of
their assets in the securities of one or more open-end management investment
companies, are excepted from these general limitations. Other investment
companies in which the Funds invest can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would be in
addition to those charged by the Funds.
Pass-Through Obligations
------------------------
The Funds may invest in pass-through obligations that are supported by the
full faith and credit of the U.S. Government (such as those issued by the GNMA)
or those that are guaranteed by an agency or instrumentality of the U.S.
Government or government-sponsored enterprise (such as FNMA or FHLMC) or bonds
collateralized by any of the foregoing.
Privately Issued Securities
---------------------------
The Funds may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the
20
<PAGE>
liquidity of the market for specific Rule 144A Securities may vary. Delay or
difficulty in selling such securities may result in a loss to a Fund. Privately
issued or Rule 144A securities that are determined by the investment advisor to
be "illiquid" are subject to the Funds' policy of not investing more than 15% of
its net assets in illiquid securities. The Advisor, under guidelines approved by
Board of Trustees of the Company, will evaluate the liquidity characteristics of
each Rule 144A Security proposed for purchase by a Fund on a case-by-case basis
and will consider the following factors, among others, in their evaluation: (1)
the frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
Repurchase Agreements. Each Fund may enter into repurchase agreements,
---------------------
wherein the seller of a security to a Fund agrees to repurchase that security
from a Fund at a mutually agreed upon time and price. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by such Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months, although the maximum term of a repurchase agreement will always
be less than twelve months. If the seller defaults and the value of the
underlying securities has declined, a Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Funds' disposition of the security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's net assets would be invested in repurchase agreements with maturities of
more than seven days and illiquid securities. A Fund will only enter into
repurchase agreements with primary broker/dealers and commercial banks that meet
guidelines established by the Board of Trustees and that are not affiliated with
the investment advisor. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by the Advisor.
Reverse Repurchase Agreements
-----------------------------
The Funds may enter into reverse repurchase agreements (an agreement under
which a Fund sells its portfolio securities and agrees to repurchase them at an
agreed-upon date and price). At the time a Fund enters into a reverse repurchase
agreement it will place in a segregated custodial account liquid assets such as
U.S. Government securities or other liquid high-grade debt securities having a
value equal to or greater than the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Funds may decline below the price at which the
Funds are obligated to repurchase the securities. Reverse repurchase agreements
may be viewed as a form of borrowing.
21
<PAGE>
Short-Term Corporate Debt Instruments
-------------------------------------
The Funds may invest in commercial paper (including variable amount master
demand notes), which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations that permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
The Funds also may invest in nonconvertible corporate debt securities
(e.g., bonds and debentures) with no more than one year remaining to maturity at
the date of settlement. The Funds will invest only in such corporate bonds and
debentures that are rated at the time of purchase at least "Aa" by Moody's or
"AA" by S&P.
Stripped Obligations
--------------------
The Funds may purchase Treasury receipts, securities of government-
sponsored enterprises (GSEs), and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. The stripped securities the
Funds may purchase are issued by the U.S. Government (or a U.S. Government
agency or instrumentality) or by private issuers such as banks, corporations and
other institutions at a discount to their face value. The Funds will not
purchase stripped mortgage-backed securities ("SMBS"). The stripped securities
purchased by the Funds generally are structured to make a lump-sum payment at
maturity and do not make periodic payments of principal or interest. Hence, the
duration of these securities tends to be longer and they are therefore more
sensitive to interest rate fluctuations than similar securities that offer
periodic payments over time. The stripped securities purchased by the Funds are
not subject to prepayment or extension risk.
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors. Investments by the Funds in
such participations will not exceed 5% of the value of the Funds' total assets.
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
the Advisor, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by such Fund. Neither event will
require a sale of such security by such Fund. To the extent the ratings given by
Moody's or S&P may change as a result of changes in such organizations or their
rating
22
<PAGE>
systems, each Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moody's and S&P are more fully
described in the Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Warrants
--------
The Funds each may invest in warrants (other than those that have been
acquired in units or attached to other securities). Warrants represent rights to
purchase securities at a specific price valid for a specific period of time. The
price of warrants do not necessarily correlate with the prices of the underlying
securities.
Zero Coupon Bonds
-----------------
The Funds may invest in zero coupon bonds. Zero coupon bonds are securities
that make no periodic interest payments, but are instead sold at discounts from
face value. The buyer of such a bond receives the rate of return by the gradual
appreciation of the security, which is redeemed at face value on a specified
maturity date. Because zero coupon bonds bear no interest, they are more
sensitive to interest-rate changes and are therefore more volatile. When
interest rates rise, the discount to face value of the security deepens and the
securities decrease more rapidly in value, when interest rates fall, zero coupon
securities rise more rapidly in value because the bonds carry fixed interest
rates that become more attractive in a falling interest rate environment.
Nationally Recognized Ratings Organizations
-------------------------------------------
The ratings of Moody's, S&P, Division of McGraw Hill, Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc. Thomson Bank Watch and IBCA Inc.
represent their opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by the Funds, an issue of debt securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase
23
<PAGE>
by the Funds. The Advisor will consider such an event in determining whether the
Fund involved should continue to hold the obligation.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Trustees and
principal executive Officers of the Trust are listed below. The address of each,
unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas 72201.
Trustees deemed to be "interested persons" of the Trust for purposes of the 1940
Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
*Robert C. Brown, 65 Trustee, Director, Federal Farm Credit Banks Funding
1431 Landings Place Secretary and Corporation and Farm Credit System Financial
Sarasota, FL 34231 Treasurer Assistance Corporation since February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027.
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Suite 410 Roxane Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee and Private Investor.
31 Dellwood Court President
San Rafael, CA 94901
Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer;
Four Beaufain Street Chairman of Vault Holdings, LLC.
Charleston, SC 29401
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm
500 North State Street of Himle-Horner since January 1995 and Senior
Waseca, MN 56095 Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since
January 1995.
Donald C. Willeke, 58 Trustee Principal of the law firm of Willeke & Daniels
201 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
Each of the Trustees and Officers listed above act in the identical
capacities for Wells Fargo Variable Trust and Wells Fargo Core Trust
(collectively the "Fund Complex"). Each Trustee receives an annual retainer
(payable quarterly) of $40,000 from the Fund Complex, and also receives a
combined fee of $1,000 for attendance at Fund Complex Board meetings, and a
combined fee of $250 for attendance at committee meetings. If a committee
meeting is held absent a full Board meeting, each attending Trustee will receive
a $1,000 combined fee. These fees apply equally for in-person or telephonic
meetings, and Trustees are reimbursed for all out-of-pocket expenses related to
attending meetings. For 1999, the Trustees will receive a pro rata share of the
annual retainer, calculated from the closing date of the Reorganization. The
Trustees do not receive any retirement benefits or deferred compensation from
the Trust or an other member of the Fund Complex.
As of the date of this SAI, Trustees and Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
Investment Advisor. Wells Fargo Bank provides investment advisory services
------------------
to each Fund, with the exception of the LifePath Funds. As investment advisor,
Wells Fargo Bank furnishes investment guidance and policy direction in
connection with the daily portfolio management of the Funds. Wells Fargo Bank
also provides the Trust's Board of Trustees with periodic reports on the
investment strategy and performance of each Fund.
The Funds operate under three types of advisory arrangements: (i) stand-
alone Funds with an investment advisor and sub-advisor; (ii) feeder Funds with
no investment advisory arrangement at the feeder Fund level; (iii) gateway
blended Funds that invest in two or more core portfolios and have both active
and dormant advisory arrangements at the gateway level.
As compensation for its advisory services for the following stand-alone
Funds, Wells Fargo Bank is entitled to receive a monthly fee at the annual rates
indicated below of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Stand-Alone Funds (as a percentage of net assets)
- ----------------- -------------------------------
<S> <C>
Asset Allocation 0.80%
Index Allocation 0.80%
</TABLE>
The LifePath Funds do not have an investment advisor or sub-advisor at the
feeder Fund level. BGFA provides investment advisory services to each LifePath
Master Portfolio. As
25
<PAGE>
investment advisor, BGFA furnishes investment guidance and policy direction in
connection with the daily portfolio management of the Master Portfolios. BGFA
furnishes to the Trust's Board of Trustees periodic reports on the investment
strategy and performance of each Master Portfolio. BGFA provides the Master
Portfolios with, among other things, money market and fixed-income research,
analysis and statistical and economic data and information concerning interest
rate and securities markets trends, portfolio composition, and credit
conditions. For providing investment advisory services, BGFA is entitled to
receive a monthly fee of 0.55% of each LifePath Master Portfolio's average daily
net assets.
As described in the third category above, the following gateway blended
Funds invest their respective assets in two or more core portfolios of Wells
Fargo Core Trust ("Core Trust"). For the Funds, Wells Fargo Bank determines the
core portfolios of Core Trust in which each gateway blended Fund invest and the
percentage allocation that each gateway blended Fund would make to each core
portfolio. For these asset allocation services, Wells Fargo Bank is entitled to
receive a fee as indicated in the chart below. In order to preserve flexibility
to convert to stand-alone Funds with a direct advisory relationship, the Funds
have entered into a "dormant" advisory arrangement with Wells Fargo Bank. In
the event that a Fund coverts to a stand-alone Fund, Wells Fargo Bank will be
entitled to receive a fee that mirrors the core level dormant advisory fee
indicated below.
<TABLE>
<CAPTION>
Advisory Fees Core Level
Gateway Blended Funds (Maximum Asset Allocation Fees) Dormant Advisory Fees*
- --------------------- ------------------------------- ------------------------
<S> <C> <C>
Aggressive Balanced-Equity 0.25% 0.72%
Growth Balanced 0.25% 0.65%
Moderate Balanced 0.25% 0.60%
Strategic Income 0.25% 0.52%
</TABLE>
- --------------------
* Because the gateway blended Funds invest in two or more Core Trust portfolios
with varying advisory fees, the dormant advisory fees are based on a formula
that reflects a blended fee rate.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach, Stagecoach Trust and
Norwest Funds. Therefore, the information shown below concerning the dollar
amount of advisory (and other) fees paid shows the dollar amount of fees paid to
either Wells Fargo Bank or NIM by the predecessor portfolio that is considered
the surviving entity for accounting purposes.
Asset Allocation and Index Allocation Funds. For the periods indicated
-------------------------------------------
below, the Stagecoach predecessor portfolios of the Asset Allocation and Index
Allocation Funds paid to Wells Fargo Bank the following advisory fees and Wells
Fargo Bank waived the indicated amounts:
26
<PAGE>
<TABLE>
<CAPTION>
Eleven-Month
Period Ended Year Ended
2/28/99 3/31/98/1/
------- ----------
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Asset Allocation $5,217,515 $ 0 $4,747,339 $7,060
Index Allocation $1,007,592 $846 $ 226,717 $9,389
</TABLE>
____________________
/1/ Index Allocation Fund is for the 3 month period ended 3/31/98.
Prior to April 29, 1996, the Asset Allocation Fund invested directly in a
portfolio of securities and Wells Fargo Bank provided investment advisory
services directly to the Funds. On April 29, 1996, the Funds were converted to a
"master/feeder structure" and began to invest all of their respective assets in
a corresponding Master Portfolio, with an identical investment objective, of
Master Investment Trust, another open-end investment company. The Master
Portfolios were advised by Wells Fargo Bank and Wells Fargo Bank was entitled to
receive the same level of advisory fees from the Master Portfolios as it
receives from the Funds. These Funds operated as part of a master/feeder
structure from April 29, 1996 to December 12, 1997, at which time the
master/feeder structure was dissolved.
For the period indicated below, the Asset Allocation Fund paid to Wells
Fargo Bank the following advisory fees. Wells Fargo Bank has not waived any
advisory fees paid by the Asset Allocation Fund, the predecessor portfolio or
the Master Portfolios.
<TABLE>
<CAPTION>
Six-Month
Period Ended
Fund 3/31/97
---- ------------
<S> <C>
Asset Allocation $2,132,577
</TABLE>
Prior to the reorganization of the Overland Index Allocation Fund into the
predecessor Stagecoach Index Allocation Fund on December 12, 1997, Wells Fargo
Bank served as Investment Advisor to the Overland Index Allocation predecessor
portfolio and was entitled to receive the same level of advisory fees from the
predecessor portfolio as it now receives from the Index Allocation Fund.
For the periods indicated below, Wells Fargo Bank paid the following
advisory fees. Wells Fargo Bank has not waived any advisory fees paid by the
Index Allocation Fund or the predecessor portfolio, except during 1996 it waived
$1,324 in advisory fees payable by the Fund's predecessor portfolio.
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 12/31/97 12/31/96
---- -------- --------
<S> <C> <C>
Index Allocation/1/ $742,203 $525,093
</TABLE>
__________________
/1/ These amounts reflect amounts paid by the Overland predecessor
portfolio.
27
<PAGE>
Aggressive Balanced-Equity, Growth Balanced, Moderate Balanced and
------------------------------------------------------------------
Strategic Income Funds. For the periods indicated below, the Norwest
- ----------------------
predecessor portfolios of the following Funds paid to NIM the following advisory
fees and NIM waived the indicated amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
5/31/99 5/31/98 5/31/97
---------- ---------- ----------
Fees Fees Fees
Former Norwest Fund Fees Paid Waived Fees Paid Waived Fees Paid Waived
- ------------------- --------- -------- --------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Balanced-Equity Fund $ 0 $ 41,549 $ 11,154 $ 6,163 N/A N/A
Growth Balanced Fund $1,031,110 $823,243 $3,369,460 $713,392 $2,688,223 $0
Moderate Balanced Fund $ 688,734 $538,523 $2,290,062 $561,191 $2,185,490 $0
Strategic Income Fund $ 274,298 $357,651 $ 807,650 $289,099 $ 589,365 $0
</TABLE>
LifePath Funds. For the periods indicated below the corresponding Master
--------------
Portfolio of each LifePath Fund paid to BGFA, the following advisory fees:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Master Portfolio 2/28/99 2/28/98 2/28/97
---------------- ------- ------- -------
<S> <C> <C> <C>
LifePath 2000 Master Portfolio $ 630,133 $ 656,142 $ 689,347
LifePath 2010 Master Portfolio $1,236,989 $1,018,984 $ 757,505
LifePath 2020 Master Portfolio $1,882,147 $1,572,634 $1,149,160
LifePath 2030 Master Portfolio $1,405,948 $1,048,151 $ 714,647
LifePath 2040 Master Portfolio $2,472,170 $1,767,632 $1,154,337
</TABLE>
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Investment Sub-Advisors.
-----------------------
Aggressive Balanced-Equity, Growth Balanced, Moderate Balanced and
------------------------------------------------------------------
Strategic Income Funds. Wells Fargo Bank has engaged Wells Capital Management
- ----------------------
Incorporated ("WCM"), Peregrine Capital Management, Inc. ("Peregrine"), Smith
Asset Management Group ("Smith"), and Schroder Investment Management Inc. North
America ("Schroder") to serve as investment sub-advisors to the core portfolios
of Core Trust in which the gateway blended and gateway feeder Funds invest, as
listed in the chart below (collectively, the "Sub-Advisors"). Subject to the
direction of the Trust's Board of Trustees and the overall supervision and
control of Wells Fargo Bank and the Trust, the Sub-Advisors make recommendations
regarding the investment and reinvestment of the Funds' assets. The Sub-Advisors
furnish to Wells Fargo Bank periodic reports on the investment activity and
performance of the Funds. The Sub-Advisors also furnish such additional reports
and
28
<PAGE>
information as Wells Fargo Bank and the Trust's Board of Trustees and officers
may reasonably request.
As compensation for sub-advisory services, WCM, Peregrine, Smith and
Schroder are each entitled to receive the following fees:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Core Portfolio Sub-Advisor Fees
--------------------------------------------------------------------
<S> <C> <C>
Disciplined Growth Smith 0-175M 0.35%
175-225M 0
225-500M 0.25%
greater than 500M 0.20%
--------------------------------------------------------------------
Equity Income WCM 0-200M 0.25%
200-400M 0.20%
greater than 400M 0.15%
--------------------------------------------------------------------
Index WCM 0-200M 0.02%
greater than 200M 0.01%
--------------------------------------------------------------------
International Schroder 0-100M 0.45%
100-200M 0.35%
200-600M 0.20%
greater than 600M 0.185%
--------------------------------------------------------------------
International Equity WCM 0-200M 0.35%
200-400M 0.25%
greater than 400M 0.15%
--------------------------------------------------------------------
Large Company Growth Peregrine 0-25M 0.75%
25-50M 0.60%
50-275M 0.50%
greater than 275M 0.30%
--------------------------------------------------------------------
Managed Fixed Income Galliard 0-100M 0.10%
100-200M 0.08%
greater than 200M 0.06%
--------------------------------------------------------------------
Positive Return Bond Peregrine 0-10M 0.40%
10-25M 0.30%
25-300M 0.20%
greater than 300M 0.10%
--------------------------------------------------------------------
Small Cap Index WCM 0-200M 0.02%
greater than 200M 0.01%
--------------------------------------------------------------------
Small Cap Value Smith 0-110M 0.45%
110-150M 0%
150-300M 0.30%
greater than 300M 0.25%
--------------------------------------------------------------------
Small Company Growth Peregrine 0-50M 0.90%
50-180M 0.75%
180-340M 0.65%
340-685M 0.50%
685-735M 0.52%
greater than 735M 0.55%
--------------------------------------------------------------------
Small Company Value Peregrine 0-200M 0.50%
greater than 200M 0.75%
--------------------------------------------------------------------
Stable Income Fund Galliard 0-1500M 0.04%
1500-2000M 0.05%
2000-2500M 0.045%
2500-3000M 0.04%
greater than 3000M 0.03%
--------------------------------------------------------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Core Portfolio Sub-Advisor Fees
--------------------------------------------------------------
<S> <C> <C>
Strategic Value Bond Galliard 0-100M 0.10%
100-200M 0.08%
greater than 200M 0.06%
--------------------------------------------------------------
</TABLE>
Asset Allocation and Index Allocation Funds. Wells Fargo has engaged BGFA
-------------------------------------------
to serve as investment sub-advisor to the Asset Allocation and Index Allocation
Funds. Subject to the direction of the Trust's Board of Trustees and the
overall supervision and control of Wells Fargo Bank and the Trust, BGFA makes
recommendations regarding the investment and reinvestment of the Funds' assets.
BGFA is responsible for implementing and monitoring the performance of the
proprietary investment models employed with respect to a Fund. BGFA furnishes
to Wells Fargo Bank periodic reports on the investment activity and performance
of the Funds. BGFA also furnishes such additional reports and information as
Wells Fargo and the Trust's Board of Trustees and officers may reasonably
request.
As compensation for its sub-advisory services, BGFA is entitled to receive
a monthly fee equal to an annual rate of 0.15% of the first $900 million of the
Asset Allocation Fund's average daily net assets and 0.10% of the Fund's net
assets over $900 million. As compensation for its sub-advisory services to the
Index Allocation Fund, BGFA is entitled to receive a monthly fee equal to an
annual rate of 0.15% of the Fund's average daily net assets. These fees may be
paid by Wells Fargo Bank or directly by the Fund. If the sub-advisory fee is
paid directly by the Fund, the compensation paid to Wells Fargo Bank for
advisory fees will be reduced accordingly.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach, Stagecoach Trust and
Norwest Funds. Therefore, the information shown below concerning the dollar
amount of sub-advisory (and other) fees paid shows the dollar amount of fees
paid to sub-advisors by the predecessor portfolio that is considered the
surviving entity for accounting purposes.
The predecessor Stagecoach Asset Allocation and Index Allocation Funds were
also sub-advised by BGFA, and from October 30, 1997 to November 5, 1999, BGFA
was entitled to receive a monthly fee equal to an annual rate of 0.20% of the
first $500 million of the Funds' average daily net assets, 0.15% of the next
$500 million of the Funds' net assets, and 0.10% of net assets over $1 billion.
Prior to October 30, 1997, BGFA was entitled to receive a monthly fee equal to
an annual rate of 0.20% of the Asset Allocation and Index Allocation Funds'
average daily net assets plus an annual payment of $40,000.
For the period indicated below, the Wells Fargo Bank paid to BGFA the
following sub-advisory fees, without waivers:
30
<PAGE>
<TABLE>
Eleven-Month Six-Month
Period Ended Year Ended Period Ended
Fund 2/28/99 3/31/98 3/31/97
---- ------- ------- -------
<S> <C> <C> <C>
Asset Allocation/1/ $ 1,912,713 $2,262,864 $ 52,443
Index Allocation/2/ $ 213,662 $ 209,220 $201,715
</TABLE>
________________
/1/ For the Asset Allocation Fund, these amounts reflect amounts paid by the
corresponding Master Portfolio.
/2/ Prior to December 12, 1997, this amount reflects fees paid by the
Overland predecessor portfolio.
Administrator. The Trust has retained Wells Fargo Bank as Administrator on
-------------
behalf of each Fund. Under the Administration Agreement between Wells Fargo Bank
and the Trust, Wells Fargo Bank shall provide as administration services, among
other things: (i) general supervision of the Funds' operations, including
coordination of the services performed by each Fund's investment advisor,
transfer agent, custodian, shareholder servicing agent(s), independent auditors
and legal counsel, regulatory compliance, including the compilation of
information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for each Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Trust's officers and Board of Trustees. Wells Fargo Bank also furnishes
office space and certain facilities required for conducting the Funds' business
together with ordinary clerical and bookkeeping services. The Administrator is
entitled to receive a fee of up to 0.15%, of the average daily net assets on
an annual basis of each Fund.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach, Stagecoach Trust and
Norwest Funds, therefore, the information shown below concerning the dollar
amounts of administration fees paid shows the dollar amount of fees paid
administrators by the predecessor portfolio that is considered the surviving
entity for accounting purposes.
The predecessor Stagecoach and Stagecoach Trust Funds had retained Wells
Fargo Bank as Administrator and Stephens as Co-Administrator on behalf of each
Fund. Wells Fargo Bank and Stephens were entitled to receive a monthly fee of
0.03% and 0.04%, respectively, of the average daily net assets of each Fund.
Prior to February 1, 1998, the Wells Fargo Bank and Stephens received a monthly
fee of 0.04% and 0.02%, respectively, of the average daily net assets of each
Fund. In connection with the change in fees, the responsibility for performing
various administration services was shifted to the Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served as
sole Administrator and performed substantially the same services now provided by
Stephens and Wells Fargo Bank.
Asset Allocation and Index Allocation Funds. For the period indicated
-------------------------------------------
below, the Stagecoach Asset Allocation and Index Allocation Funds paid the
following dollar amounts to Wells Fargo Bank and Stephens for administration and
co-administration fees:
31
<PAGE>
<TABLE>
<CAPTION>
Eleven-Month
Period Ended
2/28/99
-------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Asset Allocation $1,057,283 $454,632 $602,651
Index Allocation $ 100,844 $ 43,363 $ 57,481
Year-Ended
3/31/98
-------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
Asset Allocation $826,553 $553,791 $272,762
Index Allocation/1/ $ 22,424 $ 15,024 $ 7,400
</TABLE>
_________________
/1/ This amount is for the three-month period ended 3/31/98.
For the periods indicated below, the Asset Allocation Fund and the
predecessor portfolio paid to Stephens the following dollar amounts for
administration fees:
<TABLE>
<CAPTION> Six-Month Nine-Month
Period Ended Period Ended
Fund 3/31/97 9/30/96
---- ------- -------
<S> <C> <C>
Asset Allocation $186,005 $257,419
</TABLE>
For the periods indicated below, the Index Allocation Fund paid to
Stephens the following dollar amounts for administration fees:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 12/31/97 12/31/96
---- -------- --------
<S> <C> <C>
Index Allocation/2/ $ 61,260 $ 75,203
</TABLE>
____________________
/2/ These amounts reflect amounts paid by the Overland predecessor portfolio.
For 1996, this amount is for the year ended December 31, 1996.
LifePath Funds. For the period indicated below, the LifePath Funds paid
--------------
the following dollar amounts to Wells Fargo Bank and Stephens for administration
and co-administration fees:
<TABLE>
<CAPTION>
Year Ended Year Ended
2/28/99 2/28/98
------- -------
Fund Wells Fargo Stephens Wells Fargo Stephens
---- ----------- -------- ----------- --------
<S> <C> <C> <C> <C>
LifePath Opportunity Fund $ 22,853 $ 30,294 $14,649 $ 58,594
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
LifePath 2010 Fund $ 36,185 $ 47,967 $17,577 $ 70,309
LifePath 2020 Fund $ 66,125 $ 87,654 $32,004 $128,017
LifePath 2030 Fund $ 53,371 $ 70,747 $23,443 $ 93,771
LifePath 2040 Fund $107,988 $143,148 $45,597 $182,388
</TABLE>
For the periods indicated below, the LifePath Funds paid to Wells Fargo
Bank the following administration and co-administration fees:
<TABLE>
<CAPTION>
One-Month
Period Ended
Fund 2/28/97
---- -------
<S> <C>
LifePath Opportunity Fund $ 39,834
LifePath 2010 Fund $ 28,945
LifePath 2020 Fund $ 46,153
LifePath 2030 Fund $ 28,565
LifePath 2040 Fund $ 34,460
</TABLE>
For the periods indicated below, the LifePath Funds paid to Stephens the
following administration and co-administration fees:
<TABLE>
<CAPTION>
Year Ended Year Ended
Fund 2/28/97 2/29/96
---- ------- -------
<S> <C> <C>
LifePath Opportunity Fund $ 92,243 $ 84,548
LifePath 2010 Fund $ 81,180 $ 72,832
LifePath 2020 Fund $135,162 $120,505
LifePath 2030 Fund $ 89,938 $ 79,564
LifePath 2040 Fund $164,384 $118,468
</TABLE>
Aggressive Balanced-Equity, Growth Balanced, Moderate Balanced and
------------------------------------------------------------------
Strategic Income Funds. With respect to the predecessor Norwest Funds, Forum
- ----------------------
Financial Services, Inc. ("Forum") managed all aspects of the operation of the
Funds, except those which were the responsibility of Forum Administrative
Services, LLC ("FAS") as administrator or Norwest in its capacity as
administrator.
For the periods indicated below, the following Funds paid the following
dollar amounts as administration fees and the administrator waived the indicated
amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended
5/31/99 5/31/98
------- -------
Former Norwest Fund Fees Paid Fees Waived Fees Paid Fees Waived
- ------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Aggressive Balanced-Equity Fund $ 2,281 $ 1,874 $ 436 $ 2,363
Growth Balanced Fund $ 58,339 $127,097 $238,735 $467,784
Moderate Balanced Fund $ 17,972 $104,728 $157,288 $362,625
Strategic Income Fund $ 8,542 $ 54,653 $ 29,810 $175,249
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Year Ended
5/31/97
-------
Former Norwest Fund Fees Paid Fees Waived
------------------- --------- -----------
<S> <C> <C>
Aggressive Balanced-Equity Fund N/A N/A
Growth Balanced Fund $160,097 $303,389
Moderate Balanced Fund $133,359 $278,998
Strategic Income Fund $ 15,747 $115,223
</TABLE>
Distributor. Stephens Inc. ("Stephens," the "Distributor"), located at
-----------
111 Center Street, Little Rock, Arkansas 72201, serves as Distributor for the
Funds. The Funds listed below have adopted a distribution plan (a "Plan") under
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") for certain
classes of their shares. The Plan was adopted by the Trust's Board of Trustees,
including a majority of the Trustees who were not "interested persons" (as
defined in the 1940 Act) of the Funds and who had no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the "Non-Interested Trustees").
Under the Plan and pursuant to the related Distribution Agreement, the
Funds and Classes indicated in the table below pay Stephens a fee as
compensation for distribution-related services or as reimbursement for
distribution-related expenses. The fee is based on the average daily net assets
attributable to each Class.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Maximum Annual 12b-1 Fee as a Percentage of Net Assets
- -----------------------------------------------------------------------
Fund Class A Class B Class C
- ---- ------------ ------------ ----------
<S> <C> <C> <C>
Asset Allocation Fund None 0.75% 0.75%
Growth Balanced Fund None 0.75% 0.75%
Index Allocation Fund None 0.75% 0.75%
LifePath Opportunity Fund 0.25% 0.75% 0.75%
LifePath 2010 Fund 0.25% 0.75% 0.75%
LifePath 2020 Fund 0.25% 0.75% 0.75%
LifePath 2030 Fund 0.25% 0.75% 0.75%
LifePath 2040 Fund 0.25% 0.75% 0.75%
- ------------------------------------------------------------------------
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds and
Classes is determined, within such limits, from time to time by mutual agreement
between the Trust and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of
34
<PAGE>
Fund shares attributable to their customers. The Distributor may retain any
portion of the total distribution fee payable thereunder to compensate it for
distribution-related services provided by it or to reimburse it for other
distribution-related expenses.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the fees received by the
Funds' Distributor shows the fees paid by the predecessor portfolio that is
considered the surviving entity for accounting purposes to its respective
Distributor. The predecessor Stagecoach Funds had retained Stephens as their
Distributor. The predecessor Norwest Funds had retained Forum as their
Distributor.
For the period ended March 31, 1999 for the Asset Allocation and Index
Allocation Funds, and for the period ended February 28, 1999 for the LifePath
Funds, the predecessor portfolios paid the Distributor the following fees for
distribution-related services, as set forth below, under each Fund's Plan:
<TABLE>
<CAPTION>
Former Stagecoach/ Printing & Mailing Marketing Compensation to
Stagecoach Trust Fund Total Prospectus Brochures Underwriters
--------------------- ----- ------------------ --------- ---------------
<S> <C> <C> <C> <C>
Asset Allocation Fund
Class B $2,638,986 N/A N/A $2,638,986
Class C $ 31,426 N/A N/A $ 31,426
Index Allocation Fund
Class B $ 742,568 $13,910 $465 $ 728,193
Class C $ 450,083 N/A N/A $ 450,083
LifePath Opportunity
Class A $ 156,634 N/A N/A $ 183,075
Class B $ 4,150 N/A N/A N/A
Class C $ 4,075 N/A N/A $ 4,075
LifePath 2010
Class A $ 224,732 N/A N/A $ 213,875
Class B $ 90,239 N/A N/A $ 17,269
Class C $ 594 N/A N/A $ 594
LifePath 2020
Class A $ 145,256 N/A N/A $ 387,413
Class B $ 49 N/A N/A $ 37,350
Class C $ 2,520 N/A N/A $ 2,520
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Former Stagecoach/ Printing & Mailing Marketing Compensation to
Stagecoach Trust Fund Total Prospectus Brochures Underwriters
--------------------- ----- ------------------ --------- ---------------
<S> <C> <C> <C> <C>
LifePath 2030
Class A $ 145,256 N/A N/A $ 280,561
Class B $ 49 N/A N/A $ 37,091
Class C $ 2,520 N/A N/A $ 2,520
LifePath 2040
Class A $ 361,128 N/A N/A $ 540,814
Class B $ 4,692 N/A N/A $ 87,274
Class C $ 2,520 N/A N/A $ 2,520
</TABLE>
For the year ended May 31, 1999, the predecessor portfolio of the Growth
Balanced Fund paid the following fees for distributions-related services, as set
forth below:
<TABLE>
<CAPTION>
Former Norwest Fund Total Fee Waived
------------------- ----- ----------
<S> <C> <C>
Growth Balanced Fund
Class B $25,528 $0
Class C $ 1,648 $0
</TABLE>
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Trustees of the Trust and
the Non-Interested Trustees. Any Distribution Agreement related to the Plan also
must be approved by such vote of the Trustees and the Non-Interested Trustees.
Such Agreement will terminate automatically if assigned, and may be terminated
at any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the relevant class of the Fund or by vote of a
majority of the Non-Interested Trustees on not more than 60 days' written
notice. The Plan may not be amended to increase materially the amounts payable
thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plan may be made except
by a majority of both the Trustees of the Trust and the Non-Interested Trustees.
The Plan requires that the Treasurer of the Trust shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Trustees who are not "interested
persons" of the Trust be made by such disinterested Trustees.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Trust, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has
36
<PAGE>
an indirect financial interest in the operation of the Plans. The Board of
Trustees has concluded that the Plan is reasonably likely to benefit the Funds
and their shareholders because the Plan authorize the relationships with selling
agents, including Wells Fargo Bank, that have previously developed distribution
channels and relationships with the retail customers that the Funds are designed
to serve. These relationships and distribution channels are believed by the
Board to provide potential for increased Fund assets and ultimately
corresponding economic efficiencies (i.e., lower per-share transaction costs and
fixed expenses) that are generated by increased assets under management.
Shareholder Servicing Agent. The Funds have approved a Servicing Plan
---------------------------
and have entered into related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank. Under the agreements, Shareholder
Servicing Agents (including Wells Fargo Bank) agree to perform, as agents for
their customers, administrative services, with respect to Fund shares, which
include aggregating and transmitting shareholder orders for purchases, exchanges
and redemptions; maintaining shareholder accounts and records; and providing
such other related services as the Trust or a shareholder may reasonably
request.
For providing shareholder services, a Servicing Agent is entitled to a fee
from the applicable Fund of up to 0.25% on an annualized basis, of the average
daily net assets of the class of shares owned of record or beneficially by the
customers of the Servicing Agent during the period for which payment is being
made. The amounts payable under the Shareholder Servicing Plan and Agreements
are shown in the table below. The Servicing Plan and related Shareholder
Servicing Agreements were approved by the Trust's Board of Trustees and provide
that a Fund shall not be obligated to make any payments under such Plan or
related Agreements that exceed the maximum amounts payable under the Conduct
Rules of the NASD.
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Aggressive Balanced-Equity
Institutional None
Asset Allocation
Class A 0.10%
Class B 0.10%
Class C 0.10%
Growth Balanced
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class None
Index Allocation
Class A 0.25%
Class B 0.25%
Class C 0.25%
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
LifePath Opportunity
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.25%
LifePath 2010
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.25%
LifePath 2020
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.25%
LifePath 2030
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.25%
LifePath 2040
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.25%
Moderate Balanced
Institutional Class None
Strategic Income
Institutional Class None
</TABLE>
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Trustees of the Trust and
the Non-Interested Trustees. Any form of Servicing Agreement related to the
Servicing Plan also must be approved by such vote of the Trustees and Non-
Interested Trustees. Servicing Agreements may be terminated at any time, without
payment of any penalty, by vote of a majority of the Board of Trustees,
including a majority of the Non-Interested Trustees. No material amendment to
the Servicing Plan or related Servicing Agreements may be made except by a
majority of both the Trustees of the Trust and the Non-Interested Trustees.
38
<PAGE>
The Servicing Plan requires that the Administrator shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
---------
Norwest Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as
Custodian for each Fund, with the exception of the Asset Allocation, Index
Allocation Fund and all the LifePath Funds. For its services as Custodian,
Norwest Bank is entitled to receive a fee of 0.02% of the average daily net
assets of each Fund except for the Gateway Funds. The Gateway Funds are not
charged a custody fee at the Gateway level provided that they invest in Core
Trust Portfolios. Barclays Global Investors, N.A. ("BGI"), located at 45
Fremont Street, 34th Floor, San Francisco, California 94105, acts as Custodian
for the Asset Allocation and Index Allocation Funds. For its services as
Custodian, BGI is not entitled to receive compensation so long as its
subsidiary, BGFA, is entitled to receive fees for providing sub-advisory
services to the Funds. IBT, located at 200 Clarendon Street, Boston, MA, acts
the custodian for each of the LifePath Funds. For its services as Custodian,
IBT is not entitled to receive compensation so long as it is entitled to receive
custodial fees from the Master Portfolios.
The Custodian, among other things, maintains a custody account or accounts
in the name of each Fund, receives and delivers all assets for each Fund upon
purchase and upon sale or maturity, collects and receives all income and other
payments and distributions on account of the assets of each Fund, and pays all
expenses of each Fund.
Fund Accountant. Forum Accounting Services, LLC ("Forum Accounting"),
---------------
located at Two Portland Square, Portland, Maine 04101, serves as Fund Accountant
for the Funds except for the Index Allocation Fund for which Wells Fargo Bank
serves as Fund Accountant, and the LifePath Funds for which IBT acts as Fund
Accountant. Forum Accounting served as Fund Accountant for the predecessor
Norwest Funds whereas Wells Fargo Bank served as Fund Accountant for the
predecessor Stagecoach Funds. In order to ensure an orderly fund accounting
transition to Forum Accounting for all the Funds, Wells Fargo will continue to
serve as Fund Accountant for the Index Allocation Fund during a transition
period. It is anticipated that the transition period will last until April 1,
2000. If the conversion to Forum Accounting does not occur on or before March 1,
2000, Wells Fargo Bank will continue to serve as Fund Accountant until the
conversion occurs, but not longer than one year from November 8, 1999, at which
time it is anticipated that Forum Accounting will serve as Fund Accountant for
the Funds. Wells Fargo Bank is entitled to receive the same fees as Norwest
Bank.
For their services as Fund Accountant, Forum Accounting and Wells Fargo
Bank each are entitled to receive a monthly base fee per Fund ranging from
$2,000 for gateway Funds up to $5,833 for Funds with significant holdings of
asset-backed securities. In addition, each Fund pays a monthly fee of $1,000 per
class. Forum Accounting and Wells Fargo Bank are also each entitled to receive a
fee equal to 0.0025% of the average annual daily net assets of each Fund
(excluding the net assets invested in core portfolios of Core Trust which pays
Forum Accounting a similar fee).
With respect to the LifePath Funds, IBT is entitled to receive an annual
fee of $12,000 per Fund and an annual fee of $4,500 per class of shares.
39
<PAGE>
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
--------------------------------------
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts
as Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, BFDS is entitled to receive a per-account fee plus transaction fees
and certain out-of-pocket costs. BFDS is also entitled to receive a complete
base fee from all the Funds of the Trust, Core Trust and Wells Fargo Variable
Trust.
Underwriting Commissions. Stephens serves as the principal underwriter
------------------------
distributing securities of the Funds on a continuous basis. Stephens served as
principal underwriter of the Stagecoach predecessor portfolios whereas Forum
served as underwriter of the predecessor Norwest portfolios. The information
shown below regarding underwriting commissions paid for the last three fiscal
years reflects the amounts paid by the predecessor Stagecoach fund family and
Norwest fund family.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Stephens by the predecessor Stagecoach fund
family and the amounts retained by Stephens are as follows:
<TABLE>
<CAPTION>
Six-Month Period-
Period Ended Period Ended Ended Nine-Month Period Ended
9/30/99 3/31/98 3/31/97 9/30/96
------- ------- ------- -------
Paid Retained Paid Retained Paid Retained Paid Retained
---- -------- ---- --------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$6,214,051 $2,289,826 $7,671,295 $939,892 $2,296,243 $241,806 $2,917,738 $198,664
</TABLE>
For the year-ended September 30, 1999, Wells Fargo Securities, Inc., an
affiliated broker-dealer of the Trust retained $2,324,394.93.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Forum by the predecessor Norwest Funds and the
amounts retained by Forum are as follows:
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
------- ------- -------
Paid Retained Paid Retained Paid Retained
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Balanced-Equity $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Growth Balanced $101,000 $11,000 N/A N/A N/A N/A
Moderate Balanced $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Strategic Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
For the year ended May 31, 1999, Norwest Investment Services Inc. received
$4,049,102.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in
40
<PAGE>
the market conditions and the level of a Fund's expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds. Annual
and Semi-Annual Reports for the Funds may contain additional performance
information, and are available free of charge upon request.
Average Annual Total Return: The Funds may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)/n/=ERV.
Former Stagecoach and Stagecoach Trust Funds
Average Annual Total Return for the Period Ended September 30, 1999/1/
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
- ---- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
Asset Allocation
Class A 12.35% 13.08% 16.53% 11.47%
Class B 12.20% 13.14% 16.96% 12.36%
Class C 12.20% 13.14% 17.16% 16.39%
Institutional Class N/A N/A N/A N/A
Index Allocation
Class A 13.75% 14.54% 19.81% 18.96%
Class B 13.54% 14.42% 20.14% 20.27%
Class C 13.55% 14.44% 20.36% 24.31%
LifePath
Opportunity
Class A 6.31% N/A 7.38% -0.54%
Class B 6.80% N/A 7.85% 0.04%
Class C 6.92% N/A 8.13% 3.84%
Institutional Class 7.61% N/A 9.32% 4.65%
LifePath 2010
Class A 10.38% N/A 11.91% 5.72%
Class B 10.84% N/A 12.37% 6.48%
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
- ---- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
Class C 10.95% N/A 12.63% 10.49%
Institutional Class 11.95% N/A 14.43% 9.19%
LifePath 2020
Class A 13.11% N/A 14.97% 11.00%
Class B 13.61% N/A 15.50% 12.13%
Class C 13.70% N/A 15.71% 16.05%
Institutional Class 15.05% N/A 18.07% 13.65%
LifePath 2030
Class A 15.00% N/A 17.25% 14.23%
Class B 15.49% N/A 17.78% 15.58%
Class C 15.57% N/A 17.97% 19.50%
Institutional Class 17.16% N/A 20.70% 15.93%
LifePath 2040
Class A 17.10% N/A 19.37% 19.23%
Class B 17.60% N/A 19.90% 20.94%
Class C 17.68% N/A 20.09% 24.85%
Institutional Class 19.55% N/A 23.31% 20.35%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is the commencement date stated in the
"Historical Fund Information" section of this SAI. The actual inception date
of each Class may differ from the inception date of the corresponding
Fund. Values for the Institutional Class Shares of the LifePath Funds are
calculated using Class A Share performance adjusted to reflect the
Institutional Class expenses and are shown for the period ended November 30,
1999.
Former Norwest Funds
Average Annual Total Return for the Period Ended May 31, 1999/1/
-------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
- ---- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
Aggressive Balanced-Equity
Institutional Class 19.47% N/A N/A 17.98%
Growth Balanced/3/
Class A 12.55% 12.06% 15.06% 13.64%
Class B 12.36% 11.89% 15.36% 14.70%
Class C 12.37% 11.91% 15.62% 18.91%
Institutional Class
Moderate Balanced/3/
Institutional Class 13.21% 12.74% 16.48% 20.81%
Strategic Income/3/
Institutional Class 9.14% 8.84% 9.99% 6.87%
</TABLE>
42
<PAGE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor is the commencement date stated in the "Historical Fund
Information" section of this SAI. The actual inception date of each class
may differ from the inception date of the corresponding Fund.
/3/ Prior to November 11, 1994, NIM managed a collective investment fund with
investment objectives and policies that were, in all material respects,
equivalent to the Fund. The performance of the Fund includes the performance
of the predecessor collective investment fund for the periods before it
became a mutual fund on November 11, 1994. The collective investment fund
performance was adjusted to reflect the Fund's 1994 estimate of its expense
ratio for the first year of operations as a mutual fund (without giving
effect to any fee waivers or expense reimbursements). The collective
investment fund was not registered under the 1940 Act, nor subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the 1940 Act and the Internal Revenue Code, which,
if applicable, may have adversely affected the performance results.
Cumulative Total Return. In addition to the above performance information,
-----------------------
each Fund may also advertise the cumulative total return of the Fund. Cumulative
total return is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
Former Stagecoach and Stagecoach Trust Funds
Cumulative Total Return for the Period Ended September 30, 1999/1/
---------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year Three Year
- ---- ------------ --------- ----------
<S> <C> <C> <C>
Asset Allocation
Class A 347.61% 114.84% 56.20%
Class B 342.19% 118.90% 59.44%
Class C 342.19% 120.77% 62.44%
Institutional Class N/A N/A N/A
Index Allocation
Class A 339.98% 146.89% 66.19%
Class B 330.73% 150.33% 69.05%
Class C 331.23% 152.63% 72.25%
LifePath
Opportunity
Class A 40.74% N/A 19.16%
Class B 44.39% N/A 21.63%
Class C 45.27% N/A 24.52%
Institutional Class 52.47% N/A N/A
LifePath 2010
Class A 73.53% N/A 35.16%
Class B 77.63% N/A 37.89%
Class C 78.65% N/A 40.91%
Institutional Class 91.41% N/A N/A
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year Three Year
- ---- ------------ --------- ----------
<S> <C> <C> <C>
LifePath 2020
Class A 98.95% N/A 48.05%
Class B 103.95% N/A 51.46%
Class C 104.81% N/A 54.36%
Institutional Class 123.94% N/A N/A
LifePath 2030
Class A 118.21% N/A 56.86%
Class B 123.51% N/A 60.34%
Class C 124.36% N/A 63.23%
Institutional Class 148.67% N/A N/A
LifePath 2040
Class A 141.44% N/A 66.02%
Class B 147.20% N/A 69.82%
Class C 148.16% N/A 72.80%
Institutional Class 179.22% N/A N/A
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is as follows: Asset Allocation Fund -- January
2, 1992; Index Allocation Fund -- April 7, 1988; LifePath Funds -- March 3,
1997. The actual inception date of each Class may differ from the inception
date of the corresponding Fund. Values for the Institutional Class Shares of
the LifePath Funds are calculated using Class A share performance adjusted
to reflect the Institutional Class expenses and are shown for the period
ended November 30, 1999.
Former Norwest Funds
Cumulative Total Return for the Period Ended September 30,1999/1/
---------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year Three Year
- ---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Aggressive Balanced-Equity
Institutional Class 30.43% N/A N/A N/A
Growth Balanced/3/
Class A 264.68% 212.21% 15.07% 50.43%
Class B 338.63% 207.68% 15.36% 53.14%
Class C 238.87% 208.61% 15.63% 56.40%
Institutional Class 265.30% 231.98% 114.49% 59.96%
Moderate Balanced/3/
Institutional Class 196.40% 169.90% 81.16% 44.16%
Strategic Income/3/
Institutional Class 147.84% 133.22% 60.98% 33.46%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
44
<PAGE>
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor is the commencement date stated in the "Historical Fund
Information" section of this SAI. The actual inception date of each class
may differ from the inception date of the corresponding Fund.
/3/ Prior to November 11, 1994, NIM managed a collective investment fund with
investment objectives and policies that were, in all material respects,
equivalent to the Fund. The performance of the Fund includes the
performance of the predecessor collective investment fund for the periods
before it became a mutual fund on November 11, 1994. The collective
investment fund performance was adjusted to reflect the Fund's 1994
estimate of its expense ratio for the first year of operations as a mutual
fund (without giving effect to any fee waivers or expense reimbursements).
The collective investment fund was not registered under the 1940 Act nor
subject to certain investment limitations, diversification requirements and
other restrictions imposed by the 1940 Act and the Internal Revenue Code,
which, if applicable, may have adversely affected the performance results.
The yields for each class of shares will fluctuate from time to time, unlike
bank deposits or other investments that pay a fixed yield for a stated period of
time, and do not provide a basis for determining future yields since they are
based on historical data. Yield is a function of portfolio quality, composition,
maturity and market conditions as well as the expenses allocated to a Fund or to
a particular class of a Fund.
In addition, investors should recognize that changes in the net asset values
of shares of each class of a Fund will affect the yield of the respective class
of shares for any specified period, and such changes should be considered
together with such class' yield in ascertaining such class' total return to
shareholders for the period. Yield information for each class of shares may be
useful in reviewing the performance of the class of shares and for providing a
basis for comparison with investment alternatives. The yield of each class of
shares, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
From time to time and only to the extent the comparison is appropriate for a
Fund or a Class of shares, the Trust may quote the performance or price-earning
ratio of a Fund or a Class of in advertising and other types of literature as
compared with the performance of the S&P Index, the Dow Jones Industrial
Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year
Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment Averages
(as reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of a Fund or a class also may be compared to that of other mutual funds having
similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share of each
class at the beginning of a stated period to the net asset value of the
45
<PAGE>
investment, assuming reinvestment of all gains distributions paid, at the end of
the period. The Funds' comparative performance will be based on a comparison of
yields or total return, as reported by Lipper, Survey Publications, Donoghue or
Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a class of shares with the performance of a Fund's
competitors. Of course, past performance cannot be a guarantee of future
results. The Trust also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
The Trust also may use the following information in advertisements and other
types of literature, only to the extent the information is appropriate for each
class of shares of a Fund: (i) the Consumer Price Index may be used to assess
the real rate of return from an investment in each class of shares of a Fund;
(ii) other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of each class
of shares of a Fund or the general economic, business, investment, or financial
environment in which a Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of each class of shares of a Fund or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in each class of shares of the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance or current or potential value of each class of shares of
a Fund with respect to the particular industry or sector.
The Trust also may use, in advertisements and other types of literature,
information and statements: (1) showing that bank savings accounts offer a
guaranteed return of principal and a fixed rate of interest, but no opportunity
for capital growth; and (2) describing Wells Fargo Bank, and its affiliates and
predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Trust also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
The Trust also may discuss in advertising and other types of literature that
a Fund has been assigned a rating by an NRRO, such as Standard Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of a Fund's shares or the suitability of a Fund for a particular investor.
In addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to a Fund or its investments. The Trust may compare the performance of each
class of shares of a Fund with other investments which are assigned ratings by
NRROs. Any such comparisons may be useful to investors who wish to compare each
class' past performance with other rated investments.
46
<PAGE>
From time to time, a Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Wells Fargo Funds Trust, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Wells Fargo Funds Trust's account
information through Automated Teller Machines (ATMs), the placement of purchase
and redemption requests for shares of the Funds through ATMs and the
availability of combined Wells Fargo Bank and Wells Fargo Funds Trust account
statements."
The Trust also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management, Inc. (formerly, Wells
Fargo Investment Management) a subsidiary of Wells Fargo Bank, is listed in the
top 100 by Institutional Investor magazine in its July 1997 survey "America's
Top 300 Money Managers." This survey ranks money managers in several asset
categories. The Trust also may disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Trust's
investment Advisor and the total amount of assets and mutual fund assets managed
by Wells Fargo Bank. As of June 30, 1999, Wells Fargo Bank and its affiliates
managed over $131 billion in assets.
The Trust may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Trust may also disclose the ranking of Wells Fargo
Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as of
the close of regular trading (currently 1:00 p.m. (Pacific time), 3:00 p.m.
(Central time), 4:00 p.m. (Eastern time)) on each day the New York Stock
Exchange ("NYSE") is open for business. Expenses and fees, including advisory
fees, are accrued daily and are taken into account for the purpose of
determining the net asset value of the Funds' shares.
Securities of a Fund for which market quotations are available are valued at
latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such
47
<PAGE>
exchange on the day of valuation or, if there was no sale on such day, the
latest bid price quoted on such day. In the case of other Fund securities,
including U.S. Government securities but excluding money market instruments and
debt securities maturing in 60 days or less, the valuations are based on latest
quoted bid prices. Money market instruments and debt securities maturing in 60
days or less are valued at amortized cost. Futures contracts will be marked to
market daily at their respective settlement prices determined by the relevant
exchange. Prices may be furnished by a reputable independent pricing service
approved by the Trust's Board of Trustees. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. All other securities and
other assets of a Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Trust's
Board of Trustees and in accordance with procedures adopted by the Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. Each Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Funds. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Trust may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Trust's responsibilities under the 1940 Act. In addition,
the Trust may redeem shares involuntarily to reimburse the Fund for any losses
sustained by reason of the failure of a shareholder to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of a Fund as provided
from time to time in the Prospectus.
The dealer reallowance for Class A shares is as follows:
48
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % ALLOWANCE
AMOUNT OF PUBLIC OF NET AMOUNT AS % OF PUBLIC
OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
-----------------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% 4.00%
-----------------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% 3.00%
-----------------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% 2.25%
-----------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
-----------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
-----------------------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A shares purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Purchases and Redemptions Through Brokers and/or Their Affiliates
-----------------------------------------------------------------
A broker may charge transaction fees on the purchase and/or sale of Fund shares
in addition to those fees described in the Prospectus in the Summary of
Expenses. The Trust has authorized one or more brokers to receive on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an authorized broker or, if applicable, a broker's
authorized designee, receives the order.
Reduced Sales Charges for Former Norwest Advantage Fund Class B
---------------------------------------------------------------
Shareholders. No contingent deferred sales charge is imposed on redemptions of
Class B shares of a former Norwest Advantage Fund purchased prior to October 1,
1999, to effect a distribution (other than a lump sum distribution) from an IRA,
Keogh plan or Section 403(b) custodial account or from a qualified retirement
plan.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. Each of
the Funds also will purchase portfolio securities in underwritten offerings and
may purchase securities directly from the issuer. Generally, municipal
obligations and taxable money market securities are traded on a net basis and do
not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the Trust
are prohibited from dealing with the Trust as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the SEC or an exemption is otherwise available. The Fund may
purchase securities from underwriting syndicates of which Stephens or Wells
Fargo Bank is a member under certain conditions in accordance with the
provisions of a rule adopted under the 1940 Act and in compliance with
procedures adopted by the Board of Trustees.
49
<PAGE>
Wells Fargo Bank, as Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the Advisory Contracts, and the expenses of
Wells Fargo Bank will not necessarily be reduced as a result of the receipt of
this supplemental research information. Furthermore, research services
furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds. For the fiscal year ended September 30,
1999, the Advisor directed transactions in the aggregate amount of
$1,979,758,185 and paid total commissions in the amount of $2,080,381.
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Trust
bears all costs of its operations, including the compensation of its Trustees
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, organizational expenses and any extraordinary
expenses. Expenses attributable to the Fund are charged against Fund assets.
General expenses of the Trust are allocated among all of the funds of the Trust,
50
<PAGE>
including the Funds, in a manner proportionate to the net assets of each Fund,
on a transactional basis, or on such other basis as the Trust's Board of
Trustees deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of each Fund
generally describes the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning federal income taxes.
General. The Trust intends to continue to qualify each Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interests of
the Fund's shareholders. Each Fund will be treated as a separate entity for
federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied separately to each
Fund, rather than to the Trust as a whole. In addition, capital gains, net
investment income, and operating expenses will be determined separately for each
Fund. As a regulated investment company, each Fund will not be taxed on its net
investment income and capital gain distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government obligations and
the securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (including, for this
purpose, net short-term capital gain) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Funds intend to pay out substantially all of their net
investment income and net realized capital gains (if any) for each year.
51
<PAGE>
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains
and losses if the securities have been held by the Fund for more than one year
at the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations) purchased by a Fund at a market discount (generally at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which accrued, but was not previously
recognized pursuant to an available election, during the term the Fund held the
debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they
result from a position which is part of a "straddle," discussed below. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund pursuant to the exercise of a put option
written by it, such Fund will subtract the premium received from its cost basis
in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse Federal income tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined
52
<PAGE>
to include "offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Section 1092 of the Code which, in
certain circumstances, overrides or modifies the provisions of Section 1256. If
a Fund were treated as entering into "straddles" by engaging in certain
financial forward, futures or option contracts, such straddles could be
characterized as "mixed straddles" if the futures, forwards, or options
comprising a part of such straddles were governed by Section 1256 of the Code.
The Fund may make one or more elections with respect to "mixed straddles."
Depending upon which election is made, if any, the results with respect to the
Fund may differ. Generally, to the extent the straddle rules apply to positions
established by the Fund, losses realized by the Fund may be deferred to the
extent of unrealized gain in any offsetting positions. Moreover, as a result of
the straddle and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss, and long-
term capital gain may be characterized as short-term capital gain or ordinary
income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Fund will adjust
its basis in the PFIC shares by the amount of income (or loss) recognized.
Although such income (or loss) will be taxable to the Fund as ordinary income
(or loss) notwithstanding any distributions by the PFIC, the Fund will not be
subject to Federal income tax or the interest charge with respect to its
interest in the PFIC under the election.
Foreign Taxes. Income and dividends received by a Fund from sources within
-------------
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. In certain circumstances, a regulated investment
company is eligible to file an election with the IRS pursuant to which the
regulated investment company may pass-through to its shareholders foreign taxes
paid by the regulated investment company, which may be claimed either as a
credit or deduction by the shareholders. None of the Funds expects to qualify
for the election.
Capital Gain Distributions. Distributions which are designated by a Fund as
--------------------------
capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
53
<PAGE>
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received in the case of an exchange) and the
cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. The loss disallowance rules described in this paragraph do not
apply to losses realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Trust may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on all distributions
and redemption proceeds (including proceeds from exchanges and redemptions in-
kind) paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Trust also could subject the investor to penalties imposed by
the IRS.
Foreign Shareholders. Under the Code, distributions attributable to net
--------------------
investment income, net short-term capital gain and certain other items realized
by a Fund and paid to a
54
<PAGE>
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (each, a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate, if applicable). Withholding will not apply if a
distribution paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (or, if an income tax treaty applies,
is attributable to a U.S. permanent establishment of the foreign shareholder),
in which case the reporting and withholding requirements applicable to U.S.
persons will apply. Capital gain distributions generally are not subject to tax
withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders that will be subject to federal income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Corporate Shareholders. Corporate shareholders of the Funds may be eligible
----------------------
for the dividends-received deduction on dividends distributed out of a Fund's
income attributable to dividends received from domestic corporations, which, if
received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
Tax-Deferred Plan. The shares of the Funds are available for a variety of
-----------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes.
Investors should contact their selling agents for details concerning retirement
plans.
Other Matters. Investors should be aware that the investments to be made by
-------------
the Funds may involve sophisticated tax rules that may result in income or gain
recognition by the Funds without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by the Funds, in which case the Funds may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
55
<PAGE>
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state, local
or foreign taxes.
CAPITAL STOCK
The Funds are eleven of the funds in the Wells Fargo Funds Trust family of
funds. The Trust was organized as a Delaware business trust on March 10,
1999.
Most of the Trust's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Trust's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain class-
specific expenses (e.g., any state securities registration fees, shareholder
servicing fees or distribution fees that may be paid under Rule 12b-1) that are
allocated to a particular class. Please contact Shareholder Services at 1-800-
222-8222 if you would like additional information about other funds or classes
of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy affects only one series and would be voted
upon only by shareholders of the Fund involved. Additionally, approval of an
advisory contract, since it affects only one Fund, is a matter to be determined
separately by Series. Approval by the shareholders of one Series is effective as
to that Series whether or not sufficient votes are received from the
shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of the Class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Class of the Fund. The term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Trust as a whole, means the vote of the lesser of (i)
67% of the Trust's shares represented at a meeting if the holders of more than
50% of the Trust's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Trust's outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares are
issued in uncertificated form only, and, when issued, will be fully paid and
non-assessable by the Trust. The
56
<PAGE>
Trust may dispense with an annual meeting of shareholders in any year in which
it is not required to elect Trustees under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Fund are entitled to
receive the assets attributable to that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Trustees in their sole discretion may determine.
Set forth below, as of October 25, 1999, is the name, address and share
ownership of each person known by the Trust to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities as a whole. The term "N/A" is used where a shareholder holds 5% or
more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF OCTOBER 25, 1999
-----------------------------------
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
AGGRESSIVE BALANCED- EMSEG & CO 98.61%
EQUITY FUND Aggressive Balanced Equity Fund
Institutional C c/o Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
ASSET ALLOCATION FUND Wells Fargo Bank 62.77%
Class A FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class C MLPF&S For The Sole Benefit 17.98%
Of Its Customers
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
Institutional Class Wells Fargo Bank TTEE 42.97%
ChoiceMaster
ATTN: Mutual Funds A88-4
PO Box 9800
Calabasas, CA 91372-0800
HEP & CO 38.43%
ATTN: MF Dept. A88-4
PO Box 9800
Calabasas, CA 91372-0800
GROWTH BALANCED FUND
Class A Colorado State Bank & Trust 13.97%
Custodian for the IRA of Harley G.
Higbie, Jr.
1600 Broadway
Denver, CO 80202-4927
Class B N/A
Class C Norwest Investment Services, Inc. 17.40%
FBO 710886111
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Norwest Investment Services, Inc. 9.35%
FBO 705690741
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
EMJAYCO 8.88%
Omnibus Account
17909 PO Box
Milwaukee, WI 53217-0909
Institutional Class EMSEG & CO 89.92%
Growth Balanced Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
INDEX ALLOCATION FUND
Class A MLPF&S For The Sole Benefit Of Its Customers 11.39%
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Charles Schwab & Co., Inc. Special 5.30%
Custody A/C For Benefit of Customers -
Reinvest
ATTN: Mutual Funds
101 Montgomery Street
San Francisco, 94104-4122
Stephens, Inc. 5.23%
Seed Money
ATTN: Accounting
111 Center Street
Little Rock, AR 72201-4402
Class B N/A
Class C MLPF&S For The Sole Benefit Of Its Customers 20.44%
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
LIFEPATH OPPORTUNITY FUND
Class A Wells Fargo Bank 18.50%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class C MLPF&S For The Sole Benefit Of Its Customers 7.08%
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Dean Witter For The Benefit of Mario 6.07%
Crivello Trustee of the Sam and Isabella
Crivello
PO Box 250 Church Street Station
New York, NY 10008-0250
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
LIFEPATH 2010 FUND
Class A Wells Fargo Bank 25.25%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Wells Fargo Bank TTEE 5.63%
FBO Choicemaster
ATTN: Mutual Funds
PO Box 9800
Calabasas, CA 91372-0800
Class B N/A
Class C Dean Witter For The Benefit of Wells Fargo 11.74%
Bank Loan Collateral
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of Wells Fargo 9.10%
QRP Custodian FBO
PO Box 250 Church Street Station
New York, NY 10008-0250
NFSC FEBO #CM5-600741 7.48%
David Lazer P/ADM
David Lazer Inc. Empl. Ret. Tr.
PO Box 1056
Southampton, NY 11969-1056
MLPF&S For The Sole Benefit Of Its Customers 6.20%
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Dean Witter For The Benefit Of Bay Area 5.10%
Circuits, Inc.
PO Box 250 Church Street Station
New York, NY 10008-0250
LIFEPATH 2020 FUND
Class A Wells Fargo Bank 26.58%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
Class B N/A
Class C Dean Witter For The Benefit of Richard 10.53%
Branning and
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of Robert W. 10.52%
Simpson TTEE FBO
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of Americans for 6.20%
Armenians
ATTN: George Rassam and
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of John D. Hurd 5.33%
and
PO Box 250 Church Street Station
New York, NY 10008-0250
LIFEPATH 2030 FUND
Class A Wells Fargo Bank 30.40%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class C Terry E. Hedemark & Susan C. Hedemark JTTEN 14.31%
3248 Catawba Dr.
Cameron Park, CA 95682-7643
EMJAYCO 12.31%
Omnibus Account
PO Box 17909
Milwaukee, WI 53217-0909
Dean Witter for the Benefit of Beverly G. 11.87%
Stern
PO Box 250 Church Street Station
New York, NY 10008-0250
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
NFSC FEBO #EBP-229806 11.12%
Ellen Jaffee Cawthorne
36 Gates Place
Wayne, NJ 07470-3217
Dean Witter for the Benefit of Alexan 10.33%
Koundakjian &
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Ernest D. 7.38%
Chapman & Edith M. Chapman CO-TTEES
PO Box 250 Church Street Station
New York, NY 10008-0250
LIFEPATH 2040 FUND
Class A Wells Fargo Bank 32.43%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class C Dean Witter for the Benefit of Cynthia 14.23%
Genera Orlandi TTEE of TI
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Paolo Orlandi 14.23%
TTEE of the
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Anthony Zack 6.89%
and
PO Box 250 Church Street Station
New York, NY 10008-0250
MODERATE BALANCED FUND
Institutional Class EMSEG & CO 88.70%
Moderate Balanced I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
STRATEGIC INCOME FUND
Institutional Class EMSEG & CO 90.02%
Strategic Income I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Trust's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements contained
in the Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust. KPMG
LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolios of investments and audited financial statements for the
predecessor Stagecoach and Norwest Funds for the years ended February 28, 1999
and May 31, 1999, respectively, are hereby incorporated by reference to the
Funds' Annual Report.
63
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
also applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1 indicates
that the security ranks in the higher end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by S&P
and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Commercial Paper
----------------
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
-------
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for commercial paper is rated "in the highest
---
category" by S&P and "the obligor's capacity to meet its financial commitment on
the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2" is
"more susceptible" to the adverse effects of changes in economic conditions or
other circumstances than commercial paper rated in higher rating categories.
A-2
<PAGE>
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented on
December 17, 1999
DISCIPLINED GROWTH FUND
DIVERSIFIED EQUITY FUND
DIVERSIFIED SMALL CAP FUND
EQUITY INCOME FUND
EQUITY INDEX FUND
EQUITY VALUE FUND
GROWTH FUND
GROWTH EQUITY FUND
INDEX FUND
INTERNATIONAL EQUITY FUND
INTERNATIONAL FUND
LARGE COMPANY GROWTH FUND
SMALL CAP GROWTH FUND
SMALL CAP OPPORTUNITIES FUND
SMALL CAP VALUE FUND
SMALL COMPANY GROWTH FUND
Class A, Class B, Class C, Class O and Institutional Class
Wells Fargo Funds Trust (the "Trust") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about sixteen funds in the Wells Fargo Funds Trust family
of funds (each, a "Fund" and collectively, the "Funds") -- the Disciplined
Growth, Diversified Equity, Diversified Small Cap, Equity Income, Equity Index,
Equity Value, Growth, Growth Equity, Index, International Equity, International,
Large Company Growth, Small Cap Growth, Small Cap Opportunities, Small Cap Value
and Small Company Growth Funds. Each Fund is considered diversified under the
Investment Company Act of 1940, as amended (the "1940 Act"). Each Fund offers
Class A and Class B shares, except the Disciplined Growth, Index, Small Cap
Value and Small Company Growth Funds, which only offer Institutional Class
shares. The Diversified Equity, Equity Income, Equity Value, Growth Equity,
International Equity, Large Company Growth and Small Cap Growth Funds also offer
Class C shares and the Equity Index Fund also offers Class O shares. The
Diversified Equity, Diversified Small, Equity Income, Equity Value, Growth,
Growth Equity, International, International Equity, Large Company Growth, Small
Cap Opportunities and Small Cap Growth Funds also offer Institutional Class
shares. This SAI relates to all such classes of shares.
<PAGE>
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 8, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained without charge by calling 1-800-222-8222 or
writing to Wells Fargo Funds, P.O. Box 8266, Boston, MA 02266-8266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information............................................... 1
Investment Policies....................................................... 4
Additional Permitted Investment Activities and Associated Risks........... 6
Management................................................................ 24
Performance Calculations.................................................. 42
Determination of Net Asset Value.......................................... 51
Additional Purchase and Redemption Information............................ 52
Portfolio Transactions.................................................... 53
Fund Expenses............................................................. 54
Federal Income Taxes...................................................... 55
Capital Stock............................................................. 59
Other..................................................................... 71
Counsel................................................................... 72
Independent Auditors...................................................... 72
Financial Information..................................................... 74
Appendix.................................................................. A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach") and
the Board of Trustees of Wells Fargo Funds Trust (the "Trust") approved an
Agreement and Plan of Reorganization providing for, among other things, the
transfer of the assets and stated liabilities of various predecessor Norwest and
Stagecoach portfolios to the Funds. Prior to November 5, 1999, the effective
date of the consolidation of the Funds and the predecessor Norwest and
Stagecoach portfolios, the Funds had only nominal assets.
The Funds described in this SAI were created as part of the reorganization
of the Stagecoach family of funds, advised by Wells Fargo Bank, N.A. ("Wells
Fargo Bank" or "Advisor"), and the Norwest Advantage family of funds, advised by
Norwest Investment Management, Inc. ("NIM"), into a single mutual fund complex.
The reorganization followed the merger of the advisors' parent companies.
The chart below indicates the predecessor Stagecoach and Norwest Funds that
are the accounting survivors of the Wells Fargo Funds.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Wells Fargo Funds Predecessor Funds
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Disciplined Growth Fund Norwest Performa Disciplined Growth Fund
- ---------------------------------------------------------------------------------------------------------
Diversified Equity Fund Norwest Diversified Equity Fund
- ---------------------------------------------------------------------------------------------------------
Diversified Small Cap Fund Norwest Diversified Small Cap Fund
- ---------------------------------------------------------------------------------------------------------
Equity Income Fund Norwest Income Equity Fund
- ---------------------------------------------------------------------------------------------------------
Equity Index Fund Stagecoach Equity Index Fund
- ---------------------------------------------------------------------------------------------------------
Equity Value Fund Stagecoach Equity Value Fund
- ---------------------------------------------------------------------------------------------------------
Growth Fund Stagecoach Growth Fund
- ---------------------------------------------------------------------------------------------------------
Growth Equity Fund Norwest Growth Equity Fund
- ---------------------------------------------------------------------------------------------------------
Index Fund Norwest Index Fund
- ---------------------------------------------------------------------------------------------------------
International Fund Norwest International Fund
- ---------------------------------------------------------------------------------------------------------
International Equity Fund Stagecoach International Equity Fund
- ---------------------------------------------------------------------------------------------------------
Large Company Growth Fund Norwest Large Company Growth Fund
- ---------------------------------------------------------------------------------------------------------
Small Cap Growth Fund Stagecoach Small Cap Fund
- ---------------------------------------------------------------------------------------------------------
Small Cap Opportunities Fund Norwest Small Cap Opportunities Fund
- ---------------------------------------------------------------------------------------------------------
Small Cap Value Fund Norwest Performa Small Cap Value Fund
- ---------------------------------------------------------------------------------------------------------
Small Company Growth Fund Norwest Small Company Growth Fund
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Disciplined Growth Fund commenced operations on November 8, 1999, as
successor to the Performa Disciplined Growth Fund of Norwest. The predecessor
Norwest Performa Disciplined Growth Fund commenced operations on October 15,
1997.
The Diversified Equity Fund commenced operations on November 8, 1999, as
successor to the Diversified Equity Fund of Norwest. The predecessor Norwest
Diversified Equity Fund commenced operations on December 31, 1988.
1
<PAGE>
The Diversified Small Cap Fund commenced operations on November 8, 1999, as
successor to the Diversified Small Cap Fund of Norwest. The predecessor Norwest
Diversified Small Cap Fund commenced operations on December 31, 1997.
The Equity Income Fund commenced operations on November 8, 1999, as
successor to the Diversified Equity Income Fund of Stagecoach and the Income
Equity Fund of Norwest. The predecessor Stagecoach Diversified Equity Income
Fund commenced operations on November 18, 1997 and the predecessor Norwest
Income Equity Fund commenced operations on November 11, 1994. For accounting
purposes, the Norwest Income Equity predecessor portfolio is considered the
surviving entity, and the financial highlights shown for periods prior to
November 8, 1999 are the financial highlights of the Norwest Income Equity
Fund.
The Equity Index Fund commenced operations on November 8, 1999, as
successor to the Equity Index Fund of Stagecoach. The predecessor Stagecoach
Equity Index Fund commenced operations on January 1, 1992, as successor to the
Corporate Stock Fund of the Wells Fargo Investment Trust for Retirement
Programs. The predecessor Fund's commencement of operations was January 25,
1984. During the period from April 28, 1996 to December 12, 1997, the Fund
invested all of its assets in a Master Portfolio with a corresponding investment
objective. Prior to December 12, 1997, the Equity Index Fund was known as the
"Corporate Stock Fund."
The Equity Value Fund commenced operations on November 8, 1999, as
successor to the Equity Value Fund of Stagecoach. The predecessor Stagecoach
Equity Value Fund was originally organized on July 1, 1990 as the Pacifica
Equity Value Fund, an investment portfolio of Pacifica Funds Trust. On
September 6, 1996, the Pacifica Equity Value Fund was reorganized as the
Stagecoach Equity Value Fund.
The Growth Fund commenced operations on November 8, 1999, as successor to
the Growth Fund of Stagecoach and the Value Growth Stock Fund of Norwest. The
predecessor Stagecoach Growth Fund commenced operations on January 1, 1992, and
the predecessor Norwest Value Growth Stock Fund commenced operations on January
8, 1999. For accounting purposes, the Stagecoach Growth predecessor portfolio
is considered the surviving entity, and the financial highlights shown for
periods prior to November 8, 1999 are the financial highlights of the Stagecoach
Growth Fund.
The Growth Equity Fund commenced operations on November 8, 1999, as
successor to the Growth Equity Fund of Norwest. The predecessor Norwest Growth
Equity Fund commenced operations on April 30, 1989.
The Index Fund commenced operations on November 8, 1999, as successor to
the Index Fund of Norwest. The predecessor Norwest Index Fund commenced
operations on January 31, 1987.
2
<PAGE>
The International Equity Fund commenced operations on November 8, 1999,
as successor to the International Equity Fund of Stagecoach. The predecessor
Stagecoach International Equity Fund commenced operations on September 24,
1997.
The International Fund commenced operations on November 8, 1999, as
successor to the International Fund of Norwest. The predecessor Norwest
International Fund commenced operations on July 15, 1989.
The Large Company Growth Fund commenced operations on November 8, 1999, as
successor to the Large Company Growth Fund of Norwest. The predecessor Norwest
Large Company Growth Fund commenced operations on December 31, 1982.
The Small Cap Growth Fund commenced operations on November 8, 1999, as
successor to the Small Cap and Strategic Growth Funds of Stagecoach and the
Small Company Stock Fund of Norwest. The predecessor Stagecoach Small Cap Fund
commenced operations on September 16, 1996 and the predecessor Stagecoach
Strategic Growth Fund commenced operations on March 5, 1996. The predecessor
Norwest Small Company Stock Fund commenced operations on December 31, 1993. For
accounting purposes, the Stagecoach Small Cap predecessor portfolios is
considered the surviving entity, and the financial highlights shown for periods
prior to November 8, 1999 are the financial highlights of the Stagecoach Small
Cap Fund.
The Small Cap Opportunities Fund commenced operations on November 8, 1999,
as successor to the Small Cap Opportunities Fund of Norwest. The predecessor
Norwest Small Cap Opportunities Fund commenced operations on August 1, 1993.
The Small Cap Value Fund commenced operations on November 8, 1999, as
successor to the Performa Small Cap Value Fund of Norwest. The predecessor
Norwest Performa Small Cap Value Fund commenced operations on October 15, 1997.
The Small Company Growth Fund commenced operations on November 8, 1999, as
successor to the Small Company Growth Fund of Norwest. The predecessor Norwest
Small Company Growth Fund commenced operations on December 31, 1982.
3
<PAGE>
INVESTMENT POLICIES
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment policies, all of which are
fundamental policies; that is, they may not be changed without approval by the
holders of a majority (as defined in 1940 Act) of the outstanding voting
securities of such Fund.
The Funds may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of a Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that this
restriction does not limit a Fund's investments in (i) securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, (ii)
securities of other investment companies, (iii) municipal securities, or (iv)
repurchase agreements, and provided further that the Index Fund and the Equity
Index Fund reserve the right to concentrate in any industry in which the S&P 500
Index becomes concentrated to the same degree during the same period;
(2) purchase securities of any issuer if, as a result, with respect to 75%
of a Fund's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer, provided that
this restriction does not limit a Fund's investments in securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder;
(4) issue senior securities, except to the extent permitted under the 1940
Act, including the rules, regulations and exemptions thereunder;
(5) make loans to other parties if, as a result, the aggregate value of
such loans would exceed one-third of a Fund's total assets. For the purposes of
this limitation, entering into repurchase agreements, lending securities and
acquiring any debt securities are not deemed to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other
4
<PAGE>
instruments backed by real estate or securities of companies engaged in the real
estate business); nor
(8) purchase or sell commodities, provided that (i) currency will not be
deemed to be a commodity for purposes of this restriction, (ii) this restriction
does not limit the purchase or sale of futures contracts, forward contracts or
options, and (iii) this restriction does not limit the purchase or sale of
securities or other instruments backed by commodities or the purchase or sale of
commodities acquired as a result of ownership of securities or other
instruments.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by the Trustees of the Trust at any time without approval of such Fund's
shareholders.
(1) Each Fund may invest in shares of other investment companies to the
extent permitted under the 1940 Act, including the rules, regulations and
exemptions thereunder.
(2) Each Fund may not invest or hold more than 15% of the Fund's net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) Each Fund may invest in futures or options contracts regulated by the
CFTC for (i) bona fide hedging purposes within the meaning of the rules of the
CFTC and (ii) for other purposes if, as a result, no more than 5% of the Fund's
net assets would be invested in initial margin and premiums (excluding amounts
"in-the-money") required to establish the contracts.
(4) Each Fund may lend securities from its portfolio to approved brokers,
dealers and financial institutions, to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder, which currently
limit such activities to one-third of the value of a Fund's total assets
(including the value of the collateral received). Any such loans of portfolio
securities will be fully collateralized based on values that are marked-to-
market daily.
(5) Each Fund may not make investments for the purpose of exercising
control or management, provided that this restriction does not limit a Fund's
investments in securities of other investment companies or investments in
entities created under the laws of foreign countries to facilitate investment in
securities of that country.
(6) Each Fund may not purchase securities on margin (except for short-term
credits necessary for the clearance of transactions).
(7) Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the
5
<PAGE>
box"), and provided that transactions in futures contracts and options are not
deemed to constitute selling securities short.
General
-------
Notwithstanding the foregoing policies, any other investment companies in
which the Funds may invest have adopted their own investment policies, which may
be more or less restrictive than those listed above, thereby allowing a Fund to
participate in certain investment strategies indirectly that are prohibited
under the fundamental and non-fundamental investment policies listed above.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND ASSOCIATED RISKS
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total
assets.
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of domestic issuers. Such risks include possible future political
and economic developments, the possible imposition of foreign withholding taxes
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers'
6
<PAGE>
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The other short-term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-interest rates.
Borrowing
---------
The Funds may borrow money for temporary or emergency purposes, including
the meeting of redemption requests. Borrowing involves special risk
considerations. Interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and instrumentalities) will consist of
issues that are rated in one of the two highest rating categories by a
Nationally Recognized Ratings Organization ("NRRO"). Commercial paper may
include variable- and floating-rate instruments.
Convertible Securities
----------------------
The Funds may invest in convertible securities that provide current income
and that have a strong earnings and credit record. The Funds may purchase
convertible securities that are fixed-income debt securities or preferred
stocks, and which may be converted at a stated price within a specified period
of time into a certain quantity of the common stock of the same issuer.
Convertible securities, while usually subordinate to similar nonconvertible
securities, are senior to common stocks in an issuer's capital structure.
Convertible securities offer flexibility by providing the investor with a steady
income stream (which generally yield a lower amount than similar nonconvertible
securities and a higher amount than common stocks) as well as the opportunity to
take advantage of increases in the price of the issuer's common stock through
the conversion
7
<PAGE>
feature. Fluctuations in the convertible security's price can reflect changes in
the market value of the common stock or changes in market interest rates.
Custodial Receipts for Treasury Securities
------------------------------------------
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors.
Derivative Securities: Futures and Options Contracts
----------------------------------------------------
Futures and options contracts are types of "derivative securities,"
securities which derive their value, at least in part, from the price of another
security or asset, or the level of an index or a rate. As is described in more
detail below, a Fund often invests in these securities as a "hedge" against
fluctuations in the value of the other securities in that Fund's portfolio,
although a Fund may also invest in certain derivative securities for investment
purposes only.
While derivative securities are useful for hedging and investment, they
also carry additional risks. A hedging policy may fail if the correlation
between the value of the derivative securities and the other investments in a
Fund's portfolio does not follow the Advisor's expectations. If the Advisor's
expectations are not met, it is possible that the hedging strategy will not only
fail to protect the value of the Fund's investments, but the Fund may also lose
money on the derivative security itself. Also, derivative securities are more
likely to experience periods when they will not be readily tradable. If, as a
result of such illiquidity, a Fund cannot settle a future or option contract at
the time the Advisor determines is optimal, the Fund may lose money on the
investment. Additional risks of derivative securities include: the risk of the
disruption of the Fund's ability to trade in derivative securities because of
regulatory compliance problems or regulatory changes; credit risk of
counterparties to derivative contracts; and market risk (i.e., exposure to
adverse price changes).
The Advisor uses a variety of internal risk management procedures to ensure
that derivatives use is consistent with a Fund's investment objectives, does not
expose a Fund to undue risk and is closely monitored. These procedures include
providing periodic reports to the Board of Trustees concerning the use of
derivatives.
The use of derivatives by a Fund also is subject to broadly applicable
investment policies. For example, a Fund may not invest more than a specified
percentage of its assets in "illiquid securities," including those derivatives
that do not have active secondary markets. Nor may a Fund use certain
derivatives without establishing adequate "cover" in compliance with the U.S.
Securities and Exchange Commission ("SEC") rules limiting the use of leverage.
Futures Contracts. The Funds may trade futures contracts and options on
futures contracts. A futures transaction involves a firm agreement to buy or
sell a commodity or
8
<PAGE>
financial instrument at a particular price on a specified future date. Futures
contracts are standardized and exchange-traded, where the exchange serves as the
ultimate counterparty for all contracts. Consequently, the only credit risk on
futures contracts is the creditworthiness of the exchange.
The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, both the purchaser and seller are required to deposit "initial
margin" with a futures broker when the parties enter into the contract. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of a Fund's investment limitations.
In the event of the bankruptcy of the broker that holds the margin on behalf of
a Fund, the Fund may not receive a full refund of its margin.
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, a liquid market may not exist for
a particular contract at a particular time. Many futures exchanges and boards
of trade limit the amount of fluctuation permitted in futures contract prices
during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contracts prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subject a Fund to substantial losses. If it is not
possible, or a Fund determines not to close a futures position in anticipation
of adverse price movements, the Fund may be required to pay additional variation
margin until the position is closed.
The Funds may also purchase options on futures contracts. See "Options
Trading" below.
Small Cap Opportunities Fund - Options and Futures Contracts. Small Cap
Opportunities Fund may write covered calls on up to 100% of its total assets or
employ one or more types of instruments to hedge ("Hedging Instruments"). When
hedging to attempt to protect against declines in the market value of the Fund's
securities, to permit the Fund to retain unrealized gains in the value of Fund
securities which have appreciated, or to facilitate selling securities for
investment reasons, the Fund would: (1) sell Stock Index Futures; (2) purchase
puts on such futures or securities; or (3) write covered calls on securities or
on Stock Index Futures. When hedging to establish a position in the equities
markets as a temporary substitute for purchasing particular equity securities
(which the Fund will normally purchase and then terminate the hedging position),
the Fund would: (1) purchase Stock Index Futures, or (2) purchase calls on such
Futures or on securities. The Fund's strategy of hedging with Stock Index
Futures and options on such Futures will be incidental to the Fund's activities
in the underlying cash market.
9
<PAGE>
The Fund may write (i.e., sell) call options ("calls") if: (1) the calls
are listed on a domestic securities or commodities exchange and (2) the calls
are "covered" (i.e., the Fund owns the securities subject to the call or other
securities acceptable for applicable escrow arrangements) while the call is
outstanding. A call written on a Stock Index Future must be covered by
deliverable securities or segregated liquid assets. If a call written by the
Fund is exercised, the Fund forgoes any profit from any increase in the market
price above the call price of the underlying investment on which the call was
written.
When the Fund writes a call on a security, it receives a premium and agrees
to sell the underlying securities to a purchaser of a corresponding call on the
same security during the call period (usually not more than 9 months) at a fixed
exercise price (which may differ from the market price of the underlying
security), regardless of market price changes during the call period. The risk
of loss will have been retained by the Fund if the price of the underlying
security should decline during the call period, which may be offset to some
extent by the premium.
To terminate its obligation on a call it has written, the Fund may purchase
a corresponding call in a "closing purchase transaction." A profit or loss will
be realized, depending upon whether the net of the amount of option transaction
costs and the premium previously received on the call written was more or less
than the price of the call subsequently purchased. A profit may also be
realized if the call lapses unexercised, because the Fund retains the underlying
security and the premium received. Any such profits are considered short-term
capital gains for Federal income tax purposes, and when distributed by the Fund
are taxable as ordinary income. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the callable
securities until the call lapsed or was exercised.
The Fund may also write calls on Stock Index Futures without owning a
futures contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent dollar
amount of liquid assets. The Fund will segregate additional liquid assets if
the value of the escrowed assets drops below 100% of the current value of the
Stock Index Future. In no circumstances would an exercise notice require the
Fund to deliver a futures contract; it would simply put the Fund in a short
futures position, which is permitted by the Fund's hedging policies.
Purchasing Calls and Puts. The Small Cap Opportunities Fund may purchase
put options ("puts") which relate to: (1) securities held by it; (2) Stock
Index Futures (whether or not it holds such Stock Index Futures in its Fund); or
(3) broadly-based stock indices. The Fund may not sell puts other than those it
previously purchased, nor purchase puts on securities it does not hold. The
Fund may purchase calls: (1) as to securities, broadly-based stock indices or
Stock Index Futures or (2) to effect a "closing purchase transaction" to
terminate its obligation on a call it has previously written.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock indices, has
the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed
10
<PAGE>
exercise price. The Fund benefits only if the call is sold at a profit or if,
during the call period, the market price of the underlying investment is above
the sum of the call price plus the transaction costs and the premium paid for
the call and the call is exercised. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration date
and the Fund will lose its premium payments and the right to purchase the
underlying investment. When the Fund purchases a call on a stock index, it pays
a premium, but settlement is in cash rather than by delivery of an underlying
investment.
When the Fund purchases a put, it pays a premium and, except as to puts on
stock indices, has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at a fixed
exercise price. Buying a put on a security or Stock Index Future the Fund owns
enables the Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price by
selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal to
or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date and the Fund will
lose its premium payment and the right to sell the underlying investment; the
put may, however, be sold prior to expiration (whether or not at a profit).
Purchasing a put on either a stock index or on a Stock Index Future not
held by the Fund permits the Fund either to resell the put or to buy the
underlying investment and sell it at the exercise price. The resale price of
the put will vary inversely with the price of the underlying investment. If the
market price of the underlying investment is above the exercise price and, as a
result, the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in price of the underlying
investment, the Fund could exercise or sell the put at a profit to attempt to
offset some or all of its loss on its Fund securities. When the Fund purchases
a put on a stock index, or on a Stock Index Future not held by it, the put
protects the Fund to the extent that the index moves in a similar pattern to the
securities held. In the case of a put on a stock index or Stock Index Future,
settlement is in cash rather than by the Fund's delivery of the underlying
investment.
Stock Index Futures. The Small Cap Opportunities Fund may buy and sell
Stock Index Futures. A stock index is "broadly-based" if it includes stocks
that are not limited to issuers in any particular industry or group of
industries. Stock Index Futures obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made.
No price is paid or received upon the purchase or sale of a Stock Index
Future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment in cash or U.S. Treasury bills with a futures
commission merchant (the "futures broker"). The initial margin will be deposited
with the Fund's custodian in an account registered in the futures broker's name;
however the futures broker can gain access to that account only under specified
conditions. As the future is marked to market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the future, if
the Fund elects to close out its position by taking an
11
<PAGE>
opposite position, a final determination of variation margin is made,
additional cash is required to be paid by or released to the Fund, and any loss
or gain is realized for tax purposes. Although Stock Index Futures by their
terms call for settlement by the delivery of cash, in most cases the obligation
is fulfilled without such delivery, by entering into an offsetting transaction.
All futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Puts and calls on broadly-based stock indices or Stock Index Futures are
similar to puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index in
question (and thus on price movements in the stock market generally) rather than
on price movements in individual securities or futures contracts. When the Fund
buys a call on a stock index or Stock Index Future, it pays a premium. During
the call period, upon exercise of a call by the Fund, a seller of a
corresponding call on the same index will pay the Fund an amount of cash to
settle the call if the closing level of the stock index or Stock Index Future
upon which the call is based is greater than the exercise price of the call;
that cash payment is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple (the
"multiplier") which determines the total dollar value for each point of
difference. When the Fund buys a put on a stock index or Stock Index Future, it
pays a premium and has the right during the put period to require a seller of a
corresponding put, upon the Fund's exercise of its put, to deliver to the Fund
an amount of cash to settle the put if the closing level of the stock index or
Stock Index Future upon which the put is based is less than the exercise price
of the put; that cash payment is determined by the multiplier, in the same
manner as described above as to calls.
Foreign Currency Futures Contracts and Foreign Currency Transactions. The
Funds can invest in foreign currency futures contracts and foreign currency
transactions which entail the same risks as other futures contracts as described
above, but have the additional risks associated with international investing
(see "Foreign Obligations and Securities" below). Similar to other futures
contracts, a foreign currency futures contract is an agreement for the future
delivery of a specified currency at a specified time and at a specified price,
will be secured by margin deposits, are regulated by the CFTC and are traded on
designated exchanges. A Fund will incur brokerage fees when it purchases and
sells futures contracts.
The Funds may invest in foreign currency transactions. Foreign currency
transactions, such as forward foreign currency exchange contracts, are also
contracts for the future delivery of a specified currency at a specified time
and at a specified price. These transactions differ from futures contracts in
that they are usually conducted on a principal basis instead of through an
exchange, and therefore there are no brokerage fees, margin deposits are
negotiated between the parties, and the contracts are settled through different
procedures. The Advisor, considers on an ongoing basis the creditworthiness of
the institutions with which the Fund enters into foreign currency transactions.
Despite these differences, however, foreign currency futures contracts and
foreign currency transactions (together, "Currency Futures") entail largely the
same risks, and therefore the remainder of this section will describe the two
types of securities together.
12
<PAGE>
Because the Funds may invest in securities denominated in currencies other
than the U.S. dollar and may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies, they may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates influence values within the Fund from the perspective of
U.S. investors. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. The international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors
affect these forces.
A Fund will purchase and sell Currency Futures in order to hedge its
portfolio and to protect it against possible variations in foreign exchange
rates pending the settlement of securities transactions. If a fall in exchange
rates for a particular currency is anticipated, a Fund may sell a Currency
Future as a hedge. If it is anticipated that exchange rates will rise, a Fund
may purchase a Currency Future to protect against an increase in the price of
securities denominated in a particular currency the Fund intends to purchase.
These Currency Futures will be used only as a hedge against anticipated currency
rate changes. Although such contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the value of such
currency increase.
The use of Currency Futures involves the risk of imperfect correlation
between movements in futures prices and movements in the price of currencies
which are the subject of the hedge. The successful use of Currency Futures
strategies also depends on the ability of the Advisor to correctly forecast
interest rate movements, currency rate movements and general stock market price
movements. There can be no assurance that the Advisor's judgment will be
accurate. The use of Currency Futures also exposes a Fund to the general risks
of investing in futures contracts: the risk of an illiquid market for the
Currency Futures, the risk of exchange-imposed trading limits, and the risk of
adverse regulatory actions. Any of these events may cause a Fund to be unable to
hedge its securities, and may cause a Fund to lose money on its Currency Futures
investments.
The Funds may also purchase options on Currency Futures. See "Options
Trading" below.
Options Trading. The Funds, except the Diversified Small Cap Fund, Equity
Income Fund, Growth Equity Fund, International Fund, Large Company Growth Fund
and Small Company Growth Fund, may purchase or sell options on individual
securities or options on indices of securities. The purchaser of an option
risks a total loss of the premium paid for the option if the price of the
underlying security does not increase or decrease sufficiently to justify the
exercise of such option. The seller of an option, on the other hand, will
recognize the premium as income if the option expires unrecognized but foregoes
any capital appreciation in excess of the exercise price in the case of a call
option and may be required to pay a price in excess of current market value in
the case of a put option.
13
<PAGE>
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell, and
the writer the option to buy, the security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security.
The Funds will write call options only if they are "covered." In the case
of a call option on a security or currency, the option is "covered" if a Fund
owns the instrument underlying the call or has an absolute and immediate right
to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if
a Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call
option is also covered if a Fund holds an offsetting call on the same instrument
or index as the call written. The Funds will write put options only if they are
"secured" by liquid assets maintained in a segregated account by the Funds'
custodian in an amount not less than the exercise price of the option at all
times during the option period.
Each Fund may buy put and call options and write covered call and secured
put options. Options trading is a highly specialized activity which entails
greater than ordinary investment risk. Options may be more volatile than the
underlying instruments, and therefore, on a percentage basis, an investment in
options may be subject to greater fluctuation than an investment in the
underlying instruments themselves. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to the writer of the option. If the Advisor is
incorrect in its forecast of market value or other factors when writing options,
the Fund would be in a worse position than it would have been had if it had not
written the option. If a Fund wishes to sell an underlying instrument (in the
case of a covered call option) or liquidate assets in a segregated account (in
the case of a secured put option), the Fund must purchase an offsetting option
if available, thereby incurring additional transactions costs.
Below is a description of some of the types of options in which certain
Funds may invest.
A stock index option is an option contract whose value is based on the
value of a stock index at some future point in time. Stock indexes fluctuate
with changes in the market values of the stocks included in the index. The
effectiveness of purchasing or writing stock index options will depend upon the
extent to which price movements in a Fund's investment portfolio correlate with
price movements of the stock index selected. Accordingly, successful use by a
Fund of options on stock indexes will be subject to the Advisor's ability to
correctly analyze movements in the direction of the stock market generally or of
particular industry or market segments. When a Fund writes an option on a stock
index, the Fund will place in a segregated account with the Fund's custodian
cash or liquid securities in an amount at least equal to the market value of the
14
<PAGE>
underlying stock index and will maintain the account while the option is open or
otherwise will cover the transaction.
The Funds may invest in stock index futures contracts and options on stock
index futures contracts. A stock index futures contract is an agreement in
which one party agrees to deliver to the other an amount of cash equal to a
specific dollar amount multiplied by the difference between the value of a
specific stock index at the close of the last trading day of the contract and
the price at which the agreement is made. Stock index futures contracts may be
purchased to protect a Fund against an increase in the prices of stocks that
Fund intends to purchase. The purchase of options on stock index futures
contracts are similar to other options contracts as described above, where a
Fund pays a premium for the option to purchase or sell a stock index futures
contract for a specified price at a specified date. With options on stock index
futures contracts, a Fund risks the loss of the premium paid for the option. The
Funds may also invest in interest-rate futures contracts and options on
interest-rate futures contracts. These securities are similar to stock index
futures contracts and options on stock index futures contracts, except they
derive their price from an underlying interest rate rather than a stock index.
Interest-rate and index swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Index swaps
involve the exchange by a Fund with another party of cash flows based upon the
performance of an index of securities. Interest-rate swaps involve the exchange
by a Fund with another party of cash flows based upon the performance of a
specified interest rate. In each case, the exchange commitments can involve
payments to be made in the same currency or in different currencies. The Funds
will usually enter into swaps on a net basis. In so doing, the two payment
streams are netted out, with a Fund receiving or paying, as the case may be,
only the net amount of the two payments. If a Fund enters into a swap, it will
maintain a segregated account on a gross basis, unless the contract provides for
a segregated account on a net basis. The risk of loss with respect to swaps
generally is limited to the net amount of payments that a Fund is contractually
obligated to make. There is also a risk of a default by the other party to a
swap, in which case a Fund may not receive net amount of payments that the Fund
contractually is entitled to receive.
Future Developments. The Funds may take advantage of opportunities in the
areas of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by the
Funds or which are not currently available but which may be developed, to the
extent such opportunities are both consistent with the Funds' investment
objective and legally permissible for a Fund. Before entering into such
transactions or making any such investment, a Fund would provide appropriate
disclosure in its Prospectus or this SAI.
Emerging Market Securities
--------------------------
The Funds, except for the Equity Index Fund and the Index Fund, may invest
in equity securities of companies in "emerging markets." The Funds consider
countries with emerging markets to include the following: (i) countries with an
emerging stock market as defined by the
15
<PAGE>
International Finance Corporation; (ii) countries with low- to middle-income
economies according to the International Bank for Reconstruction and Development
(more commonly referred to as the World Bank); and (iii) countries listed in
World Bank publications as developing. The Advisor may invest in those emerging
markets that have a relatively low gross national product per capita, compared
to the world's major economies, and which exhibit potential for rapid economic
growth. The Advisor believes that investment in equity securities of emerging
market issuers offers significant potential for long-term capital
appreciation.
Equity securities of emerging market issuers may include common stock,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Funds may invest in American Depositary Receipts ("ADRs"),
Canadian Depositary Receipts ("CDRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") and International Depositary Receipts
("IDRs") of such issuers.
Emerging market countries include, but are not limited to: Argentina,
Brazil, Chile, China, the Czech Republic, Columbia, Ecuador, Greece, Hong Kong,
Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru,
Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. A company is
considered in a country, market or region if it conducts its principal business
activities there, namely, if it derives a significant portion (at least 50%) of
its revenues or profits from goods produced or sold, investments made, or
services performed therein or has at least 50% of its assets situated in such
country, market or region.
There are special risks involved in investing in emerging-market countries.
Many investments in emerging markets can be considered speculative, and their
prices can be much more volatile than in the more developed nations of the
world. This difference reflects the greater uncertainties of investing in less
established markets and economies. The financial markets of emerging markets
countries are generally less well capitalized and thus securities of issuers
based in such countries may be less liquid. Most are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity
prices. Some countries may still have obsolete financial systems, economic
problems or archaic legal systems. The currencies of certain emerging market
countries, and therefore the value of securities denominated in such currencies,
may be more volatile than currencies of developed countries. In addition, many
of these nations are experiencing political and social uncertainties.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations such as
demand notes and bonds. Variable-rate demand notes include master demand notes
that are obligations that permit a Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted
16
<PAGE>
automatically at specified intervals. The issuer of such obligations ordinarily
has a right, after a given period, to prepay in its discretion the outstanding
principal amount of the obligations plus accrued interest upon a specified
number of days notice to the holders of such obligations. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks.
There generally is no established secondary market for these obligations
because they are direct lending arrangements between the lender and borrower.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if the Advisor determines that
at the time of investment the obligations are of comparable quality to the other
obligations in which such Fund may invest. The Advisor, on behalf of each Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Fund's portfolio.
Floating- and variable-rate instruments are subject to interest-rate and credit
risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
Foreign Obligations and Securities
----------------------------------
The Funds may invest in foreign securities through ADRs, CDRs, EDRs, IDRs
and GDRs or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs (sponsored or
unsponsored) are receipts typically issued by a U.S. bank or trust company and
traded on a U.S. stock exchange, and CDRs are receipts typically issued by a
Canadian bank or trust company that evidence ownership of underlying foreign
securities. Issuers of unsponsored ADRs are not contractually obligated to
disclose material information in the U.S. and, therefore, such information may
not correlate to the market value of the unsponsored ADR. EDRs and IDRs are
receipts typically issued by European banks and trust companies, and GDRs are
receipts issued by either a U.S. or non-U.S. banking institution, that evidence
ownership of the underlying foreign securities. Generally, ADRs in registered
form are designed for use in U.S. securities markets and EDRs and IDRs in bearer
form are designed primarily for use in Europe.
For temporary defensive purposes, Funds may invest in fixed income
securities of non-U.S. governmental and private issuers. Such investments may
include bonds, notes, debentures and other similar debt securities, including
convertible securities.
Investments in foreign obligations involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, taxes
may be withheld at the source under foreign tax laws, and there is a possibility
of expropriation or confiscatory taxation,
17
<PAGE>
political, social and monetary instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
Investment income on certain foreign securities in which a Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign taxes to which
the Fund would be subject.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
- ------------
Each Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased
or sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date.
Each Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the Securities Act
of 1933, as amended (the "1933 Act") and other securities subject to legal or
other restrictions on resale. Illiquid securities may be difficult to sell
promptly at an acceptable price. Delay or difficulty in selling securities may
result in a loss or be costly to a Fund.
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities pursuant to guidelines approved
by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the limits established by the 1940
Act.
18
<PAGE>
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested subject to the investment objectives,
principal investment strategies and policies of the Fund. In connection with
lending securities, a Fund may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail
to return the securities or may fail to provide additional collateral. In
either case, a Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur. A Fund may pay a portion of the interest or fees earned
from securities lending to a borrower or securities lending agent. Borrowers
and placing brokers may not be affiliated, directly or indirectly, with the
Trust, the Advisor, or the Distributor.
Money Market Instruments and Temporary Investments
--------------------------------------------------
The Funds may invest in the following types of high quality money market
instruments that have remaining maturities not exceeding one year: (i) U.S.
Government obligations; (ii) negotiable certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations of domestic banks
(including foreign branches) that have more than $1 billion in total assets at
the time of investment and are members of the Federal Reserve System or are
examined by the Comptroller of the Currency or whose deposits are insured by the
FDIC; (iii) commercial paper rated at the date of purchase "Prime-1" by Moodys
or "A-1" or "A-1--" by S&P, or, if unrated, of comparable quality as determined
by the Advisor; and (iv) repurchase agreements. The Funds also may invest in
short-term U.S. dollar-denominated obligations of foreign banks (including U.S.
branches) that at the time of investment: (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among the 75 largest
foreign banks in the world as determined on the basis of assets; (iii) have
branches or agencies in the United States; and (iv) in the opinion of the
Advisor, are of comparable quality to obligations of U.S. banks which may be
purchased by the Funds.
Letters of Credit. Certain of the debt obligations (including certificates
of participation, commercial paper and other short-term obligations) which the
Funds may purchase may be backed by an unconditional and irrevocable letter of
credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of the Advisor, are of comparable quality to
issuers of other permitted investments of the Fund may be used for letter of
credit-backed investments.
Repurchase Agreements. Each Fund may enter into repurchase agreements,
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed upon time and price. A Fund may enter into
repurchase agreements only with respect to securities that could otherwise be
purchased by the Fund. All repurchase agreements will be fully collateralized
at 102% based on values that are marked to market daily. The maturities of the
underlying securities in a repurchase agreement transaction may be greater than
twelve months,
19
<PAGE>
although the maximum term of a repurchase agreement will always be less than
twelve months. If the seller defaults and the value of the underlying securities
has declined, a Fund may incur a loss. In addition, if bankruptcy proceedings
are commenced with respect to the seller of the security, the Fund's disposition
of the security may be delayed or limited.
The Funds may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of a Fund's net assets would be
invested in repurchase agreements with maturities of more than seven days and
illiquid securities. A Fund will only enter into repurchase agreements with
primary broker/dealers and commercial banks that meet guidelines established by
the Board of Trustees and that are not affiliated with the investment Advisor.
The Funds may participate in pooled repurchase agreement transactions with other
funds advised by the Advisor.
Mortgage-Related and Other Asset-Backed Securities
--------------------------------------------------
The Funds may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities may expose a Fund to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment the value
of the premium would be lost. Like other fixed-income securities, when interest
rates rise, the value of a mortgage-related security generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other fixed-income
securities. Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government or its agencies
or instrumentalities. Mortgage pass-through securities created by non-government
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers.
The Funds may also invest in investment grade Collateralized Mortgage
Obligations ("CMOs"). CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal National
Mortgage Association (" FNMA"). CMOs are structured into multiple classes, with
each class bearing a different stated maturity. Payments of principal,
including prepayments, are first returned to investors holding the shortest
maturity class; investors holding the longer maturity classes receive principal
only after the first class has been retired. As new types of mortgage-related
securities are developed and offered to investors, the Advisor will,
20
<PAGE>
consistent with a Fund's investment objective, policies and quality standards,
consider making investments in such new types of mortgage-related securities.
There are risks inherent in the purchase of mortgage-related securities.
For example, these securities are subject to a risk that default in payment will
occur on the underlying mortgages. In addition to default risk, these
securities are subject to the risk that prepayment on the underlying mortgages
will occur earlier or later or at a lessor or greater rate than expected. To
the extent that the Advisor's assumptions about prepayments are inaccurate,
these securities may expose the Funds to significantly greater market risks than
expected.
Other Asset-Backed Securities. The Funds may purchase asset-backed
securities unrelated to mortgage loans. These asset-backed securities may
consist of undivided fractional interests in pools of consumer loans or
receivables held in trust. Examples include certificates for automobile
receivables (CARS) and credit card receivables (CARDS). Asset-backed securities
are dependent upon payment of the consumer loans or receivables by individuals,
and the certificate holder frequently has no recourse to the entity that
originated the loans or receivables. The actual maturity and realized yield
will vary based upon the prepayment experience of the underlying asset pool and
prevailing interest rates at the time of prepayment. Asset-backed securities
are relatively new instruments and may be subject to greater risk of default
during periods of economic downturn than other instruments. Also, the secondary
market for certain asset-backed securities may not be as liquid as the market
for other types of securities, which could result in a Fund experiencing
difficulty in valuing or liquidating such securities.
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act.
Currently, under the 1940 Act, a Fund that invests directly in a portfolio of
securities is limited to, subject to certain exceptions, (i) 3% of the total
voting stock of any one investment company, (ii) 5% of such Fund's total assets
with respect to any one investment company and (iii) 10% of such Fund's total
assets. Gateway Funds, whose policies are to invest some or all of their assets
in the securities of one or more open-end management investment companies, are
excepted from these general limitations. Other investment companies in which the
Funds invest can be expected to charge fees for operating expenses such as
investment advisory and administration fees, that would be in addition to those
charged by the Funds.
Closed-End Investment Companies
-------------------------------
The Funds may invest in the securities of closed-end investment companies
that invest primarily in foreign securities. Because of restrictions on direct
investment by U.S. entities in certain countries, other investment companies may
provide the most practical or only way for the Fund to invest in certain
markets. The Funds will invest in such companies when, in the Advisor's
judgment, the potential benefits of the investment justify the payment of any
applicable premium or sales charge. Other investment companies incur their own
fees and expenses.
21
<PAGE>
Participation Interests
-----------------------
The Funds may purchase participation interests in loans or instruments in
which the fund may invest directly that are owned by banks or other
institutions. A participation interest gives a Fund an undivided proportionate
interest in a loan or instrument. Participation interests may carry a demand
feature permitting the holder to tender the interests back to the bank or other
institution. Participation interests, however, do not provide the Fund with any
right to enforce compliance by the borrower, nor any rights of set-off against
the borrower and the Fund may not directly benefit from any collateral
supporting the loan in which it purchased a participation interest. As a
result, the Fund will assume the credit risk of both the borrower and the lender
that is selling the participation interest.
Privately Issued Securities
---------------------------
The Funds may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued or Rule 144A securities that
are determined by the investment Advisor to be "illiquid" are subject to the
Funds' policy of not investing more than 15% of its net assets in illiquid
securities. The investment Advisor, under guidelines approved by Board of
Trustees of the Trust, will evaluate the liquidity characteristics of each Rule
144A Security proposed for purchase by a Fund on a case-by-case basis and will
consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mecha nics of transfer).
Small Company Securities
------------------------
Investments in small capitalization companies carry greater risk than
investments in larger capitalization companies. Smaller capitalization
companies generally experience higher growth rates and higher failure rates than
do larger capitalization companies; and the trading volume of smaller
capitalization companies' securities is normally lower than that of larger
capitalization companies and, consequently, generally has a disproportionate
effect on market price (tending to make prices rise more in response to buying
demand and fall more in response to selling pressure).
Securities owned by a Fund that are traded in the over-the-counter market
or on a regional securities exchange may not be traded every day or in the
volume typical of securities trading on a national securities exchange. As a
result, disposition by a Fund of a portfolio security, to meet redemption
requests by other investors or otherwise, may require the Fund to sell these
securities
22
<PAGE>
at a discount from market prices, to sell during periods when disposition is not
desirable, or to make many small sales over a lengthy period of time.
Investment in small, unseasoned issuers generally carry greater risk than
is customarily associated with larger, more seasoned companies. Such issuers
often have products and management personnel that have not been tested by time
or the marketplace and their financial resources may not be as substantial as
those of more established companies. Their securities (which a Fund may
purchase when they are offered to the public for the first time) may have a
limited trading market that can adversely affect their sale by the Fund and can
result in such securities being priced lower than otherwise might be the case.
If other institutional investors engaged in trading this type of security, a
Fund may be forced to dispose of its holdings at prices lower than might
otherwise be obtained.
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
the Advisor, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a sale of such security by the Fund. To the extent the ratings given by
Moodys or S&P may change as a result of changes in such organizations or their
rating systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moodys and S&P are more fully
described in the SAI Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government obligations").
Payment of principal and interest on U.S. Government obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Warrants
--------
The Funds may invest in warrants. Warrants represent rights to purchase
securities at a specific price valid for a specific period of time. The prices
of warrants do not necessarily
23
<PAGE>
correlate with the prices of the underlying securities. A Fund may only purchase
warrants on securities in which the Fund may invest directly.
Nationally Recognized Ratings Organizations
-------------------------------------------
The ratings of Moodys Investors Service, Inc., Standard & Poor's Ratings
Group, Division of McGraw Hill, Duff & Phelps Credit Rating Co., Fitch Investors
Service, Inc. Thomson Bank Watch and IBCA Inc. represent their opinions as to
the quality of debt securities. It should be emphasized, however, that ratings
are general and not absolute standards of quality, and debt securities with the
same maturity, interest rate and rating may have different yields while debt
securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase by a Fund, an issue of debt
securities may cease to be rated or its rating may be reduced below the minimum
rating required for purchase by a Fund. The Advisor will consider such an event
in determining whether the Fund involved should continue to hold the obligation.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Trustees
and principal executive Officer[s] of the Trust are listed below. The address
of each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Trustees deemed to be "interested persons" of the Trust for purposes of
the 1940 Act are indicated by an asterisk.
24
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
*Robert C. Brown, 65 Trustee, Director, Federal Farm Credit Banks Funding
1431 Landings Place Secretary and Corporation and Farm Credit System Financial
Sarasota, FL 34231 Treasurer Assistance Corporation since February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Suite 410 Roxane Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee and Private Investor.
31 Dellwood Court President
San Rafael, CA 94901
Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer;
Four Beaufain Street Chairman of Vault Holdings, LLC.
Charleston, SC 29401
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm
500 North State Street of Himle-Horner since January 1995 and Senior
Waseca, MN 56095 Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since
January 1995.
Donald C. Willeke, 58 Trustee Principal of the law firm of Willeke & Daniels.
201 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
Each of the Trustees and Officers listed above act in the identical
capacities for Wells Fargo Variable Trust and Wells Fargo Core Trust
(collectively the "Fund Complex"). Each Trustee receives an annual retainer
(payable quarterly) of $40,000 from the Fund Complex, and
25
<PAGE>
also receives a combined fee of $1,000 for attendance at Fund Complex Board
meetings, and a combined fee of $250 for attendance at committee meetings. If a
committee meeting is held absent a full Board meeting, each attending Trustee
will receive a $1,000 combined fee. These fees apply equally for in-person or
telephonic meetings, and Trustees are reimbursed for all out-of-pocket expenses
related to attending meetings. For 1999, the Trustees will receive a pro rata
share of the annual retainer, calculated from the closing date of the
Reorganization. The Trustees do not receive any retirement benefits or deferred
compensation from the Trust or an other member of the Fund Complex.
As of the date of this SAI, Trustees and officers of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of the Trust.
Investment Advisor. Subject to the general supervision of the Board, Wells
------------------
Fargo Bank provides investment advisory services to the Funds. As investment
advisor, Wells Fargo Bank furnishes investment guidance and policy direction in
connection with the daily portfolio management of the Funds. Wells Fargo Bank
furnishes to the Trust's Board of Trustees periodic reports on the investment
strategies and performance of each Fund.
The Funds operate under three types of advisory arrangements: (i) stand-
alone Funds with an investment advisor and sub-advisor; (ii) gateway feeder
Funds that invest in a single corresponding core portfolio of Wells Fargo Core
Trust ("Core Trust") and have "dormant" advisory arrangements at the gateway
level; and (iii) gateway blended Funds that invest in two or more core
portfolios and have both active and dormant advisory arrangements at the gateway
level.
As compensation for its advisory services for the following stand-alone
Funds, Wells Fargo Bank is entitled to receive a monthly fee at the annual rates
indicated below of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Stand-Alone Funds (as a percentage of net assets)
- ----------------- -------------------------------
<S> <C>
Equity Index 0.25%
Equity Value 0.75%
Growth 0.75%
International Equity 1.00%
Small Cap Growth 0.90%
Small Cap Opportunities 0.90%
</TABLE>
As described in the second category above, the gateway feeder Funds (the
"Gateway Funds") each invest 100% of their assets in a single respective core
portfolio of Core Trust. Because the Gateway Funds invest all of their assets
in a single portfolio, no investment advisory services are currently provided at
the gateway feeder Fund level. However, in order to preserve flexibility to
allow the Gateway Funds to either invest in more than one core portfolio of Core
Trust or to convert to a stand-alone Fund with a direct advisory relationship,
the following Funds
26
<PAGE>
have a "dormant" advisory arrangement with Wells Fargo Bank. Under the dormant
advisory arrangement, Wells Fargo Bank will receive no advisory fees as long as
the Gateway Fund invest all (or substantially all) of its assets in one core
portfolio of Core Trust. In the event that the Gateway Fund converts into a
gateway blended Fund as described above, Wells Fargo Bank as advisor would be
entitled to receive a fee of 0.25% for asset allocation services. The dormant
advisory rate listed below mirrors the advisory fee charged by Wells Fargo Bank
to the Core Trust portfolio in which the Gateway Fund invests.
<TABLE>
<CAPTION>
Active Dormant Asset Pass-through
Gateway Feeder Fund Advisory Fees Allocation Fees* Advisory Fees**
- ------------------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Disciplined Growth 0.00% 0.25% 0.75%
Equity Income 0.00% 0.25% 0.75%
Index 0.00% 0.25% 0.15%
International 0.00% 0.25% 1.00%
Large Company Growth 0.00% 0.25% 0.75%
Small Cap Value 0.00% 0.25% 0.90%
Small Company Growth 0.00% 0.25% 0.90%
</TABLE>
____________________
* Represents the proposed advisory fee payable to Wells Fargo Bank as Advisor
if the Fund converts into a gateway blended Fund.
** Represents the advisory fee payable to Wells Fargo as advisor to the Fund of
Core Trust. This would be the proposed advisory fee payable to Wells Fargo
Bank as advisor if the Fund converts into a stand-alone Fund.
As described in the third category above, the following gateway blended
Funds invest their respective assets in two or more Funds of Core Trust. For
these Funds, Wells Fargo Bank determines the core portfolios of Core Trust in
which each gateway blended Fund invests and the percentage allocation that each
gateway blended Fund would make to each core portfolio. For these asset
allocation services, Wells Fargo Bank is entitled to receive a fee as indicated
in the chart below. The gateway blended Funds also have the dormant advisory
arrangements described above with respect to the gateway feeder Funds.
27
<PAGE>
<TABLE>
<CAPTION>
Advisory Fees Core Level
Gateway Blended Funds (Maximum Asset Allocation Fees) Dormant Advisory Fees*
- --------------------- ------------------------------- ----------------------
<S> <C> <C>
Diversified Equity 0.25% 0.72%
Diversified Small Cap 0.25% 0.87%
Growth Equity 0.25% 0.97%
</TABLE>
_________________
* Because the gateway blended Funds invest in two or more Core Trust portfolios
with varying advisory fees, the dormant advisory fees are based on a formula
that reflects a blended fee rate.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amount of advisory
(and other) fees paid shows the dollar amount of fees paid to either Wells Fargo
Bank or NIM by the predecessor portfolio that is considered the surviving entity
for accounting purposes.
FORMER STAGECOACH FUNDS
For the periods indicated below, the following Funds paid to Wells Fargo
Bank the following advisory fees and Wells Fargo Bank waived the indicated
amounts:
<TABLE>
<CAPTION>
Year-Ended
9/30/99
-------
Fund Fees Paid Fees Waived
---- --------- -----------
<S> <C> <C>
Equity Index $1,647,319 $1,035,373
Equity Value $1,375,903 $1,320,099
Growth $1,923,826 $1,841,878
International Equity $ 690,372 $ 463,889
Small Cap Growth $ 453,180 $ 317,403
</TABLE>
<TABLE>
<CAPTION>
Six-Month Six-Month
Period-Ended Year-Ended Period-Ended
9/30/98 3/31/98 3/31/97
------- ------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
- ---- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Equity Index $572,998 $158,503 $ 1,638,127 $ 288,393 $ 933,498* $ 0*
Equity Value $843,996 $ 0 $ 1,286,783 $ 95,512 $ 557,096 $ 0
Growth $969,698 $ 0 $ 1,753,825 $ 44,284 $ 782,529 $ 0
International Equity** $238,297 $ 83,843 $ 145,743 $ 111,696 N/A N/A
Small Cap Growth $288,703 $ 10,004 $ 169,949*** $ 227,120*** $ 89,707*** $ 0***
</TABLE>
28
<PAGE>
____________________
* For the period between April 29, 1996 and December 15, 1997, amounts
represent advisory fees paid by the Master Portfolio on behalf of the Fund
as described below.
** These amounts indicate fees paid since September 24, 1997, the commencement
date.
*** These amounts reflect fees allocated from the Master Portfolio for the Fund
as described below.
Equity Index Fund. Prior to April 29, 1996, the Equity Index Fund
-----------------
invested directly in a portfolio of securities and Wells Fargo Bank provided
investment advisory services directly to the Fund. On April 29, 1996 the Fund
was converted to a "master/feeder structure" and began to invest all of its
assets in a corresponding Master Portfolio, which had an identical investment
objective, of Master Investment Trust, another open-end management investment
company. The Master Portfolio was advised by Wells Fargo Bank and Wells Fargo
Bank was entitled to receive a monthly fee equal to an annual rate of 0.50% of
the first $250 million of the Fund's average daily net assets, 0.40% of the next
$250 million, and 0.30% of the average daily net assets in excess of $500
million. The Fund operated as part of the master/feeder structure from April 29,
1996 to December 12, 1997, at which time the master/feeder structure was
dissolved.
For the nine-month period ended September 30, 1996, the Fund paid
$1,249,048 to Wells Fargo Bank in advisory fees, without waivers. For the period
between April 29, 1996 and December 15, 1997, a portion of these fees represent
advisory fees paid by the Master Portfolio on behalf of the Fund.
Small Cap Growth Fund. Prior to December 12, 1997, the Stagecoach Small
---------------------
Cap Fund did not engage an investment advisor because it invested all of its
assets in a Master Portfolio (which had the same investment objective as the
Fund) that was advised by Wells Fargo Bank. The Stagecoach Small Cap Fund
invested in the Small Cap Master Portfolio. The terms of the Master Portfolio's
advisory contract were identical in all material respects to the terms of the
Fund's existing advisory contract.
Former Norwest Funds
For the periods indicated below, the following Funds paid to NIM, which
is now merged into a wholly owned investment advisory subsidiary of Wells Fargo
Bank, the following advisory fees and NIM waived the indicated amounts:
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
---------- ---------- ----------
Fund Fees Fees Fees Fees Fees Fees
Paid Waived Paid Waived Paid Waived
---- ------ ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Disciplined Growth* $ 0 $ 0 $ 29,904 $ 0 N/A N/A
Diversified Equity $3,114,665 $1,122,346 $9,600,889 $1,443,556 $6,874,776 $ 0
Diversified Small Cap $ 0 $ 87,077 $ 19,899 $ 5,712 $ N/A $ N/A
Equity Income* $ 27,000 $ 14,549 $5,115,544 $ 0 $1,906,693 $ 0
Growth Equity $2,425,572 $ 0 $9,032,101 $ 410,824 $7,205,405 $ 0
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Index* $ 0 $ 0 $ 915,590 $ 0 $ 350,754 $212,327
International* $ 680,154 $ 0 $1,474,967 $ 75,568 $ 812,485 $ 0
Large Company Growth* $ 0 $ 0 $1,153,835 $ 0 $ 651,110 $ 0
Small Cap Opportunities $ 0 $ 0 $1,161,941 $ 0 $ N/A N/A
Small Cap Value* $ 0 $ 0 $ 15,710 $ 0 N/A N/A
Small Company Growth* $ 0 $ 0 $6,198,447 $ 0 $3,513,581 $ 0
</TABLE>
- --------------------
* Represents investment advisory fees paid to NIM as the advisor of the core
portfolio of Core Trust.
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Investment Sub-Advisors. Wells Fargo Bank has engaged Wells Capital
-----------------------
Management Incorporated ("WCM"), Peregrine Capital Management, Inc.
("Peregrine"), Smith Asset Management Group ("Smith"), and Schroder Investment
Management Inc. North America ("Schroder") to serve as investment sub-advisors
to the stand-alone Funds of the Trust and the core portfolios of Core Trust in
which the gateway blended and gateway feeder Funds invest, as listed in the
chart below (collectively, the "Sub-Advisors"). Subject to the direction of the
Trusts' Board of Trustees and the overall supervision and control of Wells Fargo
Bank and the Trusts, the Sub-Advisors make recommendations regarding the
investment and reinvestment of the Funds' assets. The Sub-Advisors furnish to
Wells Fargo Bank periodic reports on the investment activity and performance of
the Funds. The Sub-Advisors also furnish such additional reports and information
as Wells Fargo Bank and the Trusts' Board of Trustees and officers may
reasonably request.
As compensation for sub-advisory services to the core portfolios of Core
Trust, WCM, Peregrine, Smith and Schroder are each entitled to receive the
following fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Core Portfolio Sub-Advisor Fees
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Disciplined Growth Smith 0-175M 0.35%
175-225M 0
225-500M 0.25%
greater than 500M 0.20%
- --------------------------------------------------------------------------
Equity Income WCM 0-200M 0.25%
200-400M 0.20%
greater than 400M 0.15%
- --------------------------------------------------------------------------
Index WCM 0-200M 0.02%
greater than 200M 0.01%
- --------------------------------------------------------------------------
International Schroder 0-100M 0.45%
100-200M 0.35%
200-600M 0.20%
greater than 600M 0.185%
- --------------------------------------------------------------------------
International Equity WCM 0-200M 0.35%
200-400M 0.25%
greater than 400M 0.15%
- --------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Large Company Peregrine 0-25M 0.75%
Growth 25-50M 0.60%
50-275M 0.50%
greater than 275M 0.30%
- --------------------------------------------------------------------------
Small Cap Index WCM 0-200M 0.02%
greater than 200M 0.01%
- --------------------------------------------------------------------------
Small Cap Value Smith 0-110M 0.45%
110-150M 0%
150-300M 0.30%
greater than 300M 0.25%
- --------------------------------------------------------------------------
Small Company Peregrine 0-50M 0.90%
Growth 50-180M 0.75%
180-340M 0.65%
340-685M 0.50%
685-735M 0.52%
greater than 735M 0.55%
- --------------------------------------------------------------------------
Small Company Peregrine 0-200M 0.50%
Value greater than 200M 0.75%
- --------------------------------------------------------------------------
</TABLE>
Wells Fargo Bank has engaged WCM and Schroder as investment sub-advisors
for the stand-alone Funds listed below of the Trust. For providing sub-advisory
services, WCM or Schroder is entitled to receive fees as described below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Fund Sub-Advisor Fee
- --------------------------------------------------------------------------
<S> <C> <C>
Equity Index WCM 0-200M 0.02%
greater than 200M 0.01%
- --------------------------------------------------------------------------
Equity Value WCM 0-200M 0.25%
200-400M 0.20%
greater than 400M 0.15%
- --------------------------------------------------------------------------
Growth WCM 0-200M 0.25%
200-400M 0.20%
greater than 400M 0.15%
- --------------------------------------------------------------------------
International Equity WCM 0-200M 0.35%
200-400M 0.25%
greater than 400M 0.15%
- --------------------------------------------------------------------------
Small Cap Growth WCM 0-200M 0.25%
200-400M 0.20%
greater than 400M 0.15%
- --------------------------------------------------------------------------
Small Cap Opportunities Schroder 0.60%
- --------------------------------------------------------------------------
</TABLE>
Equity Index Fund. Barclays Global Fund Advisors ("BGFA") served as
-----------------
investment sub-advisor to the predecessor Stagecoach Equity Index Fund.
As compensation for its sub-advisory services, BGFA was entitled to receive
a monthly fee equal to an annual rate of 0.02% of the first $500 million of the
Fund's average daily net assets and 0.01% of net assets over $500 million. This
fee was paid by Wells Fargo Bank or directly by the Fund. For sub-advisory fees
paid directly by the Fund, the compensation paid to Wells Fargo Bank for
advisory fees were reduced accordingly. The predecessor Master Portfolio was
also sub-advised by BGFA, and from October 30, 1997 to December 12, 1997, was
entitled to receive the fee described above. Prior to October 30, 1997, BGFA
was entitled to receive a
31
<PAGE>
monthly fee equal to an annual rate of 0.08% of the Master Portfolio's average
daily net assets plus an annual payment of $40,000.
Administrator. The Trust has retained Wells Fargo Bank as Administrator on
-------------
behalf of each Fund. Under the Administration Agreement between Wells Fargo Bank
and the Trust, Wells Fargo Bank shall provide as administration services, among
other things: (i) general supervision of the Funds' operations, including
coordination of the services performed by each Fund's investment advisor,
transfer agent, custodian, shareholder servicing agent(s), independent auditors
and legal counsel, regulatory compliance, including the compilation of
information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for each Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports distributed
to the Trust's officers and Board of Trustees. Wells Fargo Bank also furnishes
office space and certain facilities required for conducting the Funds' business
together with ordinary clerical and bookkeeping services. The Administrator is
entitled to receive a fee of 0.15%, of the average daily net assets on an annual
basis of each Fund.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amounts of
administration fees paid shows the dollar amount of fees paid to the
Administrator(s) by the predecessor portfolio that is considered the surviving
entity for accounting purposes.
FORMER STAGECOACH FUNDS
The predecessor Stagecoach Funds had retained Wells Fargo Bank as
Administrator from March 25, 1999 through the date of the Reorganization, on the
same terms as are currently in effect. Prior to March 25, 1999, the predecessor
Stagecoach Funds had retained Wells Fargo Bank as Administrator and Stephens as
Co-Administrator on behalf of each Fund. Wells Fargo Bank and Stephens were
entitled to receive monthly fees of 0.03% and 0.04%, respectively, of the
average daily net assets of each Fund. Prior to February 1, 1998, Wells Fargo
Bank and Stephens received a monthly fees of 0.04% and 0.02%, respectively, of
the average daily net assets of each Fund. In connection with the change in
fees, the responsibility for performing various administration services was
shifted to the Co-Administrator.
Except as described below, prior to February 1, 1997, Stephens served as
sole Administrator and performed substantially the same services now provided by
Wells Fargo Bank.
For the periods indicated below, the following Funds paid the following
dollar amount as administration fees:
32
<PAGE>
<TABLE>
<CAPTION>
Year-Ended
9/30/99
-------
Fund Paid Waived Wells Fargo Stephens
---- ---- ------ ----------- --------
<S> <C> <C> <C> <C>
Equity Index $680,944 $680,944 $417,374 $263,570
Equity Value $270,800 $270,800 $160,728 $110,072
Growth $424,913 $424,923 $257,541 $167,382
International Equity $ 25,677 $ 25,677 $ 48,462 $ 25,677
Small Cap Growth $ 69,322 $ 69,322 $ 39,110 $ 30,212
<CAPTION>
Six-Month
Period Ended
9/30/98
-------
Fund Paid Waived Wells Fargo Stephens
---- ---- ------ ----------- --------
<S> <C> <C> <C> <C>
Equity Index $203,041 $ 1,779 $88,073 $116,747
Equity Value $118,003 $ 157 $50,741 $ 67,262
Growth $145,471 $ 2,291 $62,553 $ 82,918
International Equity $ 19,247 $12,541 $ 8,276 $ 10,971
Small Cap Growth $ 22,244 $12,605 $ 9,565 $ 12,679
</TABLE>
<TABLE>
<CAPTION>
Year-Ended
3/31/98
-------
Fund Total Wells Fargo Stephens
---- ----- ----------- --------
<S> <C> <C> <C>
Equity Index $306,855 $205,593 $101,262
Equity Value $170,979 $114,556 $ 56,423
Growth $238,706 $159,933 $ 78,773
International Equity* $ 22,395 $ 15,005 $ 7,390
Small Cap Growth $ 41,139 $ 27,563 $ 13,576
</TABLE>
_______________
* These amounts reflect fees paid from September 24, 1997, the Fund's
commencement date, until March 31, 1998.
33
<PAGE>
<TABLE>
<CAPTION>
Six-Month
Period Ended
3/31/97
-------
Fund Total Wells Fargo Stephens
---- ----- ---------- --------
<S> <C> <C> <C>
Equity Index $80,775 $16,155 $64,620
Equity Value $59,479 $11,896 $47,583
Growth $64,992 $12,998 $51,994
Small Cap Growth $ 8,027* $ 1,605* $ 6,422*
</TABLE>
__________________
* These amounts reflect fees allocated from the Master Portfolio for the
Small Cap and Strategic Growth Fund.
Former Norwest Funds
With respect to the predecessor Norwest Funds, Forum Financial Services,
Inc. ("Forum") managed all aspects of the operation of the Funds, except those
which were the responsibility of Forum Administrative Services, LLC ("FAS") as
administrator or Norwest in its capacity as administrator.
For the periods indicated below, the following Funds paid the following
dollar amounts as administration fees:
<TABLE>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
---------- ---------- ----------
Fees Fees Fees Fees Fees Fees
---- ---- ---- ---- ---- ----
Fund Paid Waived Paid Waived Paid Waived
- ---- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Disciplined Growth $ 2,504 $ 18,270 $ 0 $ 3,151 N/A N/A
Diversified Equity $224,046 $199,656 $783,790 $1,033,609 $ 0 $882,175
Diversified Small Cap $ 9,749 $ 7,667 $ 0 $ 2,294 N/A N/A
Equity Income $344,522 $402,542 $ 0 $ 614,403 $ 0 $223,044
Growth Equity $104,378 $380,736 $ 0 $ 817,903 $ 0 $560,498
Index $ 66,842 $402,956 $ 0 $ 460,858 $ 0 $213,759
International $941,855 $ 10,361 $604,247 $ 4,466 $166,438 $ 7,005
Large Company Growth $ 0 $280,450 $ 0 $ 127,981 $ 0 $ 87,896
Small Cap Opportunities $627,508 $ 98,591 $167,854 $ 40,352 $ 0 $ 26,726
Small Cap Value $ 6,058 $ 0 $ 0 $ 1,563 N/A N/A
Small Company Growth $ 51,168 $241,848 $ 0 $ 383,589 $ 19,110 $185,644
</TABLE>
Distributor. Stephens Inc. ("Stephens," the "Distributor"), located at 111
-----------
Center Street, Little Rock, Arkansas 72201, serves as Distributor for the
Funds. The Funds have adopted a distribution plan (a "Plan") under Section
12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") for their Class B
and Class C shares. The Plan was adopted by the Trust's Board of Trustees,
including a majority of the Trustees who were not "interested persons" (as
defined in the 1940 Act) of the Funds and who had no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the "Non-Interested Trustees").
34
<PAGE>
Under the Plan and pursuant to the related Distribution Agreement, the
Class B and Class C shares of the Funds pay Stephens up to 0.75% of the average
daily net assets attributable to each Class as compensation for distribution-
related services or as reimbursement for distribution-related expenses.
The actual fee payable to the Distributor by the above-indicated Funds and
Classes is determined, within such limits, from time to time by mutual agreement
between the Trust and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the fees received by the
Funds' Distributor shows the fees paid by the predecessor portfolio that is
considered the surviving entity for accounting purposes to its respective
Distributor.
Former Stagecoach Funds
The predecessor Stagecoach Funds had retained Stephens as their
Distributor. For the year ended September 30, 1999, Stephens received the
following fees for distribution-related services, as set forth below, under each
Fund's Rule 12b-1 Plan.
<TABLE>
<CAPTION>
Fund Total
---- -----
<S> <C>
Equity Index $348,566
Class B
Equity Value
Class B $542,815
Class C $ 8,683
Growth
Class B $421,532
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Fund Total
---- -----
<S> <C>
International Equity
Class B $266,018
Class C $ 2,161
Small Cap Growth
Class B $115,809
Class C $ 10,995
</TABLE>
Former Norwest Funds
The predecessor Norwest Funds had retained Forum as their Distributor. For
the year ended May 31, 1999, Forum received the following fees for distribution-
related services, as set forth below, under each Fund's Rule 12b-1 Plan.
<TABLE>
<CAPTION>
Distribution Distribution
Fee Fee
Fund Total Payable Waiver
- ---- ----- ------- ------
<S> <C> <C> <C>
Diversified Equity
Class B $954,051 $954,051 $ 0
Class C N/A N/A N/A
Diversified Small Cap
Class B
Equity Income
Class B $836,884 $836,884 $ 0
Class C N/A N/A N/A
Growth Equity
Class B $175,451 $175,451 $ 0
International
Class B $ 20,211 $ 20,211 $ 0
Large Company Growth
Class B N/A N/A N/A
Class C
Small Cap Opportunities
Class B $ 48,792 $ 48,792 $ 0
</TABLE>
36
<PAGE>
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Trustees of the Trust and
the Non-Interested Trustees. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Trustees and the Non-Interested
Trustees. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant class of the Fund or by
vote of a majority of the Non-Interested Trustees on not more than 60 days'
written notice. The Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding voting
securities of the Fund, and no material amendment to the Plan may be made except
by a majority of both the Trustees of the Trust and the Non-Interested Trustees.
The Plan requires that the Treasurer of Trust shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Trustees who are not "interested
persons" of the Trust be made by such disinterested Trustees.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Trust, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plan. The Board of Trustees has concluded that the Plan is
reasonably likely to benefit the Funds and their shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
Shareholder Servicing Agent. The Funds have approved a Servicing Plan and
---------------------------
have entered into related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank. Under the agreements, Shareholder
Servicing Agents (including Wells Fargo Bank) agree to perform, as agents for
their customers, administrative services, with respect to Fund shares, which
include aggregating and transmitting shareholder orders for purchases, exchanges
and redemptions; maintaining shareholder accounts and records; and providing
such other related services as the Trust or a shareholder may reasonably
request. For providing shareholder services, a Servicing Agent is entitled to a
fee from the applicable Fund as indicated below on an annualized basis, of the
average daily net assets of the class of shares owned of record or beneficially
by the customers of the Servicing Agent during the period for which payment is
being made. The amounts payable under the Shareholder Servicing Plan and
Agreements are shown below. The Servicing Plan and related Shareholder
Servicing Agreements were approved by the Trust's Board of Trustees and provide
that a Fund shall not be obligated to make any payments under such Plan or
related Agreements that exceed the maximum amounts payable under the Conduct
Rules of the NASD.
37
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Disciplined Growth
Institutional N/A
Diversified Equity
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class N/A
Diversified Small Cap
Class A 0.25%
Class B 0.25%
Institutional Class 0.10%
Equity Income
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class N/A
Equity Index
Class A 0.25%
Class B 0.25%
Class O 0.20%
Equity Value
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class N/A
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Growth
Class A 0.25%
Class B 0.25%
Institutional Class N/A
Growth Equity
Class A 0.25%
Class B 0.25%
Institutional Class N/A
Index
Institutional Class N/A
International
Class A 0.25%
Class B 0.25%
Institutional Class N/A
International Equity
Class A 0.25%
Class B 0.25%
Class C N/A
Institutional Class
Large Company Growth
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class N/A
Small Cap Growth
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional Class 0.10%
Small Cap Opportunities
Class A 0.25%
Class B 0.25%
Institutional Class 0.10%
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Small Cap Value
Institutional Class 0.10%
Small Company Growth
Institutional Class 0.10%
</TABLE>
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Trustees of the Trust,
and the Non-Interested Trustees. Any form of Servicing Agreement related to the
Servicing Plan also must be approved by such vote of the Trustees and the Non-
Interested Trustees. Servicing Agreements may be terminated at any time, without
payment of any penalty, by a vote of a majority of the Board of Trustees,
including a majority of the Non-Interested Trustees. No material amendment to
the Servicing Plan or related Servicing Agreements may be made except by a
majority of both the Trustees of the Trust and the Non-Interested Trustees.
The Servicing Plan requires that the Administrator of the Trust shall
provide to the Trustees, and the Trustees shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the
Servicing Plan.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
---------
Norwest Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as
custodian for each Fund except for the International Equity Fund for which
Investors Bank & Trust Company ("IBT"), located at 200 Clarendon Street, Boston,
Massachusetts 02116, acts as custodian. The custodian, among other things,
maintains a custody account or accounts in the name of each Fund, receives and
delivers all assets for each Fund upon purchase and upon sale or maturity,
collects and receives all income and other payments and distributions on account
of the assets of each Fund and pays all expenses of each Fund. For its services
as custodian, Norwest Bank is entitled to receive 0.02% of the average daily net
assets of each Fund except the Gateway Funds. The Gateways Funds are not charged
a custody fee at the Gateway level, provided that they remain Gateway Funds and
Norwest Bank receives custodial fees for the Core Trust Portfolios. With respect
to the International Equity Fund, IBT is entitled to receive a domestic custody
fee of 0.01% of the average daily net assets of the Fund and transaction fees
and basis point fees depending on the county in which the foreign assets are
held.
Fund Accountant. Forum Accounting Services, LLC ("Forum Accounting"),
---------------
located at Two Portland Square, Portland, Maine 04101, serves as Fund Accountant
for the Funds except for the Equity Index, Equity Value and International Equity
Funds for which Wells Fargo Bank serves as Fund Accountant. Forum Accounting
served as Fund Accountant for the predecessor Norwest Funds whereas Wells Fargo
served as Fund Accountant for the predecessor Stagecoach Funds. In order to
ensure an orderly fund accounting transition to Forum Accounting for all the
Funds, Wells Fargo will continue to serve as Fund Accountant for the Funds
mentioned above during a transition period. It is anticipated that the
transition period will last until April 1, 2000, by which time Forum Accounting
will be serving as Fund Accountant for all of the Funds.
40
<PAGE>
If the conversion to Forum Accounting does not occur on or before April 1,
2000, Wells Fargo Bank will continue to serve as Fund Accountant until the
conversion occurs, but not longer than one year from November 8, 1999, at which
time it is anticipated that Forum Accounting will serve as Fund Accountant for
the Funds. Wells Fargo Bank is entitled to receive the same fees as Norwest
Bank.
For their services as Fund Accountant, Forum Accounting and Wells Fargo
Bank each are entitled to receive a monthly base fee per Fund ranging from
$2,000 for gateway Funds up to $5,833 for Funds with significant holdings of
asset-backed securities. In addition, each Fund pays a monthly fee of $1,000 per
class. Forum Accounting and Wells Fargo Bank are also each entitled to receive a
fee equal to 0.0025% of the average annual daily net assets of each Fund
(excluding the net assets invested in core portfolios of Core Trust which pays
Forum Accounting a similar fee).
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
--------------------------------------
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts
as Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, BFDS is entitled to receive a per-account fee plus transaction fees
and certain out-of-pocket costs. BFDS is also entitled to receive a complex base
fee from all the Funds of the Trust, Wells Fargo Core Trust and Wells Fargo
Variable Trust.
Underwriting Commissions. Stephens serves as the principal underwriter
------------------------
distributing securities of the Funds on a continuous basis. Stephens served as
principal underwriter of the Stagecoach predecessor portfolios whereas Forum
served as underwriter of the predecessor Norwest portfolios. The information
shown below regarding underwriting commissions paid for the last three fiscal
years reflects the amounts paid by the predecessor Stagecoach Fund family and
Norwest Fund family.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Stephens by the predecessor Stagecoach Fund
family and the amounts retained by Stephens are as follows:
<TABLE>
<CAPTION>
Period-Ended Period-Ended Period-Ended
9/30/99 9/30/98 9/30/97
------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Paid Retained Paid Retained Paid Retained
---- -------- ---- -------- ---- --------
$6,214,051 $2,289,826 $6,146,848 $1,684,758 $4,527,472 $508,825
</TABLE>
For the year-ended September 30, 1999, Wells Fargo Securities, Inc., an
affiliated broker-dealer of the Trust retained $2,324,394.93.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Forum by the predecessor Norwest Funds and the
amounts retained by Forum are as follows:
41
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paid Retained Paid Retained Paid Retained
---- -------- ---- -------- ---- --------
Diversified Equity
Class A $ 611,000 $ 0 $853,000 $70,000 $485,324 $8,286
Diversified Small Cap
Class A $ 10,000 $ 0 N/A N/A N/A N/A
Equity Income
Class A $ 720,000 $ 44,000 $692,000 $69,000 $320,385 $1,121
Growth Equity
Class A $ 66,000 $ 4,000 $173,000 $17,000 $175,495 $5,347
International
Class A $ 15,000 $ 1,000 $ 12,000 $ 1,000 $ 8,728 $ 874
Large Company Growth
Class A $2,227,000 $142,000 N/A N/A N/A N/A
Small Cap Opportunity
Class A $ 21,000 $ 0 $148,000 $12,000 $ 11,604 $1,178
Small Company Growth
Class A $ 23,000 $ 2,000 $ 28,000 $ 3,000 $ 23,419 $2,335
</TABLE>
For the year ended May 31, 1999, Norwest Investment Services Inc. received
$4,049,102.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment
42
<PAGE>
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds. Annual
and Semi-Annual Reports for the Funds may contain additional performance
information, and are available free of charge upon request.
Average Annual Total Return: The Funds may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)/n/=ERV.
Former Norwest Funds
Average Annual Total Return for the Applicable Period Ended May 31,
-------------------------------------------------------------------
1999/1/
-------
<TABLE>
<CAPTION>
Ten Five One
Inception/2/ Year Year Year
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Disciplined Growth
Institutional 8.52% N/A N/A 9.29 %
Diversified Equity
Class A 16.67 % 15.75% 19.81% 8.46 %
Class B 16.45 % 15.58% 20.25% 10.24 %
Class C N/A N/A N/A N/A
Institutional Class 17.33 % 16.44% 21.24% 15.08 %
Diversified Small Cap
Class A (11.04)% N/A N/A (19.42)%
Class B (10.39)% N/A N/A (18.35)%
Institutional Class (7.25)% N/A N/A (14.54)%
Equity Income
Class A 16.76 % 15.98% 21.13% 8.15 %
Class B 16.57 % 15.80% 22.59% 9.90 %
Class C 16.56 % 15.80% 22.65% 13.79 %
Institutional Class 17.44 % 16.67% 23.58% 14.75 %
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Ten Five One
Inception/2/ Year Year Year
------------ ---- ---- --------
<S> <C> <C> <C> <C>
Growth Equity
Class A 15.09 % 14.88% 15.35% 1.39 %
Class B 14.93 % 14.70% 15.75% 2.78 %
Class C 15.01 % 14.79% 16.04% 7.63 %
Institutional Class 15.77 % 15.55% 16.72% 7.60 %
Index
Institutional Class 16.02 % 17.45% 25.24% 20.57 %
International
Class A 7.35 % 8.27% 6.57% (7.03)%
Class B 7.01 % 8.02% 6.71% (5.90)%
Institutional Class 7.81 % 8.83% 7.67% (1.32)%
Large Company Growth
Class A 17.05 % 19.73% 26.36% 31.80 %
Class B 16.61 % 19.57% 26.89% 35.02 %
Institutional Class 17.48 % 20.45% 27.89% 39.96 %
Small Cap Opportunities
Class A 15.83 % N/A 15.74% (18.03)%
Class B 16.06 % N/A 16.14% (17.19)%
Institutional Class 17.03 % N/A 17.13% (13.02)%
Small Cap Value
Institutional Class (12.50)% N/A N/A (20.77)%
Small Company Growth
Institutional Class 16.26 % 16.97% 14.67% (10.72)%
</TABLE>
_______________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of
each Fund's predecessor portfolio is as stated in the "Historical Fund
Information" section. The actual inception date of each Class may differ
from the inception date of the corresponding Fund.
44
<PAGE>
Former Stagecoach Funds
Average Annual Total Return for the Applicable Period Ended September 30,
-------------------------------------------------------------------------
1999/1/
-------
<TABLE>
<CAPTION>
Ten Five One
Inception/2/ Year Year Year
------------ ---- ---- -------
<S> <C> <C> <C> <C>
Equity Index
Class A 15.64% 14.98% 22.38 19.53%
Class B 15.31% 14.95% 22.91% 20.86%
Class O N/A N/A N/A N/A
Equity Value
Class A 11.88% N/A 12.25% (1.66%)
Class B 11.88% N/A 12.65% (1.10%)
Class C 11.87% N/A 12.89% 2.73%
Institutional Class 12.71% N/A 13.78% 4.51%
Growth
Class A 15.55% N/A 18.93% 22.09%
Class B 15.58% N/A 19.42% 23.68%
Institutional Class 16.32% N/A 20.38% 29.69%
International Equity
Class A 9.34% N/A N/A 27.90%
Class B 10.54% N/A N/A 29.84%
Class C 11.88% N/A N/A 33.84%
Institutional Class N/A N/A N/A N/A
Small Cap Growth
Class A 23.67% N/A N/A 49.67%
Class B 24.19% N/A N/A 52.66%
Class C 24.36% N/A N/A 56.69%
Institutional Class 26.21% N/A N/A 59.98%
</TABLE>
_______________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is as stated in the "Historical Fund
Information" section. The actual inception date of each Class may differ
from the inception date of the corresponding Fund.
Cumulative Total Return: In addition to the above performance
-----------------------
information, each Fund may also advertise the cumulative total return of the
Fund. Cumulative total return is based on the overall percentage change in value
of a hypothetical investment in the Fund, assuming all
45
<PAGE>
Fund dividends and capital gain distributions are reinvested, without reflecting
the effect of any sales charge that would be paid by an investor, and is not
annualized.
Former Norwest Funds
Cumulative Total Return for the Applicable Period Ended September 30,
---------------------------------------------------------------------
1999/1/
------
<TABLE>
<CAPTION>
Ten Five Three
Inception/2/ Year Year Year
------------ ---- ---- -----
<S> <C> <C> <C> <C>
Disciplined Growth
Institutional 14.21 % N/A N/A N/A
Diversified Equity
Class A 425.34 % 289.88 % 19.00% 61.24%
Class B 384.23 % 283.99 % 19.33% 64.25%
Class C 386.45 % 285.05 % 19.59% 67.70%
Institutional Class 425.35 % 313.57 % 153.11% 71.04%
Diversified Small Cap
Class A (9.88)% N/A N/A N/A
Class B (10.80)% N/A N/A N/A
Institutional Class (9.80)% N/A N/A N/A
Equity Income
Class A 391.40 % 293.56 % 19.89% 58.19%
Class B 354.38 % 287.79 % 20.23% 61.87%
Class C 354.11 % 287.21 % 20.40% 64.69%
Institutional Class 391.30 % 317.48 % 162.76% 68.57%
Growth Equity
Class A 345.48 % 264.59 % 15.18% 44.38%
Class B 312.58 % 259.20 % 15.46% 46.72%
Class C 339.75 % 261.75 % 15.85% 50.87%
Institutional Class 345.48 % 286.73 % 115.00% 53.14%
Index
Institutional Class 518.79 % 351.67 % 197.83% 94.17%
International
Class A 155.51 % 94.90 % 6.97% 18.58%
Class B 131.37 % 90.31 % 6.96% 20.02%
Institutional Class 153.56 % 105.13 % 47.43% 25.80%
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Ten Five Three
Inception/2/ Year Year Year
------------ ---- ---- -----
<S> <C> <C> <C> <C>
Large Company Growth
Class A 1,303.44 % 453.01% 25.93% 106.07%
Class B 1,140.96 % 446.28% 26.40% 111.37%
Institutional Class 1,305.44 % 487.85% 236.60% 119.05%
Small Cap Opportunities
Class A 149.97 % N/A 15.09% 14.29%
Class B 138.61 % N/A 15.36% 15.49%
Institutional Class 149.96 % N/A 114.27% 21.26%
Small Cap Value
Institutional Class (14.80)% N/A N/A N/A
Small Company Growth
Institutional Class 1,068.66 % 334.16% 87.14% 15.68%
</TABLE>
_______________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is as stated in the "Historical Fund
Information" section. The actual inception date of each Class may differ
from the inception date of the corresponding Fund.
Former Stagecoach Funds
Cumulative Total Return for the Applicable Period Ended September 30,
---------------------------------------------------------------------
1999/1/
------
<TABLE>
<CAPTION>
Five Three
Inception/2/ Year Year
------------ ---- -----
<S> <C> <C> <C>
Equity Index
Class A 874.60% 174.50% 79.71%
Class B 831.85% 180.53% 83.68%
Class O
Equity Value
Class A 182.55% 78.20% 33.38%
Class B 182.38% 81.43% 35.87%
Class C 182.32% 83.34% 38.84%
Institutional Class 202.47% 90.71% 42.14%
</TABLE>
47
<PAGE>
Five Three
Inception/2/ Year Year
--------- ---- ----
Growth
Class A 276.15% 137.97% 64.78%
Class B 277.01% 142.87% 68.12%
Institutional Class 299.64% 152.82% 75.36%
International Equity
Class A 19.72% N/A N/A
Class B 22.40% N/A N/A
Class C 25.40% N/A N/A
Institutional Class N/A N/A N/A
Small Cap Growth
Class A 184.16% N/A 29.70%
Class B 190.15% N/A 31.86%
Class C 192.04% N/A 34.81%
Institutional Class 214.10% N/A 39.91%
_______________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is as stated in the "Historical Fund
Information" section. The actual inception date of each Class may differ
from the inception date of the corresponding Fund.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Trust may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by World Gold Council), Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies, publications or persons who monitor mutual funds on overall
performance or other criteria. The S&P Index and the Dow Jones Industrial
Average are unmanaged indices of selected common stock prices. The performance
of the Funds or a Class also may be compared to that of other mutual funds
having similar objectives. This comparative performance could be expressed as a
ranking prepared by Lipper Analytical Services, Inc., CDA
48
<PAGE>
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the performance of mutual funds. The Funds'
performance will be calculated by relating net asset value per share at the
beginning of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions and dividends paid, at the end of the
period. The Funds' comparative performance will be based on a comparison of
yields or total return, as reported by Lipper, Survey Publications, Donoghue or
Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a Class with that of competitors. Of course, past
performance cannot be a guarantee of future results. The Trust also may include,
from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Trust also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
In addition, the Trust also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Trust also
may include in advertising and other types of literature information and other
data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Trust also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Trust may compare the
Fund's performance with other investments which are assigned
49
<PAGE>
ratings by NRROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Wells Fargo Funds Trust
Funds, provides various services to its customers that are also shareholders of
the Funds. These services may include access to Wells Fargo Funds Trust Funds'
account information through Automated Teller Machines (ATMs), the placement of
purchase and redemption requests for shares of the Funds through ATMs and the
availability of combined Wells Fargo Bank and Stagecoach Funds account
statements."
The Trust also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management (formerly "Wells Fargo
Investment Management"), a division of Wells Fargo Bank, is listed in the top
100 by Institutional Investor magazine in its July 1997 survey "America's Top
300 Money Managers." This survey ranks money managers in several asset
categories. The Trust may also disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Trust's
investment advisor. The Trust may also disclose in advertising and other types
of sales literature the assets and categories of assets under management by a
fund's investment advisor or sub-advisor and the total amount of assets and
mutual fund assets managed by Wells Fargo Bank. As of June 30, 1999, Wells
Fargo Bank and its affiliates managed over $131 billion in assets.
The Trust also may discuss in advertising and other types of literature the
features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account, Money Market Checking Account,
California Tax-Free Money Market Checking Account, Money Market Access Account
and California Tax-Free Money Market Access Account (collectively, the "Sweep
Accounts"). Such advertisements and other literature may include, without
limitation, discussions of such terms and conditions as the minimum deposit
required to open a Sweep Account, a description of the yield earned on shares of
the Funds through a Sweep Account, a description of any monthly or other service
charge on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any ATM or check privileges offered in connection with
a Sweep Account and any other terms, conditions, features or plans offered in
connection with a Sweep Account. Such advertising or other literature may also
include a discussion of the advantages of establishing and maintaining a Sweep
Account, and may include statements from customers as to the reasons why such
customers have established and maintained a Sweep Account.
The Trust may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major
50
<PAGE>
bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Trust may also disclose the ranking of Wells Fargo
Bank as one of the largest money managers in the United States.
The Trust also may disclose in sales literature the distribution rate on
the shares of a Fund. Distribution rate, which may be annualized, is the amount
determined by dividing the dollar amount per share of the most recent dividend
by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as of
the close of regular trading (currently 1:00 p.m. (Pacific time), 3:00 p.m.
(Central time), 4:00 p.m. (Eastern time)) on each day the New York Stock
Exchange ("NYSE") is open for business. Expenses and fees, including Advisory
fees, are accrued daily and are taken into account for the purpose of
determining the net asset value of the Funds' shares.
Securities of a Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. If the
values reported on a foreign exchange are materially affected by events
occurring after the close of the foreign exchange, assets may be valued by a
method that the Board of Trustees believes accurately reflects fair value. In
the case of other securities, including U.S. Government securities but excluding
money market instruments maturing in 60 days or less, the valuations are based
on latest quoted bid prices. Money market instruments and debt securities
maturing in 60 days or less are valued at amortized cost. The assets of a Fund,
other than money market instruments or debt securities maturing in 60 days or
less, are valued at latest quoted bid prices. Futures contracts will be marked
to market daily at their respective settlement prices determined by the relevant
exchange. Prices may be furnished by a reputable independent pricing service
approved by the Trust's Board of Trustees. Prices provided by an independent
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. All other securities and
other assets of a Fund for which current market quotations are not readily
available are valued at fair
51
<PAGE>
value as determined in good faith by the Trust's Board of Trustees and in
accordance with procedures adopted by the Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares may be purchased on any day a Fund is open for business. Each Fund
is open for business each day the NYSE is open for trading (a "Business Day").
Currently, the NYSE is closed on New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (each a "Holiday"). When any Holiday falls on
a weekend, the NYSE typically is closed on the weekday immediately before or
after such Holiday.
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Fund. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that a Fund receives satisfactory assurances
that (i) it will have good and marketable title to the securities received by
it; (ii) that the securities are in proper form for transfer to the Fund; and
(iii) adequate information will be provided concerning the basis and other
matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Trust may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Trust may
also redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Trust's
responsibilities under the 1940 Act. In addition, the Trust may redeem shares
involuntarily to reimburse the Fund for any losses sustained by reason of the
failure of a shareholders to make full payment for shares purchased or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to shares of the Fund as provided from time to
time in the Prospectus.
52
<PAGE>
The dealer reallowance for Class A shares is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % ALLOWANCE
AMOUNT OF PUBLIC OF NET AMOUNT AS % OF PUBLIC
OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
- ------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.75% 4.99% 4.00%
- ------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.75% 3.90% 3.00%
- ------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.75% 2.83% 2.25%
- ------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- ------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- ------------------------------------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A shares purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Purchases and Redemptions Through Brokers and/or Their Affiliates
-----------------------------------------------------------------
A broker may charge transaction fees on the purchase and/or sale of Fund shares
in addition to those fees described in the Prospectus in the Summary of
Expenses. The Trust has authorized one or more brokers to receive on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an authorized broker or, if applicable, a broker's
authorized designee, receives the order.
Reduced Sales Charges for Former Norwest Advantage Fund Class B
---------------------------------------------------------------
Shareholders. No contingent deferred sales charge is imposed on redemptions of
- ------------
Class B shares of a former Norwest Advantage Fund purchased prior to October 1,
1999, to effect a distribution (other than a lump sum distribution) from an IRA,
Keogh plan or Section 403(b) custodial account or from a qualified retirement
plan.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of equity securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, Stephens or Wells Fargo Securities Inc. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. In
underwritten
53
<PAGE>
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount.
In placing orders for portfolio securities of a Fund, Wells Fargo Bank is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that Wells Fargo Bank will seek to execute each
transaction at a price and commission, if any, that provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. Commission
rates are established pursuant to negotiations with the broker based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Board of Trustees.
Wells Fargo Bank, as the Investment Advisor of each of the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds. For the fiscal year ended September 30,
1999, the Advisor directed transactions in the aggregate amount of
$1,979,758,185 and paid total commissions in the amount of $2,080,381.
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Fund in whole or in part. Any such waiver will reduce expenses and, accordingly,
have a favorable impact on the Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Trust
bears all costs of its operations, including the compensation of its Trustees
who are not affiliated with
54
<PAGE>
Stephens or Wells Fargo Bank or any of their affiliates; Advisory, shareholder
servicing and administration fees; payments pursuant to any Plan; interest
charges; taxes; fees and expenses of its independent auditors, legal counsel,
transfer agent and dividend disbursing agent; expenses of redeeming shares;
expenses of preparing and printing prospectuses (except the expense of printing
and mailing prospectuses used for promotional purposes, unless otherwise payable
pursuant to a Plan), shareholders' reports, notices, proxy statements and
reports to regulatory agencies; insurance premiums and certain expenses relating
to insurance coverage; trade association membership dues; brokerage and other
expenses connected with the execution of portfolio transactions; fees and
expenses of its custodian, including those for keeping books and accounts and
calculating the NAV per share of the Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of the Fund's
shares; pricing services, and any extraordinary expenses. Expenses attributable
to the Fund are charged against Fund assets. General expenses of the Trust are
allocated among all of the funds of the Trust, including the Funds, in a manner
proportionate to the net assets of a Funds, on a transactional basis, or on such
other basis as the Trust's Board of Trustees deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of each Fund
generally describes the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning federal income taxes.
General. The Trust intends to continue to qualify each Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interests of
the Fund's shareholders. Each Fund will be treated as a separate entity for
federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied separately to each
Fund, rather than to the Trust as a whole. In addition, capital gains, net
investment income, and operating expenses will be determined separately for each
Fund. As a regulated investment company, each Fund will not be taxed on its net
investment income and capital gain distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government
55
<PAGE>
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (including, for this
purpose, net short-term capital gain) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Funds intend to pay out substantially all of their net
investment income and net realized capital gains (if any) for each year.
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains and
losses if the securities have been held by the Fund for more than one year at
the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations) purchased by a Fund at a market discount (generally at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which accrued, but was not previously
recognized pursuant to an available election, during the term the Fund held the
debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by the Fund pursuant to the exercise of a call option written by it,
the Fund will add the premium received to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. If securities
are purchased by a Fund pursuant to the exercise of a put option written by it,
such Fund will subtract the premium received from its cost basis in the
securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for federal
income tax purposes pursuant to Section
56
<PAGE>
1256 of the Code. In this regard, they will be deemed to have been sold at
market value. Sixty percent (60%) of any net gain or loss recognized on these
deemed sales, and sixty percent (60%) of any net realized gain or loss from any
actual sales, will generally be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss. Transactions
that qualify as designated hedges are excepted from the "mark-to-market" rule
and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse Federal income tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Section 1256. If a Fund were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The Fund may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market
57
<PAGE>
value of its interest in the PFIC shares and its basis in such shares. In some
circumstances, the recognition of loss may be suspended. The Fund will adjust
its basis in the PFIC shares by the amount of income (or loss) recognized.
Although such income (or loss) will be taxable to the Fund as ordinary income
(or loss) notwithstanding any distributions by the PFIC, the Fund will not be
subject to Federal income tax or the interest charge with respect to its
interest in the PFIC under the election.
Foreign Taxes. Income and dividends received by a Fund from sources within
-------------
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the value of a Fund's total
assets at the close of its taxable year consists of securities of non-U.S.
corporations, the Fund will be eligible to file an election with the IRS
pursuant to which the regulated investment company may pass-through to its
shareholders foreign taxes paid by the regulated investment company, which may
be claimed either as a credit or deduction by the shareholders. Only the
International Equity Fund and International Fund expect to qualify for the
election. However, even if a Fund qualifies for the election, foreign taxes will
only pass-through to a Fund shareholder if (i) the shareholder holds the Fund
shares for at least 16 days during the 30 day period beginning 15 days prior to
the date upon which the shareholder becomes entitled to receive Fund
distributions corresponding with the pass-through of the foreign taxes paid by
the Fund, and (ii) with respect to foreign source dividends received by the Fund
on shares giving rise to foreign tax, the Fund holds the shares for at least 16
days during the 30 day period beginning 15 days prior to the date upon which the
Fund becomes entitled to the dividend.
An individual with $300 or less of creditable foreign taxes generally is
exempt from foreign source income and certain other limitations imposed by the
Code on claiming a credit for such taxes. The $300 amount is increased to $600
for joint filers.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received in the case of an exchange) and the
cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous
58
<PAGE>
sales charges do not exceed the reduction in sales charges on the new purchase)
for the purpose of determining the amount of gain or loss on the disposition,
but will be treated as having been incurred in the acquisition of such other
shares. Also, any loss realized on a redemption or exchange of shares of the
Fund will be disallowed to the extent that substantially identical shares are
acquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. The loss disallowance rules described in this paragraph do not
apply to losses realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Trust may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on all distributions
and redemption proceeds (including proceeds from exchanges and redemptions in-
kind) paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Trust also could subject the investor to penalties imposed by
the IRS.
Foreign Shareholders. Under the Code, distributions attributable to net
--------------------
investment income, net short-term capital gain and certain other items realized
by a Fund and paid to a nonresident alien individual, foreign trust (i.e., trust
which a U.S. court is able to exercise primary supervision over administration
of that trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (each, a "foreign shareholder") will be subject to U.S. withholding
tax (at a rate of 30% or a lower treaty rate, if applicable). Withholding will
not apply if a distribution paid by the Fund to a foreign shareholder is
"effectively connected" with a U.S. trade or business (or, if an income tax
treaty
59
<PAGE>
applies, is attributable to a U.S. permanent establishment of the foreign
shareholder), in which case the reporting and withholding requirements
applicable to U.S. persons will apply. Capital gain distributions generally are
not subject to tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders that will be subject to federal income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Corporate Shareholders. Corporate shareholders of the Funds may be
----------------------
eligible for the dividends-received deduction on dividends distributed out of a
Fund's income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
Tax-Deferred Plan. The shares of the Funds are available for a variety of
-----------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes. Investors
should contact their selling agents for details concerning retirement
plans.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state, local
or foreign taxes.
60
<PAGE>
CAPITAL STOCK
The Funds are sixteen of the funds of the Wells Fargo Funds Trust family of
funds. The Trust was organized as a Delaware business trust on March 10,
1999.
Most of the Trust's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Trust's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain class-
specific expenses (e.g., any state securities registration fees, shareholder
servicing fees or distribution fees that may be paid under Rule 12b-1) that are
allocated to a particular class. Please contact Investor Services at 1-800-222-
8222 if you would like additional information about other funds or classes of
shares offered.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by Series, except where voting by a Series is required by law
or where the matter involved only affects one Series. For example, a change in a
Funds' fundamental investment policy affects only one Series and would be voted
upon only by shareholders of the Fund involved. Additionally, approval of an
Advisory contract, since it only affects one Fund, is a matter to be determined
separately by each Series. Approval by the shareholders of one Series is
effective as to that Series whether or not sufficient votes are received from
the shareholders of the other series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of the Fund,
means the vote of the lesser of (i) 67% of the shares of such class the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares such class of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such class the Fund. The term "majority,"
when referring to approvals to be obtained from shareholders of the Fund, means
the vote of the lesser of (i) 67% of the shares of the Fund represented at a
meeting if the holders of more than 50% of the outstanding shares of the Fund
are present in person or by proxy, or (ii) more than 50% of the outstanding
shares of the Fund. The term "majority," when referring to the approvals to be
obtained from shareholders of the Trust as a whole, means the vote of the lesser
of (i) 67% of the Trust's shares represented at a meeting if the holders of more
than 50% of the Trust's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Trust's outstanding shares. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares
held.
Shareholders are not entitled to any preemptive rights. All shares are
issued in uncertificated form only, and, when issued will be fully paid and non-
assessable by the Trust. The Trust may dispense with an annual meeting of
shareholders in any year in which it is not required to elect directors under
the 1940 Act.
61
<PAGE>
Each share of a class of a Fund represents an equal proportional interest
in a Fund with each other share in the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
a Fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Fund are entitled to
receive the assets attributable to the relevant class of shares of the Fund that
are available for distribution, and a distribution of any general assets not
attributable to a particular investment portfolio that are available for
distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.
Set forth below as of October 25, 1999 is the name, address and share
ownership of each person known by the Trust to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities of the Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF OCTOBER 25, 1999
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
Disciplined Growth Class Virg & Co. 56.84%
Institutional P.O. Box 9800
Calabasas, CA 91372-0800
Dentru & Co. 21.74%
Non-Discretionary Cash
1740 Broadway MS 8751
Denver, CO 80274-0001
Seret & Co. 9.01%
Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274-0001
Diversified Equity
Class A N/A
Class B N/A
Class C Norwest Investment Services, Inc. 43.12%
FBO 112609161
Northstar Building East - 9th Floor
608 Second Avenue, South
Minneapolis, MN 554790162
Emjayco 11.73%
Omnibus Account
17909 P.O. Box
Milwaukee, WI 53217-0909
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
Norwest Investment Services Inc. 7.35%
FBO 703505091
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 554790162
Institutional Class EMSEG & Co. 82.96%
Diversified Equity 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Kiwils & Co. 5.87%
1740 Broadway MN 8676
Denver, CO 80274-0001
Diversified Small Cap
Class A Norwest Wealthbuilder 74.81%
Reinvest Account
733 Marquette Avenue
Minneapolis, MN 55402-2309
Class B Norwest Investment Services Inc. 5.40%
FBO 710307871
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Institutional Class EMSEG & Co. 60.94%
Diversified Small Cap Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 8.32%
Diversified Small Cap Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
EMSEG & Co. 8.10%
Diversified Small Cap Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Dentru & Co. 8.06%
1740 Broadway Mail 8676
Denver, CO 80274-0001
Kiwils & Co. 5.38%
Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274-0001
Equity Income
Class A Investor Services Group 19.97%
FBO Wells Fargo/Portfolio Advisor
Customer
211 South Gulph Road
King of Prussia, PA 19406-3101
Wells Fargo Bank 14.68%
FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class C Emjayco 10.41%
Onmibus Account
17909 P.O. Box
Milwaukee, WI 53217-0909
Institutional Class EMSEG & Co. 35.59%
Income Equity 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 23.43%
Income Equity 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
EMSEG & Co. 22.32%
Income Equity 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Dentru & Co. 9.08%
1740 Broadway Mail 8676
Denver, CO 80274-0001
Equity Index
Class A Wells Fargo Bank 81.99%
FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class O N/A
Equity Value
Class A Wells Fargo Bank 13.43%
FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163-0001
Class B N/A
Class C Dean Witter For The Benefit Of 14.94%
John T. Douglas, Jr. TTEE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Cust. For 11.66%
Steve Tognoli
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of 6.60%
John J. Semoni TTEE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Cust. For 5.78%
William C. Barrette
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of 5.36%
Dr. Stanley M. Yantis Money Purch.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Inc. C/F 5.25%
Thomas J. Perlite
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of 5.11%
Wells Fargo QRP Custodian FBO
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Institutional Class DIM & Co. 40.37%
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
Wells Fargo Bank TTEE 19.07%
Choicemaster
Attn: Mutual Funds A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & Co. 17.87%
Attn: MF Dept. A88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Virg. & Co. 15.55%
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
Growth Fund
Class A Wells Fargo Bank 50.10%
FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163-0001
Investor Services Group 17.33%
FBO Wells Fargo/Portfolio Advisor Customer
211 South Gulph Road
King of Prussia, PA 19406-3101
Class B N/A
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
Institutional Class EMSEG & Co. 47.09%
ValueGrowth Stock Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 21.98%
ValueGrowth Stock Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Dentru & Co. 19.29%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274-0001
HEP & Co. 5.23%
Attn: MF Dept. A88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Growth Equity Fund
Class A Norwest Wealthbuilder 16.06%
Reinvest Account
733 Marquette Avenue
Minneapolis, MN 55402-2309
Class B N/A
Class C Emjayco 82.13%
Omnibus Account
17909 P.O. Box
Milwaukee, WI 53217-0909
Norwest Investment Services, Inc. 10.79%
FBO 707211391
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Institutional Class EMSEG & Co. 88.32%
Growth Equity 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
Index Fund
Institutional Class EMSEG & Co. 71.90%
Index Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 8.06%
Index Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
International Fund
Class A Norwest Wealthbuilder 25.51%
Reinvest Account
733 Marquette Avenue
Minneapolis, MN 55402-2309
Class B Norwest Investment Services Inc. 5.73%
FBO 012957081
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Institutional Class EMSEG & Co. 69.34%
International Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 10.59%
International Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Dentru & Co. 8.68%
1740 Broadway Mail 8676
Denver, CO 80274-0001
International Equity
Fund Virg. & Co. 22.50%
Class A c/o Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
US Trust Company 16.49%
FBO Comm Foundation Silicon Valley
4380 SW Macadam Avenue Ste. 450
Portland, OR 97201-6407
DIM & Co. 6.07%
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & Co. 5.97%
c/o Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Class B N/A
Class C Dean Witter For The Benefit Of 21.80%
Lois Levine Mundie
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of 18.17%
Maureen O'Sullivan TTE FBO The
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of 7.85%
Janice M. Ehly &
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit Of 6.68%
William C. Barrette
P.O. Box 250 Church Street Station
New York, NY 10008-0250
Institutional Class
Large Company Growth
Fund Merrill Lynch Trust Co. TTEE 49.43%
Class A FBO Qualified Retirement Plans
Attn: Philb Kolb
265 Davidson Avenue 4th Floor
Somerset, NJ 08873-4120
N/A
Class B
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
Class C
Institutional Class EMSEG & Co. 63.17%
Large Company Growth 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 9.82%
Large Company Growth 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Virg. & Co. 5.94%
P.O. Box 9800
Calabasas, CA 91372-0800
EMSEG & Co. 5.87%
Large Company Growth 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Small Cap Growth Fund
Class A Investor Services Group 23.88%
FBO Wells Fargo/Portfolio Advisor Customer
211 South Gulph Road
King of Prussia, PA 19406-3101
Wells Fargo Bank 15.89%
FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163-0001
Wells Fargo Bank 5.43%
FBO Retirement Plans Omnibus
P.O. Box 63015
San Francisco, CA 94163-0001
Class B N/A
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
Class C MLPF&S For The Sole Benefit of its 47.41%
Customers
Attn: Mutual Fund Administration
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Institutional Class EMSEG & Co. 17.77%
Small Company Stock Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 12.97%
Small Company Stock Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
The Northern Trust Co. 14.04%
Duker Deliverance Stagecoach?
A/C #26-56948
P.O. Box 92956
Chicago, IL 60675-2956
EMSEG & Co. 10.72%
Stagecoach Small Cap FD CL 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Virg & Co. 8.99%
Attn: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & Co. 6.62%
Attn: MF Dept. A88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Small Cap Opportunities
Fund Wealthbuilder II Growth Balance 23.64%
Class A Class A #13357300
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
Wealthbuilder II Growth & Income Class A 14.29%
#13357200
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Wealthbuilder II Growth Fund Class A 6.16%
#13357200
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Class B N/A
Institutional Class EMSEG & Co. 61.13%
Small Cap Opportunities Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 8.89%
Small Cap Opportunities Fund 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Seret & Co. 7.09%
Attn: Jill Siekmeier
c/o Norwest Bank Colorado NA
1740 Broadway MS 8676
Denver, CO 80274-0001
Dentru & Co. 7.05%
1740 Broadway Mail 8676
Denver, CO 80274-0001
Small Cap Value Fund
Institutional Class EMSEG & Co. 58.96%
Performa Small Cap Value Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Dentru & Co. 10.67%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274-0001
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
EMSEG & Co. 10.09%
Performa Small Cap Value Fund
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
HEP & Co. 7.05%
FBO Wells Fargo Bank
Mutual Funds MAC 2141 028
P.O. Box 9800
Calabasas, CA 91372-0800
Small Company Growth
Fund EMSEG & Co. 76.48%
Institutional Class Small Company Growth 1
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 11.43%
Small Company Growth I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
Vanguard Fiduciary Tr Co. 5.61%
FBO Burlington Northern
VM 613 Attn. Specialized Services
P.O. Box 2900
Valley Forge, PA 19482-2900
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Trust's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
Securities and Exchange Commission in Washington, D.C. Statements contained in
the Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or
73
<PAGE>
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust. KPMG
LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolios of investments and audited financial statements for the
predecessor Stagecoach and Norwest Funds for the years ended September 30, 1998
and May 31, 1999, respectively, are hereby incorporated by reference to the
Funds' Annual Report.
74
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds and commercial paper.
Corporate Bonds
- ---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality
by all standards," but margins of protection or other elements make long-term
risks appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess
many favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds have speculative
characteristics as well. Moody's applies numerical modifiers: 1, 2 and 3 in
each rating category from "Aa" through "Baa" in its rating system. The modifier
1 indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA," "AA," "A" and
---
"BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and have an
extremely strong capacity to pay interest and repay principal. Bonds rated "AA"
have a "very strong capacity to pay interest and repay principal" and differ
"from the highest rated issued only in small degree." Bonds rated "A" have a
"strong capacity" to pay interest and repay principal, but are "somewhat more
susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Corporate Commercial Paper
- --------------------------
Moody's: The highest rating for corporate commercial paper is "P-1"
-------
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate commercial paper indicates that the
---
"degree of safety regarding timely payment is either overwhelming or very
strong." Commercial paper with "overwhelming safety characteristics" will be
rated "A-1+." Commercial paper with a strong capacity for timely payments on
issues will be rated "A-2."
A-1
<PAGE>
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented on December 17, 1999
CORPORATE BOND FUND
DIVERSIFIED BOND FUND
INCOME FUND
INCOME PLUS FUND
INTERMEDIATE GOVERNMENT INCOME FUND
LIMITED TERM GOVERNMENT INCOME FUND
STABLE INCOME FUND
VARIABLE RATE GOVERNMENT FUND
Class A, Class B, Class C and Institutional Class
Wells Fargo Funds Trust (the "Trust") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about eight funds in the Wells Fargo Funds Trust family of funds
(each, a "Fund" and collectively, the "Funds") -- the Corporate Bond,
Diversified Bond, Income, Income Plus, Intermediate Government Income, Limited
Term Government Income, Stable Income and Variable Rate Government Funds. Each
Fund is considered diversified under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Corporate Bond, Income Plus and Intermediate
Government Income Funds offer Class A, Class B and Class C shares. The
Intermediate Government Income Fund also offers Institutional Class shares. The
Income, Limited Term Government Income and Stable Income Funds offer Class A,
Class B and Institutional Class shares. The Diversified Bond Fund offers only
Institutional Class shares and the Variable Rate Government Fund only offers
Class A shares. This SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 8, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained free of charge by calling 1-800-222-8222 or
writing to Wells Fargo Funds, P.O. Box 8266, Boston, MA 02266-8266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information...................................... 1
Investment Policies.............................................. 3
Additional Permitted Investment Activities and Associated Risks.. 5
Management....................................................... 18
Performance Calculations......................................... 31
Determination of Net Asset Value................................. 39
Additional Purchase and Redemption Information................... 40
Portfolio Transactions........................................... 41
Fund Expenses.................................................... 42
Federal Income Taxes............................................. 43
Capital Stock.................................................... 48
Other............................................................ 54
Counsel.......................................................... 54
Independent Auditors............................................. 55
Financial Information............................................ 55
Appendix......................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach") and
the Board of Trustees of Wells Fargo Funds Trust (the "Trust") approved an
Agreement and Plan of Reorganization providing for, among other things, the
transfer of the assets and stated liabilities of various predecessor Norwest and
Stagecoach portfolios to the Funds. Prior to November 5, 1999, the effective
date of the consolidation of the Funds and the predecessor Norwest and
Stagecoach portfolios, the Funds had only nominal assets.
The Funds in this SAI were created as part of the reorganization of the
Stagecoach family of funds advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"
or "Advisor"), and the Norwest Advantage family of funds advised by Norwest
Investment Management, Inc. ("NIM"), into a single mutual fund complex. The
reorganization followed the merger of the advisors' parent companies.
The chart below indicates the predecessor Stagecoach and Norwest Funds that
are the accounting survivors of the Wells Fargo Funds.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Wells Fargo Funds Predecessor Funds
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Corporate Bond Fund Stagecoach Corporate Bond Fund
----------------------------------------------------------------------------------------------------------
Diversified Bond Fund Norwest Diversified Bond Fund
----------------------------------------------------------------------------------------------------------
Income Fund Norwest Income Fund
----------------------------------------------------------------------------------------------------------
Income Plus Fund Stagecoach Strategic Income Fund
----------------------------------------------------------------------------------------------------------
Intermediate Government Income Fund Norwest Intermediate Government Income Fund
----------------------------------------------------------------------------------------------------------
Limited Term Government Income Fund Stagecoach Short-Intermediate U.S. Government
Income Fund
----------------------------------------------------------------------------------------------------------
Stable Income Fund Norwest Stable Income Fund
----------------------------------------------------------------------------------------------------------
Variable Rate Government Fund Stagecoach Variable Rate Government Fund
----------------------------------------------------------------------------------------------------------
</TABLE>
The Corporate Bond Fund commenced operations on November 8, 1999, as
successor to the Corporate Bond Fund of Stagecoach. The predecessor Stagecoach
Corporate Bond Fund commenced operations on April 1, 1998 as a Fund of the
Company.
The Diversified Bond Fund commenced operations on November 8, 1999, as
successor to the Diversified Bond Fund of Norwest. The predecessor Norwest
Advantage Diversified Bond Fund commenced operations on November 11, 1994.
The Income Fund commenced operations on November 8, 1999, as successor to
the Income Fund, Total Return Bond Fund and Performa Strategic Value Bond Fund
of Norwest. The predecessor Norwest Income Fund commenced operations on June 9,
1987. The predecessor Norwest Total Return Fund commenced operations on
December 31, 1993. The predecessor Norwest Performa Strategic Value Bond Fund
commenced operations on October 1, 1997. For accounting purposes, the Norwest
Income Fund is considered the surviving entity, and the financial highlights
shown for periods prior to November 8, 1999 are the financial highlights of the
Norwest Income Fund.
1
<PAGE>
The Income Plus Fund commenced operations on November 8, 1999, as successor
to the Strategic Income Fund of Stagecoach. The predecessor Stagecoach
Strategic Income Fund commenced operations on July 13, 1998.
The Intermediate Government Income Fund commenced operations on November 8,
1999, as successor to the Intermediate Government Income Fund of Norwest and the
U.S. Government Income Fund and U.S. Government Allocation Fund of Stagecoach.
The predecessor Norwest Intermediate Government Income Fund commenced operations
on November 11, 1994. The predecessor Stagecoach U.S. Government Income Fund
commenced operations on January 1, 1992 and the predecessor Stagecoach U.S.
Government Allocation Fund commenced operations on January 2, 1992 as successor
to the Fixed-Income Strategy Fund of the Wells Fargo Investment Trust ("WFIT").
The predecessor WFIT Fund commenced operations on March 31, 1987. For
accounting purposes, the Norwest Intermediate Government Income Fund is
considered the surviving entity, and the financial highlights shown for periods
prior to November 8, 1999 are the financial highlights of the Norwest
Intermediate Government Income Fund.
The Limited Term Government Income Fund commenced operations on November 8,
1999, as successor to the Limited Term Government Income Fund of Norwest and the
Short-Intermediate U.S. Government Income Fund of Stagecoach. The predecessor
Norwest Limited Term Government Income Fund commenced operations on October 1,
1997 and the predecessor Stagecoach Short-Intermediate U.S. Government Income
Fund commenced operations on October 27, 1993. For accounting purposes, the
Stagecoach Short-Intermediate U.S. Government Income Fund is considered the
surviving entity, and the financial highlights shown for periods prior to
November 8, 1999 are the financial highlights of the Stagecoach Short-
Intermediate U.S. Government Income Fund.
The Stable Income Fund commenced operations on November 8, 1999, as
successor to the Stable Income Fund of Norwest. The predecessor Norwest Stable
Income Fund commenced operations on November 11, 1994.
The Variable Rate Government Fund commenced operations on November 8, 1999,
as successor to the Variable Rate Government Fund of Stagecoach. The
predecessor Stagecoach Variable Rate Government Fund commenced operations on
December 12, 1997, as successor to the Variable Rate Government Fund of Overland
Express Funds, Inc. ("Overland"). The predecessor Overland Fund commenced
operations on November 1, 1990. On July 23, 1997, the Boards of Directors
approved an Agreement and Plan of Consolidation providing for the transfer of
the Overland Portfolio to the Fund.
2
<PAGE>
INVESTMENT POLICIES
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment policies, all of which are
fundamental policies; that is, they may not be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund.
The Funds may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of a Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that this
restriction does not limit a Fund's investments in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities investments
in securities of other investment companies or investments in repurchase
agreements;
(2) purchase securities of any issuer if, as a result, with respect to 75%
of a Fund's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer, provided that
this restriction does not limit a Fund's investments in securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder;
(4) issue senior securities, except to the extent permitted under the 1940
Act, including the rules, regulations and exemptions thereunder;
(5) make loans to other parties if, as a result, the aggregate value of
such loans would exceed one-third of a Fund's total assets. For the purposes of
this limitation, entering into repurchase agreements, lending securities and
acquiring any debt securities are not deemed to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business); nor
(8) purchase or sell commodities, provided that (i) currency will not be
deemed to be a commodity for purposes of this restriction, (ii) this restriction
does not limit the purchase or sale
3
<PAGE>
of futures contracts, forward contracts or options, and (iii) this restriction
does not limit the purchase or sale of securities or other instruments backed by
commodities or the purchase or sale of commodities acquired as a result of
ownership of securities or other instruments.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by the Trustees of the Trust or at any time without approval of such
Fund's shareholders.
(1) Each Fund may invest in shares of other investment companies, to the
extent permitted under the 1940 Act, including the rules, regulations and
exemptions thereunder.
(2) Each Fund may not invest or hold more than 15% of the Fund's net assets
in illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.
(3) Each Fund may invest in futures or options contracts regulated by the
CFTC for (i) bona fide hedging purposes within the meaning of the rules of the
CFTC and (ii) for other purposes if, as a result, no more than 5% of the Fund's
net assets would be invested in initial margin and premiums (excluding amounts
"in-the-money") required to establish the contracts.
(4) Each Fund may lend securities from its portfolio to approved brokers,
dealers and financial institutions, to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder, which currently
limit such activities to one-third of the value of a Fund's total assets
(including the value of the collateral received). Any such loans of portfolio
securities will be fully collateralized based on values that are marked-to-
market daily.
(5) Each Fund may not make investments for the purpose of exercising
control or management, provided that this restriction does not limit a Fund's
investments in securities of other investment companies or investments in
entities created under the laws of foreign countries to facilitate investment in
securities in that country.
(6) Each Fund may not purchase securities on margin (except for short-term
credits necessary for the clearance of transactions).
(7) Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
4
<PAGE>
General
-------
Notwithstanding the foregoing policies, any other investment companies
in which the Funds may invest have adopted their own investment policies, which
may be more or less restrictive than those listed above, thereby allowing a Fund
to participate in certain investment strategies indirectly that are prohibited
under the fundamental and non-fundamental investment policies listed above.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND ASSOCIATED RISKS
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total
assets.
Asset-Backed Securities
-----------------------
The Funds may invest in various types of asset-backed securities. Asset-
backed securities are securities that represent an interest in an underlying
security. The asset-backed securities in which the Funds invest may consist of
undivided fractional interests in pools of consumer loans or receivables held in
trust. Examples include certificates for automobile receivables (CARS) and
credit card receivables (CARDS). Payments of principal and interest on these
asset-backed securities are "passed through" on a monthly or other periodic
basis to certificate holders and are typically supported by some form of credit
enhancement, such as a surety bond, limited guaranty, or subordination. The
extent of credit enhancement varies, but usually amounts to only a fraction of
the asset-backed security's par value until exhausted. Ultimately, asset-backed
securities are dependent upon payment of the consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse to the entity
that originated the loans or receivables. The actual maturity and realized yield
will vary based upon the prepayment experience of the underlying asset pool and
prevailing interest rates at the time of prepayment. Asset-backed securities are
relatively new instruments and may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, the secondary market
for certain asset-backed securities may not be as liquid as the market for other
types of securities, which could result in a Fund experiencing difficulty in
valuing or liquidating such securities. These Funds may also invest in
securities backed by pools of mortgages. The investments are described under
the heading "Mortgage-Related Securities."
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of domestic issuers. Such risks include possible future
5
<PAGE>
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other short-
term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Below Investment Grade Investments
----------------------------------
The Corporate Bond, Diversified Bond, Income, Income Plus and Stable Income
Funds may invest in debt securities that are in low or below investment grade
categories, or are unrated or in default at the time of purchase (also known as
high yield securities or "junk bonds"). Such debt securities have a much
greater risk of default (or in the case of bonds currently in default, of not
returning principal) and are more volatile than higher-rated securities of
similar maturity. The value of such debt securities will be affected by overall
economic conditions, interest rates, and the creditworthiness of the individual
issuers. Additionally, these lower rated debt securities may be less liquid and
more difficult to value than higher rated securities.
Stocks of the smaller and medium-sized companies in which the Fund may
invest may be more volatile than larger company stocks. Investments in foreign
markets may also present special risks, including currency, political,
diplomatic, regulatory and liquidity risks.
Bonds
-----
Certain of the debt instruments purchased by the Funds may be bonds. A
bond is an interest-bearing security issued by a company or governmental unit.
The issuer of a bond has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal (the bond's face value)
periodically or on a specified maturity date. An issuer may have the right to
redeem or "call" a bond before maturity, in which case the investor may have to
reinvest the proceeds at lower market rates. The value of fixed-rate bonds will
tend to fall when interest rates rise and rise when interest rates fall. The
value of "floating-rate" or "variable-rate" bonds, on the other hand, fluctuate
much less in response to market interest rate movements than the value of fixed
rate bonds.
6
<PAGE>
Bonds may be senior or subordinated obligations. Senior obligations
generally have the first claim on a corporation's earnings and assets and, in
the event of liquidation, are paid before subordinated debt. Bonds may be
unsecured (backed only by the issuer's general creditworthiness) or secured
(also backed by specified collateral).
Borrowing
---------
The Funds may borrow money for temporary or emergency purposes, including
the meeting of redemption requests. Borrowing involves special risk
considerations. Interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and instrumentalities) will consist of
issues that are rated in one of the two highest rating categories by a
Nationally Recognized Ratings Organization ("NRRO"). Commercial paper may
include variable- and floating-rate instruments.
Convertible Securities
----------------------
The Funds may invest in convertible securities. A convertible security is
generally a debt obligation or preferred stock that may be converted within a
specified period of time into a certain amount of common stock of the same or a
different user. A convertible security provides a fixed-income stream and the
opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in its underlying common
stock. As with a straight fixed-income security, a convertible security tends
to increase in market value when interest rates decline and decrease in value
when interest rates rise. Like a common stock, the value of a convertible
security also tends to increase as the market value of the underlying stock
rises, and it tends to decrease as the market value of the underlying stock
declines. Because its value can be influenced by both interest rate and market
movements, a convertible
7
<PAGE>
security is not as sensitive to interest rates as a similar fixed-income
security, nor is it as sensitive to changes in share price as its underlying
stock.
The creditworthiness of the issuer of a convertible security may be
important in determining the security's true value. This is because the holder
of a convertible security will have recourse only to the issuer. In addition, a
convertible security may be subject to redemption by the issuer, but only after
a specified date and under circumstances established at the time the security is
issued.
While the Funds use the same criteria to rate a convertible debt security
that it uses to rate a more conventional debt security, a convertible preferred
stock is treated like a preferred stock for a Funds' financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated
to all debt obligations in the event of insolvency, and an issuer's failure to
make a dividend payment is generally not an event of default entitling the
preferred shareholder to take action. A preferred stock generally has no
maturity date, so that its market value is dependent on the issuer's business
prospects for an indefinite period of time. In addition, distributions from
preferred stock are dividends, rather than interest payments, and are usually
treated as such for corporate tax purposes.
Derivative Securities
---------------------
The Funds may invest in various instruments that may be considered
"derivatives," including structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices or financial indicators ("References") or the relative
change in two or more References. Some derivative securities represent
relatively recent innovations in the bond markets, and the trading market for
these instruments is less developed than the markets for traditional types of
debt instruments. It is uncertain how these instruments will perform under
different economic and interest rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss.
Derivative securities and their underlying instruments may experience periods of
illiquidity, which could cause a Fund to hold a security it might otherwise sell
or could force the sale of a security at inopportune times or for prices that do
not reflect current market value. The possibility of default by the issuer or
the issuer's credit provider may be greater for these structured and derivative
instruments than for other types of instruments. As new types of derivative
securities are developed and offered to investors, the advisor will, consistent
with the Funds' investment objective, policies and quality standards, consider
making investments in such new types of derivative securities.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations such as
demand notes and bonds. Variable-rate demand notes include master demand notes
that are obligations that permit a Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand
8
<PAGE>
obligation is adjusted automatically at specified intervals. The issuer of such
obligations ordinarily has a right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks.
There generally is no established secondary market for these obligations
because they are direct lending arrangements between the lender and borrower.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if the Advisor determines that
at the time of investment the obligations are of comparable quality to the other
obligations in which such Fund may invest. The Advisor, on behalf of each Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Fund's portfolio.
Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
Foreign Obligations and Securities
----------------------------------
Each Fund may invest in high-quality, short-term debt obligations of
foreign branches of U.S. banks, U.S. branches of foreign banks and short-term
debt obligations of foreign governmental agencies that are denominated in and
pay interest in U.S. dollars. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer and the available information may be less
reliable. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries.
The Funds may also invest in securities denominated in currencies other
than the U.S. dollar and may temporarily hold funds in bank deposits or other
money market investments denominated in foreign currencies. Therefore, the
Funds may be affected favorably or unfavorably by exchange control regulations
or changes in the exchange rate between such currencies and the dollar. Changes
in foreign currency exchange rates influence values within a Fund from the
perspective of U.S. investors. The rate of exchange between the U.S. dollar and
other currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors.
The Funds may enter into forward currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Funds from adverse changes in
the relationship between
9
<PAGE>
currencies or to enhance income. A forward contract is an obligation to buy or
sell a specific currency for an agreed price at a future date which is
individually negotiated and is privately traded by currency traders and their
customers. The Funds will either cover a position in such a transaction or
maintain, in a segregated account with their custodian bank, cash or high-grade
marketable money market securities having an aggregate value equal to the amount
of any such commitment until payment is made.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
-----------------------------------------------------------------
The Funds may purchase or sell securities on a when-issued or delayed
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. The Funds will establish a segregated
account in which they will maintain cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to each such
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, a Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the Securities Act
of 1933, as amended (the "1933 Act") and other securities subject to legal or
other restrictions on resale. Because such securities may be less liquid than
other investments, they may be difficult to sell promptly at an acceptable
price. Delay or difficulty in selling securities may result in a loss or be
costly to a Fund.
Interest Rate Protection Transactions
-------------------------------------
To manage its exposure to different types of investments, Funds may enter
into interest rate, currency and mortgage (or other asset) swap agreements and
may purchase and sell interest rate "caps," "floors" and "collars." In a
typical interest rate swap agreement, one party agrees to make regular payments
equal to a floating interest rate on a specific amount in return for payments
equal to a fixed interest rate on the same amount for a specified period. In a
cap or floor, one party agrees, usually in return for a fee, to make payments
under particular circumstances. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed upon
range.
A Fund expects to enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. The Funds intend to use these
transactions as a hedge and not as a speculative investment.
10
<PAGE>
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities pursuant to guidelines approved
by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the limits established by the 1940
Act.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested subject to the investment objectives,
principal investment strategies and policies of the Fund. In connection with
lending securities, a Fund may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail to
return the securities or may fail to provide additional collateral. In either
case, a Fund could experience delays in recovering securities or collateral or
could lose all or part of the value of the loaned securities. Although voting
rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur. A Fund may pay a portion of the interest or fees earned from
securities lending to a borrower or securities lending agent. Borrowers and
placing brokers may not be affiliated, directly or indirectly, with the Trust,
the Advisor, or the Distributor.
Mortgage-Related Securities
---------------------------
The Funds may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Payment of principal
and interest on some mortgage pass-through securities (but not the market value
of the securities themselves) may be guaranteed by the full faith and credit of
the U.S. Government or its agencies or instrumentalities. Mortgage pass-through
securities created by non- government issuers (such as commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers.
Prepayment Risk. The stated maturities of mortgage-related securities may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular mortgage-related security . Variations in the
maturities of mortgage-related securities will affect the yield of the Fund.
Early
11
<PAGE>
repayment of principal on mortgage-related securities may expose a Fund to a
lower rate of return upon reinvestment of principal. Also, if a security subject
to prepayment has been purchased at a premium, in the event of prepayment the
value of the premium would be lost. Like other fixed-income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates decline, the value of mortgage-related
securities with prepayment features may not increase as much as other fixed-
income securities.
Collateralized Mortgage Obligations ("CMOs") and Adjustable Rate Mortgages
("ARMs"). The Funds may also invest in investment grade CMOs. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"). CMOs
are structured into multiple classes, with each class bearing a different stated
maturity. Payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
As new types of mortgage-related securities are developed and offered to
investors, the Advisor will, consistent with the Fund's investment objective,
policies and quality standards, consider making investments in such new types of
mortgage-related securities.
The Funds each may invest in ARMs issued or guaranteed by the GNMA, FNMA or
the FHLMC. The full and timely payment of principal and interest on GNMA ARMs is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMs are not backed by the full
faith and credit of the United States. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are generally considered to
be high quality investments that present minimal credit risks. The yields
provided by these ARMs have historically exceeded the yields on other types of
U.S. Government securities with comparable maturities, although there can be no
assurance that this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMs issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
The interest rates on the mortgages underlying the ARMs and some of the
CMOs in which the Funds may invest generally are readjusted at periodic
intervals ranging from one year or less to several years in response to changes
in a predetermined commonly-recognized interest rate index. The adjustable rate
feature should reduce, but will not eliminate, price fluctuations in such
securities, particularly when market interest rates fluctuate. The net asset
value of a Funds' shares may fluctuate to the extent interest rates on
underlying mortgages differ from prevailing market interest rates during interim
periods between interest rate reset dates. Accordingly, investors could
experience some loss if they redeem their shares of a Fund or if the Funds sells
these portfolio securities before the interest rates on the underlying mortgages
are adjusted to reflect prevailing market interest rates. The holder of ARMs and
CMOs are also subject to repayment risk.
12
<PAGE>
The Funds will not invest in CMOs that, at the time of purchase, are "high-
risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities. High-risk mortgage securities are generally those with long
durations or those which are likely to be more sensitive to interest-rate
fluctuations.
Mortgage Participation Certificates. The Funds also may invest in the
following types of FHLMC mortgage pass-through securities. FHLMC issues two
types of mortgage pass-through securities: mortgage participation certificates
("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA
certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool of mortgages. GMCs also
represent a pro rata interest in a pool of mortgages. These instruments,
however, pay interest semiannually and return principal once a year in
guaranteed minimum payments. These mortgage pass-through securities differ from
bonds in that principal is paid back by the borrower over the length of the loan
rather than returned in a lump sum at maturity. They are called "pass-through"
securities because both interest and principal payments, including prepayments,
are passed through to the holder of the security. PCs and GMCs are both subject
to prepayment risk.
Options Trading
---------------
The Funds may purchase or sell options on individual securities or options
on indices of securities. The purchaser of an option risks a total loss of the
premium paid for the option if the price of the underlying security does not
increase or decrease sufficiently to justify the exercise of such option. The
seller of an option, on the other hand, will recognize the premium as income if
the option expires unrecognized but foregoes any capital appreciation in excess
of the exercise price in the case of a call option and may be required to pay a
price in excess of current market value in the case of a put option.
A call option for a particular security gives the purchaser of the option
the right to buy, and a writer the obligation to sell, the underlying security
at the stated exercise price at any time prior to the expiration of the option,
regardless of the market price of the security. The premium paid to the writer
is in consideration for undertaking the obligation under the option contract. A
put option for a particular security gives the purchaser the right to sell, and
the writer the option to buy, the security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security.
The Funds will write call options only if they are "covered." In the case
of a call option on a security or currency, the option is "covered" if a Fund
owns the instrument underlying the call or has an absolute and immediate right
to acquire that instrument without additional cash consideration (or, if
additional cash consideration is required, cash, U.S. Government securities or
other liquid high grade debt obligations, in such amount are held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities held by it. For a call option on an index, the option is covered if a
Fund maintains with its custodian a diversified portfolio of securities
comprising the index or liquid assets equal to the contract value. A call option
is also covered if a Fund holds an offsetting call on the same instrument or
index as the call written. The Funds will write put options only if they are
"secured" by liquid assets maintained in a segregated
13
<PAGE>
account by the Funds' custodian in an amount not less than the exercise price of
the option at all times during the option period.
A Fund may buy put and call options and write covered call and secured put
options. Options trading is a highly specialized activity which entails greater
than ordinary investment risk. Options may be more volatile than the underlying
instruments, and therefore, on a percentage basis, an investment in options may
be subject to greater fluctuation than an investment in the underlying
instruments themselves. Purchasing options is a specialized investment technique
that entails a substantial risk of a complete loss of the amounts paid as
premiums to the writer of the option. If the Advisor is incorrect in its
forecast of market value or other factors when writing options, the Fund would
be in a worse position than it would have been had if it had not written the
option. If a Fund wishes to sell an underlying instrument (in the case of a
covered call option) or liquidate assets in a segregated account (in the case of
a secured put option), the Fund must purchase an offsetting option if available,
thereby incurring additional transactions costs.
Below is a description of some of the types of options in which certain
Funds may invest.
A stock index option is an option contract whose value is based on the
value of a stock index at some future point in time. Stock indexes fluctuate
with changes in the market values of the stocks included in the index. The
effectiveness of purchasing or writing stock index options will depend upon the
extent to which price movements in a Fund's investment portfolio correlate with
price movements of the stock index selected. Accordingly, successful use by a
Fund of options on stock indexes will be subject to the Advisor's ability to
correctly analyze movements in the direction of the stock market generally or of
particular industry or market segments. When a Fund writes an option on a stock
index, the Fund will place in a segregated account with the Fund's custodian
cash or liquid securities in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open or
otherwise will cover the transaction.
The Funds may invest in stock index futures contracts and options on stock
index futures contracts. A stock index futures contract is an agreement in which
one party agrees to deliver to the other an amount of cash equal to a specific
dollar amount multiplied by the difference between the value of a specific stock
index at the close of the last trading day of the contract and the price at
which the agreement is made. Stock index futures contracts may be purchased to
protect a Fund against an increase in the prices of stocks that Fund intends to
purchase. The purchase of options on stock index futures contracts are similar
to other options contracts as described above, where a Fund pays a premium for
the option to purchase or sell a stock index futures contract for a specified
price at a specified date. With options on stock index futures contracts, a Fund
risks the loss of the premium paid for the option. The Funds may also invest in
interest-rate futures contracts and options on interest-rate futures contracts.
These securities are similar to stock index futures contracts and options on
stock index futures contracts, except they derive their price from an underlying
interest rate rather than a stock index.
Interest-rate and index swaps involve the exchange by a Fund with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Index swaps
involve the exchange by a Fund with another
14
<PAGE>
party of cash flows based upon the performance of an index of securities.
Interest-rate swaps involve the exchange by a Fund with another party of cash
flows based upon the performance of a specified interest rate. In each case, the
exchange commitments can involve payments to be made in the same currency or in
different currencies. The Funds will usually enter into swaps on a net basis. In
so doing, the two payment streams are netted out, with a Fund receiving or
paying, as the case may be, only the net amount of the two payments. If a Fund
enters into a swap, it will maintain a segregated account on a gross basis,
unless the contract provides for a segregated account on a net basis. The risk
of loss with respect to swaps generally is limited to the net amount of payments
that a Fund is contractually obligated to make. There is also a risk of a
default by the other party to a swap, in which case a Fund may not receive net
amount of payments that the Fund contractually is entitled to receive.
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act.
Currently, under the 1940 Act, a Fund that invests directly in a portfolio of
securities is limited to, subject to certain exceptions, (i) 3% of the total
voting stock of any one investment company, (ii) 5% of such Fund's total assets
with respect to any one investment company and (iii) 10% of such Fund's total
assets. Gateway Funds, whose policies are to invest some or all of their assets
in the securities of one or ore open-end management investment companies, are
excepted from these general limitations. Other investment companies in which the
Funds invest can be expected to charge fees for operating expenses, such as
investment advisory and administration fees, that would be in addition to those
charged by the Funds.
Participation Interests
-----------------------
Each Fund may purchase participation interests in loans or instruments in
which the Fund may invest directly that are owned by banks or other
institutions. A participation interest gives a Fund an undivided proportionate
interest in a loan or instrument. Participation interests may carry a demand
feature permitting the holder to tender the interests back to the bank or other
institution. Participation interests, however, do not provide the Fund with any
right to enforce compliance by the borrower, nor any rights of set-off against
the borrower and the Fund may not directly benefit from any collateral
supporting the loan in which it purchased a participation interest. As a
result, the Fund will assume the credit risk of both the borrower and the
lender that is selling the participation interest.
Privately Issued Securities
---------------------------
The Funds, may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued or Rule 144A securities that
are determined by the Advisor to be "illiquid" are subject to the Funds' policy
of not investing more than 15% of its net assets in illiquid securities. The
Advisor, under guidelines approved by Board of Trustees of the Trust, will
evaluate the
15
<PAGE>
liquidity characteristics of each Rule 144A Security proposed for purchase by a
Fund on a case-by-case basis and will consider the following factors, among
others, in their evaluation: (1) the frequency of trades and quotes for the Rule
144A Security; (2) the number of dealers willing to purchase or sell the Rule
144A Security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the Rule 144A Security; and (4) the nature of
the Rule 144A Security and the nature of the marketplace trades (e.g., the time
needed to dispose of the Rule 144A Security, the method of soliciting offers and
the mechanics of transfer).
Repurchase Agreements
---------------------
Each Fund may enter into repurchase agreements, wherein the seller of a
security to a Fund agrees to repurchase that security from a Fund at a mutually
agreed upon time and price. A Fund may enter into repurchase agreements only
with respect to securities that could otherwise be purchased by such Fund. All
repurchase agreements will be fully collateralized at 102% based on values that
are marked to market daily. The maturities of the underlying securities in a
repurchase agreement transaction may be greater than twelve months, although the
maximum term of a repurchase agreement will always be less than twelve months.
If the seller defaults and the value of the underlying securities has declined,
a Fund may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Funds' disposition of the
security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's net assets would be invested in repurchase agreements with maturities of
more than seven days and illiquid securities. A Fund will only enter into
repurchase agreements with primary broker/dealers and commercial banks that meet
guidelines established by the Board of Trustees and that are not affiliated with
the investment advisor. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by the Advisor.
Reverse Repurchase Agreements
-----------------------------
The Funds may enter into reverse repurchase agreements (an agreement under
which a Fund sells their portfolio securities and agrees to repurchase them at
an agreed-upon date and price). At the time a Fund enters into a reverse
repurchase agreement it will place in a segregated custodial account liquid
assets such as U.S. Government securities or other liquid high-grade debt
securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Funds may decline below the
price at which the Funds are obligated to repurchase the securities. Reverse
repurchase agreements may be viewed as a form of borrowing.
Stripped Securities
-------------------
Each Fund may purchase Treasury receipts, securities of government-
sponsored enterprises (GSEs), and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. The stripped securities the
Funds may purchase are issued by
16
<PAGE>
the U.S. Government (or a U.S. Government agency or instrumentality) or by
private issuers such as banks, corporations and other institutions at a discount
to their face value. The Funds will not purchase stripped mortgage-backed
securities ("SMBS"). The stripped securities purchased by the Funds generally
are structured to make a lump-sum payment at maturity and do not make periodic
payments of principal or interest. Hence, the duration of these securities tends
to be longer and they are therefore more sensitive to interest rate fluctuations
than similar securities that offer periodic payments over time. The stripped
securities purchased by the Funds are not subject to prepayment or extension
risk.
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors.
Unrated Investments
-------------------
The Funds may purchase instruments that are not rated if, in the opinion of
the Advisor, such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund. After
purchase by a Fund, a security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event will
require a sale of such security by the Fund. To the extent the ratings given by
Moodys or S&P may change as a result of changes in such organizations or their
rating systems, a Fund will attempt to use comparable ratings as standards for
investments in accordance with the investment policies contained in its
Prospectus and in this SAI. The ratings of Moodys and S&P are more fully
described in the SAI Appendix.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
17
<PAGE>
Zero Coupon Bonds
-----------------
The Funds may invest in zero coupon bonds. Zero coupon bonds are securities
that make no periodic interest payments, but are instead sold at discounts from
face value. The buyer of such a bond receives the rate of return by the gradual
appreciation of the security, which is redeemed at face value on a specified
maturity date. Because zero coupon bonds bear no interest, they are more
sensitive to interest-rate changes and are therefore more volatile. When
interest rates rise, the discount to face value of the security deepens and the
securities decrease more rapidly in value, when interest rates fall, zero coupon
securities rise more rapidly in value because the bonds carry fixed interest
rates that become more attractive in a falling interest rate environment.
Nationally Recognized Ratings Organizations
-------------------------------------------
The ratings of Moody's, S&P, Division of McGraw Hill, Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc. Thomson Bank Watch and IBCA Inc.
represent their opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by the Funds, an issue of debt securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Funds. The Advisor will consider such an event in determining whether the Fund
involved should continue to hold the obligation.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Trustees and
principal executive Officer[s] of the Trust are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Trustees deemed to be "interested persons" of the Trust for purposes of
the 1940 Act are indicated by an asterisk.
18
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
*Robert C. Brown, 65 Trustee, Director, Federal Farm Credit Banks Funding
1431 Landings Place Secretary and Corporation and Farm Credit System Financial
Sarasota, FL 34231 Treasurer Assistance Corporation since February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Suite 410 Roxane Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee and Private Investor.
31 Dellwood Court President
San Rafael, CA 94901
Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer;
Four Beaufain Street Chairman of Vault Holdings, LLC.
Charleston, SC 29401
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm
500 North State Street of Himle-Horner since January 1995 and Senior
Waseca, MN 56095 Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since
January 1995.
Donald C. Willeke, 58 Trustee Principal of the law firm of Willeke & Daniels
201 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
Each of the Trustees and Officers listed above act in the identical
capacities for Wells Fargo Variable Trust and Wells Fargo Core Trust
(collectively the "Fund Complex"). Each Trustee receives an annual retainer
(payable quarterly) of $40,000 from the Fund Complex, and also receives a
combined fee of $1,000 for attendance at Fund Complex Board meetings, and a
combined fee of $250 for attendance at committee meetings. If a committee
meeting is held
19
<PAGE>
absent a full Board meeting, each attending Trustee will receive a $1,000
combined fee. These fees apply equally for in-person or telephonic meetings, and
Trustees are reimbursed for all out-of-pocket expenses related to attending
meetings. For 1999, the Trustees will receive a pro rata share of the annual
retainer, calculated from the closing date of the Reorganization. The Trustees
do not receive any retirement benefits or deferred compensation from the Trust
or an other member of the Fund Complex.
As of the date of this SAI, Trustees and Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
Investment Advisor. Subject to the general supervision of the Board, Wells
------------------
Fargo Bank provides investment advisory services to the Funds. As investment
advisor, Wells Fargo Bank furnishes investment guidance and policy direction in
connection with the daily portfolio management of the Funds. Wells Fargo Bank
furnishes to the Trust's Board of Trustees periodic reports on the investment
strategy and performance of each Fund. Wells Fargo Bank provides the Funds with,
among other things, money market security and fixed-income research, analysis
and statistical and economic data and information concerning interest rate and
securities markets trends, portfolio composition, and credit conditions.
The Funds operate under three types of advisory arrangements: (i) stand-
alone Funds with an investment advisor and sub-advisor; (ii) gateway feeder
Funds that invest in a single corresponding core portfolio of Wells Fargo Core
Trust ("Core Trust") and have "dormant" advisory arrangements at the gateway
level; and (iii) gateway blended Funds that invest in two or more core
portfolios and have both active and dormant advisory arrangements at the gateway
level.
As compensation for its advisory services for the following stand-alone
Funds, Wells Fargo Bank is entitled to receive a monthly fee at the annual rates
indicated below of each Fund's average daily net assets:
Annual Rate
Stand-Alone Funds (as a percentage of net assets)
- ----------------- -------------------------------
Corporate Bond 0.50%
Income 0.50%
Income Plus 0.60%
Intermediate Government Income 0.50%
Limited Term Government Income 0.50%
Variable Rate Government 0.50%
As described in the second category above, the Stable Income Fund invests
100% of its assets in a single respective core portfolio of Core Trust. Because
the Fund invest all of its assets in a single portfolio, no investment advisory
services are currently provided at the gateway feeder Fund level. However, in
order to preserve flexibility to allow the Fund to either invest in more than
core portfolio of Core Trust or to convert to a stand-alone Fund with a direct
advisory relationship, the Fund has a "dormant" advisory arrangement with Wells
Fargo Bank. Under the dormant advisory arrangement, Wells Fargo Bank will
receive no advisory fees as long as the
20
<PAGE>
gateway feeder Fund invest all (or substantially all) of its assets in one core
portfolio of Core Trust. In the event that the Fund converts into a gateway
blended Fund as described above, Wells Fargo Bank as advisor would be entitled
to receive a fee of 0.25% for asset allocation services. The dormant advisory
rate listed below mirrors the advisory fee charged by Wells Fargo Bank to the
Core Trust portfolio in which the gateway feeder Fund invests.
<TABLE>
<CAPTION>
Active Dormant Asset Pass-through
Gateway Feeder Fund Advisory Fees Allocation Fees* Advisory Fees**
- ------------------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Stable Income 0.00% 0.25% 0.50%
</TABLE>
____________________
* Represents the proposed advisory fee payable to Wells Fargo Bank as Advisor
if the Fund converts into a gateway blended Fund.
** Represents the advisory fee payable to Wells Fargo as advisor to the Fund
of Core Trust. This would be the proposed advisory fee payable to Wells
Fargo Bank as advisor if the Fund converts into a stand-alone Fund.
As described in the third category above, the Diversified Bond Fund
invests its assets in two or more core portfolios of Core Trust. For the Fund,
Wells Fargo Bank determines the core portfolios of Core Trust in which the
gateway blended Fund invests and the percentage allocation that such Fund would
make to each core portfolio. For these asset allocation services, Wells Fargo
Bank is entitled to receive a fee as indicated in the chart below. The Fund also
has the dormant advisory arrangements described above with respect to the Stable
Income Fund.
<TABLE>
<CAPTION>
Advisory Fees Core Level
Gateway Blended Fund (Maximum Asset Allocation Fees) Dormant Advisory Fees*
- -------------------- ------------------------------- ----------------------
<S> <C> <C>
Diversified Bond 0.25% 0.50%
</TABLE>
____________________
* Because the gateway blended Fund invest in two or more Core Trust portfolios
with varying advisory fees, the dormant advisory fees are based on a formula
that reflects a blended fee rate.
As discussed in the "Historical Fund Information" section, the Funds
were created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amount of advisory
(and other) fees paid shows the dollar amount of fees paid to either Wells Fargo
Bank or NIM by the predecessor portfolio that is considered the surviving entity
for accounting purposes.
FORMER STAGECOACH FUNDS
For the periods indicated below, the predecessor portfolios to the Funds
listed below paid to Wells Fargo Bank the following advisory fees and Wells
Fargo Bank waived the indicated amounts:
21
<PAGE>
<TABLE>
<CAPTION>
Three-Month
Year Ended Period Ended
Fund 6/30/99 6/30/98
---- -------- ------------
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Corporate Bond $ 23,084 $ 53,704 $ 2,427 $ 5,498
Income Plus $ 59,858 $147,160 N/A N/A
Limited Term Government $459,093 $237,095 $ 75,268 $ 36,209
Income
Variable Rate Government $204,891 $479,326 $158,638 $315,545
</TABLE>
<TABLE>
<CAPTION>
Six-Month
Year-Ended Period Ended
Fund 3/31/98 3/31/97
---- ---------- ---------
Fees Paid Fees Waived Fees Paid Fees Waived
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Corporate Bond N/A N/A N/A N/A
Income Plus N/A N/A N/A N/A
Limited Term Government
Income $ 132,389 $309,195 $134,529 $121,235
Variable Rate Government $1,355,943* $294,181* N/A N/A
</TABLE>
____________________
* These amounts are for the year ended December 31, 1997. Prior to December
12, 1997, these amounts reflect fees paid by the corresponding Overland
predecessor portfolio.
FORMER NORWEST FUNDS
For the periods indicated below, the predecessor portfolios to the Funds
listed below paid to NIM the following advisory fees and NIM waived the
indicated amounts:
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
---------- ---------- ----------
Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
- ---- --------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Diversified Bond $ 715 $392,977 $ 551,714 $376,973 $ 598,019 $ 0
Income $1,735,605 $ 0 $1,314,324 $ 90,387 $1,108,790 $277,198
Intermediate Government
Income $1,470,878 $ 0 $1,315,676 $ 0 $1,355,907 $ 0
Stable Income $ 0 $ 0 $ 406,937 $ 0 $ 334,768 $ 0
</TABLE>
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract
22
<PAGE>
may be terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
Investment Sub-Advisors. Wells Fargo Bank has engaged Wells Capital
-----------------------
Management ("WCM"), Galliard Capital Management, Inc. ("Galliard") and Peregrine
Capital Management, Inc. ("Peregrine") to serve as investment sub-advisors to
the stand-alone Funds of the Trust and the core portfolios of Core Trust in
which the gateway blended and gateway feeder Funds invest, as listed in the
chart below (collectively, the "Sub-Advisors"). Subject to the direction of the
Trusts' Board of Trustees and the overall supervision and control of Wells Fargo
Bank and the Trusts, the Sub-Advisors make recommendations regarding the
investment and reinvestment of the Funds' assets. The Sub-Advisors furnish to
Wells Fargo Bank periodic reports on the investment activity and performance of
the Funds. The Sub-Advisors also furnish such additional reports and
information as Wells Fargo Bank and the Trusts' Board of Trustees and officers
may reasonably request.
Wells Fargo has engaged WCM as investment sub-advisor for the stand-alone
Funds of the Trust listed below. For providing sub-advisory services, WCM is
entitled to receive fees as described below.
- ----------------------------------------------------------------
Fund Fee
- ----------------------------------------------------------------
Corporate Bond 0-400M 0.15%
400-800M 0.125%
greater than 800M 0.10%
- ----------------------------------------------------------------
Income 0-400M 0.20%
400-800M 0.175%
greater than 800M 0.15%
- ----------------------------------------------------------------
Income Plus 0-400M 0.20%
400-800M 0.175%
greater than 800M 0.15%
- ----------------------------------------------------------------
Intermediate Government Income 0-400M 0.15%
400-800M 0.125%
greater than 800M 0.10%
- ----------------------------------------------------------------
Limited Term Government Income 0-400M 0.15%
400-800M 0.125%
greater than 800M 0.10%
- ----------------------------------------------------------------
Variable Rate Government 0-400M 0.15%
400-800M 0.125%
greater than 800M 0.10%
- ----------------------------------------------------------------
Wells Fargo Bank has engaged Peregrine and Galliard to serve as investment
sub-advisors to the core portfolios in which the Diversified Bond and Stable
Income Funds invest, as listed in the chart below.
23
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Sub- Sub-Advisory
Fund Core Portfolio(s) Advisors Fees
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified Bond Managed Fixed Income Portfolio Galliard 0-100M 0.10%
100-200M 0.08%
greater than 200M 0.06%
- --------------------------------------------------------------------------------------------------------------
Positive Return Portfolio Peregrine 0-10M 0.40%
10-25M 0.30%
25-300M 0.20%
greater than 300M 0.10%
- -------------------------------------------------------------------------------------------------------------
Strategic Value Bond Portfolio Galliard 0-100M 0.13%
100-200M 0.10%
greater than 200M 0.08%
- -------------------------------------------------------------------------------------------------------------
Stable Income Stable Income Portfolio Galliard 0-1500M 0.04%
1500-2000M 0.05%
2000-2500M 0.045%
2500-3000M 0.04%
greater than 3000M 0.03%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Administrator. The Trust has retained Wells Fargo Bank as Administrator on
-------------
behalf of each Fund. Under the Administration Agreement between Wells Fargo Bank
and the Trust, Wells Fargo Bank shall provide as administration services, among
other things: (i) general supervision of the Funds' operations, including
coordination of the services performed by each Fund's investment advisor,
transfer agent, custodian, shareholder servicing agent(s), independent auditors
and legal counsel, regulatory compliance, including the compilation of
information for documents such as reports to, and filings with, the U.S.
Securities and Exchange Commission ("SEC") and state securities commissions; and
preparation of proxy statements and shareholder reports for each Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Trust's officers and Board of
Trustees. Wells Fargo Bank also furnishes office space and certain facilities
required for conducting the Funds' business together with ordinary clerical and
bookkeeping services. The Administrator is entitled to receive a fee of up to
.15% of each Fund's average daily net assets on an annual basis.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amounts of
administration fees paid shows the dollar amount of fees paid to administrators
by the predecessor portfolio that is considered the surviving entity for
accounting purposes.
FORMER STAGECOACH FUNDS
The predecessor Stagecoach Funds had retained Wells Fargo Bank as
Administrator from March 25, 1999 through the date of the Reorganization, on the
same terms as are currently in effect. Prior to March 25, 1999, the predecessor
Stagecoach Funds had retained Wells Fargo Bank as Administrator and Stephens as
Co-Administrator on behalf of each Fund. Wells Fargo Bank and Stephens were
entitled to receive monthly fees of 0.03% and 0.04%, respectively, of the
average daily net assets of each Fund. Prior to February 1, 1998, Wells Fargo
Bank and Stephens received a monthly fees of 0.04% and 0.02%, respectively, of
the average daily net assets of each Fund. In connection with the change in
fees, the responsibility for performing
24
<PAGE>
various administration services was shifted to the Co-Administrator. Except as
described below, prior to February 1, 1997, Stephens served as the sole
Administrator and performed substantially the same services now provided by
Stephens and Wells Fargo Bank.
For the periods indicated below, the predecessor portfolios to the Funds
listed below paid the following dollar amounts to Wells Fargo Bank and Stephens
for administration and co-administration fees.
<TABLE>
<CAPTION>
Three-Month
Year Ended Period Ended
6/30/99 6/30/98
------- -------
Wells Wells
----- -----
Fund Total Fargo Stephens Total Fargo Stephens
- ---- ----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Corporate Bond $ 6,156 $ 3,524 $ 2,632 $ 1,107 $ 478 $ 629
Income Plus $226,730 $129,802 $96,827 N/A N/A N/A
Limited Term Government Income $112,334 $ 64,311 $48,023 $15,606 $ 6,711 $ 8,895
Variable Rate Government $108,802 $ 62,295 $46,512 $64,485* $27,729* $36,756*
</TABLE>
_______________________
* These figures are for the six-month period ended June 30, 1998.
<TABLE>
<CAPTION>
Year-Ended Year-Ended
3/31/98 3/31/97
---------- ---------
Wells Wells
----- -----
Fund Total Fargo Stephens Total Fargo Stephens
- ---- ----- ----- -------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Corporate Bond N/A N/A N/A N/A N/A N/A
Income Plus N/A N/A N/A N/A N/A N/A
Limited Term Government Income $ 54,262 $ 36,356 $ 17,906 $64,923** $51,994** $12,929**
Variable Rate Government $282,517*** $189,286*** $ 93,231*** N/A N/A N/A
</TABLE>
_______________________
** These figures are for the six-month period ended March 31, 1997.
*** These figures are for the year ended December 31, 1997.
FORMER NORWEST FUNDS
With respect to the predecessor Norwest Funds, Forum Financial Services,
Inc. ("Forum") managed all aspects of the operation of the Funds, except those
which were the responsibility of Forum Administrative Services, LLC ("FAS") as
administrator or Norwest in its capacity as administrator.
For the periods indicated below, the following Funds paid the following
dollar amounts as administration fees:
25
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
-------- -------- --------
Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
- ---- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Diversified Bond $ 3,131 $36,238 $ 32,399 $143,270 $ 59,961 $110,901
Income $ 164,941 $ 8,620 $115,539 $165,404 $100,685 $453,711
Intermediate Government
Income $ 209,982 $12,978 $203,711 $191,068 $234,529 $176,352
Stable Income $ 41,464 $ 2,709 $ 8,167 $148,110 $ 0 $111,589
</TABLE>
Distributor. Stephens Inc. ("Stephens," the "Distributor"), located at 111
-----------
Center Street, Little Rock, Arkansas 72201, serves as Distributor for the Funds.
The Funds have adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule") for their Class B and Class C
shares. The Plan was adopted by the Trust's Board of Trustees, including a
majority of the Trustees who were not "interested persons" (as defined in the
1940 Act) of the Funds and who had no direct or indirect financial interest in
the operation of the Plan or in any agreement related to the Plan (the "Non-
Interested Trustees").
Under the Plan and pursuant to the related Distribution Agreement, the
Class B and Class C shares of the Funds pay Stephens up to 0.75% of the average
daily net assets attributable to each Class as compensation for distribution-
related services or as reimbursement for distribution-related expenses.
The actual fee payable to the Distributor by the above-indicated Funds and
Classes is determined, within such limits, from time to time by mutual agreement
between the Trust and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive compensation for distribution-related services from the Distributor,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of Fund shares attributable to their
customers. The Distributor may retain any portion of the total distribution fee
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the fees received by the
Funds' Distributor shows the fees paid by the predecessor portfolio that is
considered the surviving entity for accounting purposes to its respective
Distributor.
Former Stagecoach Funds
The predecessor Stagecoach Funds has retained Stephens as their
Distributor. For the year ended September 30, 1999, Stephens received the
following fees for distribution-related services, as set forth below, under each
Fund's Rule 12B-1 Plan.
26
<PAGE>
<TABLE>
<CAPTION>
Fund Total
---- -----
<S> <C>
Corporate Bond
Class B $ 77,902
Class C $ 13,248
Income Plus Fund
Class B $243,572
Class C $ 24,950
Limited Term Government
Income
Class B $ 5,003
</TABLE>
Former Norwest Funds
The predecessor Norwest Funds had retained Forum as their Distributor. For
the year ended May 31, 1999, Forum received the following fees for distribution-
related services, as set forth below, under each Fund's Rule 12b-1 Plan.
<TABLE>
<CAPTION>
Fund Total Fee Waived
---- ----- ----------
<S> <C> <C>
Income Fund $0
Class B $64,717
Intermediate Government
Income
Class B $87,552 $0
Stable Income
Class B $20,728 $0
</TABLE>
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Trustees of the Trust and
the Non-Interested Trustees. Any Distribution Agreement related to the Plan also
must be approved by such vote of the Trustees and the Non-Interested Trustees.
Such Agreement will terminate automatically if assigned, and may be terminated
at any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the relevant class of the Fund or by vote of a
majority of the Non-Interested Trustees on not more than 60 days' written
notice. The Plan may not be amended to increase
27
<PAGE>
materially the amounts payable thereunder without the approval of a majority of
the outstanding voting securities of the Fund, and no material amendment to the
Plan may be made except by a majority of both the Trustees of the Trust and the
Non-Interested Trustees.
The Plan requires that the Treasurer of the Trust shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Trustees who are not "interested
persons" of the Trust be made by such disinterested Trustees.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Trust, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Trustees has concluded that the Plan is
reasonably likely to benefit the Funds and their shareholders because the Plan
authorize the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
Shareholder Servicing Agent. The Funds have approved a Servicing Plan and
---------------------------
have entered into related Shareholder Servicing Agreements with financial
institutions, including Wells Fargo Bank. Under the agreements, Shareholder
Servicing Agents (including Wells Fargo Bank) agree to perform, as agents for
their customers, administrative services, with respect to Fund shares, which
include aggregating and transmitting shareholder orders for purchases, exchanges
and redemptions; maintaining shareholder accounts and records; and providing
such other related services as the Trust or a shareholder may reasonably
request. For providing shareholder services, a Servicing Agent is entitled to a
fee from the applicable Fund of up to 0.25% on an annualized basis, of the
average daily net assets of the class of shares owned of record or beneficially
by the customers of the Servicing Agent during the period for which payment is
being made. The amounts payable under the Shareholder Servicing Plan and
Agreements are shown below. The Servicing Plan and related Shareholder Servicing
Agreements were approved by the Trust's Board of Trustees and provide that a
Fund shall not be obligated to make any payments under such Plan or related
Agreements that exceed the maximum amounts payable under the Conduct Rules of
the NASD.
Fund Fee
- ---- ---
Corporate Bond
Class A 0.25%
Class B 0.25%
Class C 0.25%
Diversified Bond
Institutional None
28
<PAGE>
Fund Fee
- ---- ---
Income
Class A 0.25%
Class B 0.25%
Institutional None
Income Plus
Class A 0.25%
Class B 0.25%
Class C 0.25%
Intermediate Government Income
Class A 0.25%
Class B 0.25%
Class C 0.25%
Institutional None
Limited Term Government Income
Class A 0.25%
Class B 0.25%
Institutional None
Stable Income
Class A 0.25%
Class B 0.25%
Institutional None
Variable Rate Government
Class A 0.25%
General. The Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Trustees of the Trust,
and the Non-Interested Trustees. Any form of Servicing Agreement related to the
Servicing Plan also must be approved by such vote of the Trustees and Non-
Interested Trustees. Servicing Agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the Board of Trustees,
including a majority of the Non-Interested Trustees. No material amendment to
the Servicing Plan or related Servicing Agreements may be made except by a
majority of both the Trustees of the Trust and the Non-Interested Trustees.
The Servicing Plan requires that the Administrator shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
---------
Norwest Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as
Custodian for each Fund. The Custodian, among other things, maintains a custody
account or accounts in the name of each Fund,
29
<PAGE>
receives and delivers all assets for each Fund upon purchase and upon sale or
maturity, collects and receives all income and other payments and distributions
on account of the assets of each Fund, and pays all expenses of each Fund. For
its services as Custodian, Norwest Bank is entitled to receive a fee of 0.02% of
the average daily net assets of each Fund except the Diversified Bond Fund and
Stable Income Fund. The Diversified Bond Fund and Stable Income Fund, as Gateway
Funds, are not charged a custody fee at the Gateway level, provided that they
remain Gateway Funds and Norwest Bank receives custodial fees for the Core Trust
Portfolios.
Fund Accountant. Forum Accounting Services, LLC ("Forum Accounting"),
---------------
located at Two Portland Square, Portland, Maine 04101, serves as Fund Accountant
for the Funds except for the Corporate Bond, Income Plus and Variable Rate
Government Funds for which Wells Fargo Bank serves as Fund Accountant. Forum
Accounting served as Fund Accountant for the predecessor Norwest Funds whereas
Wells Fargo served as Fund Accountant for the predecessor Stagecoach Funds. In
order to ensure an orderly fund accounting transition to Forum Accounting for
all the Funds, Wells Fargo will continue to serve as Fund Accountant for the
Funds mentioned above during a transition period. It is anticipated that the
transition period will last until February 1, 2000, by which time Forum
Accounting will be serving as Fund Accountant for all of the Funds.
If the conversion to Forum Accounting does not occur on or before February
1, 2000, Wells Fargo Bank will continue to serve as Fund Accountant until the
conversion occurs, but not longer than one year from November 8, 1999, at which
time it is anticipated that Forum Accounting will serve as Fund Accountant for
the Funds. Wells Fargo Bank is entitled to receive the same fees as Norwest
Bank.
For their services as Fund Accountant, Forum Accounting and Wells Fargo
Bank each are entitled to receive a monthly base fee per Fund ranging from
$2,000 for gateway Funds up to $5,833 for Funds with significant holdings of
asset-backed securities. In addition, each Fund pays a monthly fee of $1,000 per
class. Forum Accounting and Wells Fargo Bank are also each entitled to receive a
fee equal to 0.0025% of the average annual daily net assets of each Fund
(excluding the net assets invested in core portfolios of Core Trust which pays
Forum Accounting a similar fee).
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
--------------------------------------
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts
as Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, BFDS is entitled to receive a per-account fee plus transaction fees
and certain out-of-pocket costs. BFDS is also entitled to receive a complex
base fee from all the Funds of the Trust, Core Trust and Wells Fargo Variable
Trust.
Underwriting Commissions. Stephens serves as the principal underwriter
-------------------------
distributing securities of the Funds on a continuous basis. Stephens served as
principal underwriter of the Stagecoach predecessor portfolios whereas Forum
served as underwriter of the predecessor Norwest portfolios. The information
shown below regarding underwriting commissions paid for the last three fiscal
years reflects the amounts paid by the predecessor Stagecoach Fund family and
Norwest Fund family.
30
<PAGE>
For the year-ended September 30, 1999, the aggregate dollar amount of
underwriting commissions paid to Stephens as sales/redemptions of the shares of
the predecessor Stagecoach fund family was $6,214,051. Stephens retained
$2,289,826 of such commissions. For the year-ended September 30, 1999, Wells
Fargo Securities, Inc., an affiliated broker-dealer of the Trust retained
$2,324,394.93.
For the three-month period ended June 30, 1998, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the shares
of the predecessor Stagecoach fund family was $1,546,670. Stephens retained
$485,869 of such commissions. WFSI retained $1,068,673 of such commissions.
For the year ended March 31, 1998, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the shares of
the predecessor Stagecoach fund family was $7,671,295 and Stephens retained
$939,892 of such commissions. WFSI retained $5,348,626 of such commissions.
For the six-month period ended March 31, 1997, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the shares of
the predecessor Stagecoach fund family was $2,296,243. Stephens retained
$241,806 of such commissions. WFSI and its registered representatives received
$1,719,000 and $335,437, respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the shares of
the predecessor Stagecoach fund family was $2,917,738. Stephens retained
$198,664 of such commissions, WFSI and its registered representatives received
$2,583,027 and $136,047 respectively, of such commissions.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Forum by the predecessor Norwest Funds and the
amounts retained by Forum are as follows:
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
---------- ---------- ----------
Paid Retained Paid Retained Paid Retained
---- -------- ---- -------- ---- --------
$168,000 $16,000 $95,000 $9,000 $28,361 $2,628
For the year ended May 31, 1999, Norwest Investment Services Inc. received
$4,049,102.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
31
<PAGE>
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds. Annual
and Semi-Annual Reports for the Funds may contain additional performance
information, and are available free of charge upon request.
Average Annual Total Return: The Funds may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)/n/=ERV.
FORMER STAGECOACH FUNDS
Average Annual Total Return for the Applicable Period Ended September 30,
-------------------------------------------------------------------------
1999/1/
----
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
- ---- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
Corporate Bond
Class A -0.43% N/A N/A -6.06%
Class B -0.59% N/A N/A -6.99%
Class C 1.88% N/A N/A -3.32%
Income Plus Fund
Class A -2.91% N/A N/A -5.09%
Class B -2.82% N/A N/A -5.93%
Class C 0.17% N/A N/A -2.28%
Limited Term Government Income
Class A 4.19% N/A 5.12% -5.05%
Class B 4.21% N/A 5.11% -5.94%
Institutional 5.02% N/A 6.12% -0.60%
Variable Rate Government
Class A 3.83% N/A 3.13% -2.49%
</TABLE>
___________________
/1/ Return calculations, except as indicated, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable contingent
deferred sales charge ("CDSC") for Class B and Class C shares.
/2/ For purposes of sharing performance information, the inception date of each
Fund's predecessor portfolio is as follows: Corporate Bond Fund -- April 1,
1998, Income Plus Fund -- July 13, 1998, Limited Term Government Income
Fund -- October 27, 1993 and Variable Rate Government Fund -- November 1,
1990. The actual inception date of each class may differ from the inception
date of the corresponding Fund.
32
<PAGE>
FORMER NORWEST FUND
Average Annual Total Return for
the Applicable Period Ended May 31, 1999/1/
----------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
---- ------------ -------- --------- --------
<S> <C> <C> <C> <C>
Diversified Bond
Institutional 8.26% 7.07% 6.75% 4.15%
Income Fund
Class A 7.24% 7.17% 5.59% -1.82%
Class B 6.84% 6.83% 5.59% -1.84%
Institutional 7.64% 7.65% 6.57% 2.81%
Intermediate Government Income
Class A 7.25% 6.35% 5.51% -0.48%
Class B 6.76% 6.06% 5.67% -0.41%
Class C N/A N/A N/A N/A
Institutional 7.56% 6.85% 6.50% 4.30%
Stable Income
Class A 5.69% N/A N/A 3.17%
Class B 5.25% N/A N/A 3.32%
Institutional 6.07% N/A N/A 4.95%
</TABLE>
___________________
/1/ Return calculations, except as indicated, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable contingent
deferred sales charge ("CDSC") for Class B and Class C shares.
/2/ For purposes of sharing performance information, the inception date of each
Fund's predecessor portfolio is as follows: Diversified Bond Fund --
November 11, 1994, Income Fund -- June 9, 1987, Intermediate Government
Income Fund -- November 11, 1994 and Stable Income Fund -- November 11 1994.
The actual inception date of each class may differ from the inception date
of the corresponding Fund.
Cumulative Total Return. In addition to the above performance
-----------------------
information, each Fund may also advertise the cumulative total return of the
Fund. Cumulative total return is based on the overall percentage change in value
of a hypothetical investment in the Fund, assuming all Fund dividends and
capital gain distributions are reinvested, without reflecting the effect of any
sales charge that would be paid by an investor, and is not annualized.
FORMER STAGECOACH FUND
Cumulative Total Return for the Applicable Period Ended May 31, 1999/1/
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year Three Year
---- ------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Corporate Bond
Class A -0.64% N/A N/A N/A
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year Three Year
---- ------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Class B -0.89% N/A N/A N/A
Class C 2.84% N/A N/A N/A
Income Plus Fund
Class A -3.51% N/A N/A N/A
Class B -3.52% N/A N/A N/A
Class C 0.22% N/A N/A N/A
Limited Term Government Income
Class A 27.47% N/A 28.36% 12.68%
Class B 27.61% N/A 28.29% 12.88%
Institutional 33.61% N/A 34.55% 18.24%
Variable Rate Government
Class A 39.85% N/A 16.67% 7.41%
</TABLE>
- -------------------
/1/ Return calculations, except as indicated, reflect the inclusion of
front-end sales charges for Class A shares and the maximum applicable
contingent deferred sales charge ("CDSC") for Class B and Class C shares.
/2/ For purposes of sharing performance information, the inception date of each
Fund's predecessor portfolio is as follows: Corporate Bond Fund -- April 1,
1998, Income Plus Fund -- July 13, 1998, Limited Term Government Income
Fund -- October 27, 1993 and Variable Rate Government Fund -- November 1,
1990. The actual inception date of each class may differ from the inception
date of the corresponding Fund.
FORMER NORWEST FUNDS
Cumulative Total Return for the Applicable Period Ended September 30, 1999/1/
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year Three Year
---- ------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Diversified Bond
Institutional 269.23% 92.65% 38.29% 21.69%
Income Fund
Class A 127.58% 92.37% 5.59% 14.39%
Class B 118.85% 86.60% 5.45% 14.14%
Institutional 140.08% 101.17% 37.40% 19.77%
Intermediate Government Income
Class A 217.12% 80.44% 5.59% 14.39%
Class B 192.80% 75.27% 5.45% 14.14%
Institutional 231.85% 88.94% 37.40% 19.77%
Stable Income
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year Three Year
---- ------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Class A 30.58% N/A N/A 15.74%
Class B 27.63% N/A N/A 14.82%
Institutional 32.57% N/A N/A 17.51%
</TABLE>
___________________
/1/ Return calculations, except as indicated, reflect the inclusion of front-end
sales charges for Class A shares and the maximum applicable contingent
deferred sales charge ("CDSC") for Class B and Class C shares.
/2/ For purposes of sharing performance information, the inception date of each
Fund's predecessor portfolio is as follows: Diversified Bond Fund --November
11, 1994, Income Fund -- June 9, 1987, Intermediate Government Income
Fund -- November 11, 1994 and Stable Income Fund -- November 11 1994. The
actual inception date of each class may differ from the inception date of
the corresponding Fund.
Yield Calculations: The Funds may, from time to time, include their yields
------------------
and effective yields in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Funds are based on the investment income
per share earned during a particular seven-day or thirty-day period, less
expenses accrued during a period ("net investment income") and are computed by
dividing net investment income by the offering price per share on the last date
of the period, according to the following formula:
YIELD = 2[(a - b + 1)/6/- 1]
-----
Cd
where a = dividends and interest earned during the period; b = expenses
accrued for the period (net of reimbursements); c = the average daily number of
shares of each class outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share each class of shares on
the last day of the period.
Effective Yield: Effective yields for the Funds are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
35
<PAGE>
Effective Thirty-Day Yield = [Base Period Return +1)365/30]-1
FORMER STAGECOACH FUNDS
Yields for the Applicable Period Ended June 30, 1999/1/
----------------------------------------------------
<TABLE>
<CAPTION>
Thirty-day Yield
----------------
Fund After Waiver Before Waiver
- ---- ------------ -------------
<S> <C> <C>
Corporate Bond
Class A 6.63% 6.10%
Class B 6.18% 5.75%
Class C 6.20% 5.53%
Income Plus
Class A 7.32% 6.72%
Class B 6.91% 6.38%
Class C 6.87% 6.05%
Limited Term Government Income
Class A 5.08% 4.77%
Class B 4.54% 4.19%
Institutional 5.30% 5.06%
Variable Rate Government
Class A 4.64% 4.21%
</TABLE>
____________________
/1/ The amounts shown above reflect all front-end sales charges and applicable
CDSCs. "After Waiver" figures reflect any waived fees or reimbursed expenses
throughout the period.
FORMER NORWEST FUNDS
Yields for the Applicable Period Ended May 31, 1999
---------------------------------------------------
<TABLE>
<CAPTION>
Fund Thirty Day Yield
- ---- ----------------
<S> <C>
Diversified Bond
Institutional 5.67%
Income
Class A 5.40%
Class B 4.89%
Institutional 5.64%
Intermediate Government Income
Class A 5.27%
Class B 4.75%
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Fund Thirty Day Yield
- ---- ----------------
<S> <C>
Class C
Institutional 5.50%
Stable Income
Class A 5.60%
Class B 4.88%
Institutional 5.69%
</TABLE>
________________
/1/ The amounts shown above reflect all front-end sales charges and applicable
CDSCs.
The yields for each class of shares will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and do not provide a basis for determining future yields since
they are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
a Fund or to a particular class of a Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each class of a Fund will affect the yield of the respective
class of shares for any specified period, and such changes should be considered
together with such class' yield in ascertaining such class' total return to
shareholders for the period. Yield information for each class of shares may be
useful in reviewing the performance of the class of shares and for providing a
basis for comparison with investment alternatives. The yield of each class of
shares, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Trust may quote the performance or price-
earning ratio of a Fund or a Class of in advertising and other types of
literature as compared with the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Fund or a class also may be compared to that of other mutual
funds having similar objectives. This comparative performance could be expressed
as a ranking prepared by Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Bloomberg Financial Markets or Morningstar, Inc.,
independent services which monitor the
37
<PAGE>
performance of mutual funds. The Funds' performance will be calculated by
relating net asset value per share of each class at the beginning of a stated
period to the net asset value of the investment, assuming reinvestment of all
gains distributions paid, at the end of the period. The Funds' comparative
performance will be based on a comparison of yields, as described above, or
total return, as reported by Lipper, Survey Publications, Donoghue or
Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a class of shares with the performance of a Fund's
competitors. Of course, past performance cannot be a guarantee of future
results. The Trust also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Trust Institute may also be
used.
The Trust also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
each class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in each class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of
each class of shares of a Fund or the general economic, business, investment, or
financial environment in which a Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of each class of shares of a Fund or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in each class of shares of the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance or current or potential value of each class of shares of
a Fund with respect to the particular industry or sector.
In addition, the Trust also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Trust also
may include in advertising and other types of literature information and other
data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Trust also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRRO, such as Standard Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of a Fund's shares or the suitability of a Fund for a particular investor.
In addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to a Fund or its investments. The Trust may compare the performance of each
class of shares of a Fund with other investments which are assigned ratings by
NRROs. Any such comparisons may be useful to investors who wish to compare each
class' past performance with other rated investments.
38
<PAGE>
From time to time, a Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Wells Fargo Funds Trust, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Wells Fargo Funds Trust's account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Wells Fargo Funds Trust account statements."
The Trust also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management, Inc. (formerly, Wells
Fargo Investment Management) a subsidiary of Wells Fargo Bank, is listed in the
top 100 by Institutional Investor magazine in its July 1997 survey "America's
Top 300 Money Managers." This survey ranks money managers in several asset
categories. The Trust also may disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Trust's
investment advisor.
The Trust may also disclose in advertising and other types of sales
literature the assets and categories of assets under management by a fund's
investment advisor or sub-advisor and the total amount of assets and mutual fund
assets managed by Wells Fargo Bank. As of December 31, 1998 Wells Fargo Bank and
its affiliates provided investment Advisory services for approximately $202
billion in assets.
The Trust may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Trust may also disclose the ranking of Wells Fargo
Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as of
the close of regular trading (currently 1:00 p.m. Pacific time, 3:00 p.m.
Central time, 4:00 p.m. Eastern time) on each day the New York Stock Exchange
("NYSE") is open for business. Expenses and fees, including advisory fees, are
accrued daily and are taken into account for the purpose of determining the net
asset value of the Funds' shares.
39
<PAGE>
Securities of a Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other Fund securities, including U.S. Government securities but
excluding money market instruments and debt securities maturing in 60 days or
less, the valuations are based on latest quoted bid prices. Money market
instruments and debt securities maturing in 60 days or less are valued at
amortized cost. Futures contracts will be marked to market daily at their
respective settlement prices determined by the relevant exchange. Prices may be
furnished by a reputable independent pricing service approved by the Trust's
Board of Trustees. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
a Fund for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Trust's Board of Trustees and
in accordance with procedures adopted by the Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. Each Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Funds. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Trust may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Trust's responsibilities under the 1940 Act. In addition, the
Trust may redeem shares involuntarily to reimburse the Fund for any losses
sustained by reason of the failure of a shareholder to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of a Fund as provided
from time to time in the Prospectus.
40
<PAGE>
The dealer reallowance for purchases of Class A shares is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % ALLOWANCE
AMOUNT OF PUBLIC OF NET AMOUNT AS % OF PUBLIC
OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Less than $50,000 4.50% 4.71% 4.00%
- ----------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.50%
- ----------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.00%
- ----------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.25%
- ----------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- ----------------------------------------------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A shares purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Purchases and Redemptions Through Brokers and/or Their Affiliates
-----------------------------------------------------------------
A broker may charge transaction fees on the purchase and/or sale of Fund shares
in addition to those fees described in the Prospectus in the Summary of
Expenses. The Trust has authorized one or more brokers to receive on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an authorized broker or, if applicable, a broker's
authorized designee, receives the order.
Reduced Sales Charges for Former Norwest Advantage Fund Class B
---------------------------------------------------------------
Shareholders. No contingent deferred sales charge is imposed on redemptions of
- ------------
Class B shares of a former Norwest Advantage Fund purchased prior to October 1,
1999, to effect a distribution (other than a lump sum distribution) from an IRA,
Keogh plan or Section 403(b) custodial account or from a qualified retirement
plan.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Trust are
prohibited from dealing with the Trust as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available. The Fund may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain
41
<PAGE>
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Trustees.
Wells Fargo Bank, as Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the Advisory Contracts, and the expenses of
Wells Fargo Bank will not necessarily be reduced as a result of the receipt of
this supplemental research information. Furthermore, research services furnished
by dealers through which Wells Fargo Bank places securities transactions for a
Fund may be used by Wells Fargo Bank in servicing its other accounts, and not
all of these services may be used by Wells Fargo Bank in connection with
advising the Funds.
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Trust
bears all costs of its operations, including the compensation of its Trustees
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, organizational
42
<PAGE>
expenses and any extraordinary expenses. Expenses attributable to the Fund are
charged against Fund assets. General expenses of the Trust are allocated among
all of the funds of the Trust, including the Funds, in a manner proportionate to
the net assets of each Fund, on a transactional basis, or on such other basis as
the Trust's Board of Trustees deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of each Fund
generally describes the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning federal income taxes.
General. The Trust intends to continue to qualify each Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interests of
the Fund's shareholders. Each Fund will be treated as a separate entity for
federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied separately to each
Fund, rather than to the Trust as a whole. In addition, capital gains, net
investment income, and operating expenses will be determined separately for each
Fund. As a regulated investment company, each Fund will not be taxed on its net
investment income and capital gain distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government obligations and
the securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (including, for this
purpose, net short-term capital gain) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Funds intend to pay out substantially all of their net
investment income and net realized capital gains (if any) for each year.
43
<PAGE>
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains and
losses if the securities have been held by the Fund for more than one year at
the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations) purchased by a Fund at a market discount (generally at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which accrued, but was not previously
recognized pursuant to an available election, during the term the Fund held the
debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by the Fund pursuant to the exercise of a call option written by it,
the Fund will add the premium received to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. If securities
are purchased by a Fund pursuant to the exercise of a put option written by it,
such Fund will subtract the premium received from its cost basis in the
securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse Federal income tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined
44
<PAGE>
to include "offsetting positions" in actively traded personal property. The tax
treatment of "straddles" is governed by Section 1092 of the Code which, in
certain circumstances, overrides or modifies the provisions of Section 1256. If
a Fund were treated as entering into "straddles" by engaging in certain
financial forward, futures or option contracts, such straddles could be
characterized as "mixed straddles" if the futures, forwards, or options
comprising a part of such straddles were governed by Section 1256 of the Code.
The Fund may make one or more elections with respect to "mixed straddles."
Depending upon which election is made, if any, the results with respect to the
Fund may differ. Generally, to the extent the straddle rules apply to positions
established by the Fund, losses realized by the Fund may be deferred to the
extent of unrealized gain in any offsetting positions. Moreover, as a result of
the straddle and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss, and long-
term capital gain may be characterized as short-term capital gain or ordinary
income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC under the election.
Foreign Taxes. Income and dividends received by a Fund from sources within
-------------
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. In certain circumstances, a regulated investment
company is eligible to file an election with the IRS pursuant to which the
regulated investment company may pass-through to its shareholders foreign taxes
paid by the regulated investment company, which may be claimed either as a
credit or deduction by the shareholders. None of the Funds expects to qualify
for the election.
Capital Gain Distributions. Distributions which are designated by a Fund as
--------------------------
capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
45
<PAGE>
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received in the case of an exchange) and the
cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. The loss disallowance rules described in this paragraph do not
apply to losses realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other
matters.
Backup Withholding. The Trust may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on all distributions
and redemption proceeds (including proceeds from exchanges and redemptions in-
kind) paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Company also could subject the investor to penalties imposed by
the IRS.
Foreign Shareholders. Under the Code, distributions attributable to net
--------------------
investment income, net short-term capital gain and certain other items realized
by a Fund and paid to a
46
<PAGE>
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (each, a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of 30%
or a lower treaty rate, if applicable). Withholding will not apply if a
distribution paid by the Fund to a foreign shareholder is "effectively
connected" with a U.S. trade or business (or, if an income tax treaty applies,
is attributable to a U.S. permanent establishment of the foreign shareholder),
in which case the reporting and withholding requirements applicable to U.S.
persons will apply. Capital gain distributions generally are not subject to tax
withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders that will be subject to federal income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Corporate Shareholders. Corporate shareholders of the Funds may be eligible
----------------------
for the dividends-received deduction on dividends distributed out of a Fund's
income attributable to dividends received from domestic corporations, which, if
received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
Tax-Deferred Plan. The shares of the Funds are available for a variety of
-----------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes. Investors
should contact their selling agents for details concerning retirement plans.
Other Matters. Investors should be aware that the investments to be made by
-------------
the Funds may involve sophisticated tax rules that may result in income or gain
recognition by the Funds without corresponding current cash receipts. Although
the Funds will seek to avoid significant noncash income, such noncash income
could be recognized by the Funds, in which case the Funds may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.
47
<PAGE>
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state, local
or foreign taxes.
CAPITAL STOCK
The Funds are eight of the funds in the Wells Fargo Funds Trust family of
funds. The Trust was organized as a Delaware business trust on March 10,
1999.
Most of the Trust's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Trust's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain class-
specific expenses (e.g., any state securities registration fees, shareholder
servicing fees or distribution fees that may be paid under Rule 12b-1) that are
allocated to a particular class. Please contact Shareholder Services at 1-800-
222-8222 if you would like additional information about other funds or classes
of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy affects only one series and would be voted
upon only by shareholders of the Fund involved. Additionally, approval of an
advisory contract, since it affects only one Fund, is a matter to be determined
separately by Series. Approval by the shareholders of one Series is effective as
to that Series whether or not sufficient votes are received from the
shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of the Class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Class of the Fund. The term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Trust as a whole, means the vote of the lesser of (i)
67% of the Trust's shares represented at a meeting if the holders of more than
50% of the Trust's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Trust's outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares are
issued in uncertificated form only, and, when issued, will be fully paid and
non-assessable by the Trust. The
48
<PAGE>
Trust may dispense with an annual meeting of shareholders in any year in which
it is not required to elect Trustees under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Fund are entitled to
receive the assets attributable to that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Trustees in their sole discretion may determine.
Set forth below, as of October 25, 1999, is the name, address and share
ownership of each person known by the Trust to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities as a whole. The term "N/A" is used where a shareholder holds 5% or
more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP AS OF OCTOBER 25, 1999
-----------------------------------
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
CORPORATE BOND
Class A VIRG & CO. 16.45%
C/O Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
DIM & Co. 8.99%
ATTN: MF Dept. A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
Class B N/A
Class C Dean Witter For The Benefit of Alladin 20.53%
Nursery & Florist Employ
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of Debashish 8.07%
Mukhapadhyay
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Cust for Harry C. Hardy 6.80%
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of Gloria E. Hayes 5.63%
Trustee of the
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter For The Benefit of Hiroko K. 5.40%
Okabe
PO Box 250 Church Street Station
New York, NY 10008-0250
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
DIVERSIFIED
BOND FUND
Institutional Class EMSEG & CO 65.83%
Diversified Bond Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
Sereet & Co. 9.63%
ATTN: Jill Siekmeier
C/O Norwest Bank Colorado NA
1740 Broadway MS 8676
Denver, CO 80274-0001
5.24%
Kiwils & Co
1740 Broadway MS 8676
Denver, CO 80274-0001
5.11%
HEP & CO
FBO Wells Fargo Bank
Mutual Funds MAC 2141 028
9800 PO Box
Calabasas, CA 91372-0800
INCOME FUND
Class A Wealthbuilder II Growth Balance 18.99%
Income Bond Fund Class A
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
Class B N/A
Institutional Class EMSEG & CO 26.16%
Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 24.41%
Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
Dentu & CO 13.94%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO 80274-0001
Virg & Co 6.28%
PO Box 9800
Calabasas, CA 91372-0800
EMSEG & Co. 5.64%
Income Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN
SEREt & CO 7.11%
Discretionary Reinvest
1740 Broadway MS 8751
Denver, CO 80274-0001
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- ----------
<S> <C> <C>
INCOME PLUS
Class A Dean Witter for the Benefit of Brian Herrera 5.32%
PO Box 250 Church Street Station
New York, NY 10008-0250
Class B N/A
Class C Dean Witter for the Benefit of Junien R. 12.07%
Gallared Custodian FBC
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Marlene 6.40%
Dellamore TTEE FBO
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter Reynolds Custodian for Jean Baker 6.14%
PO Box 250 Church Street Station
New York, NY 10008-0250
Dean Witter for the Benefit of Maestelle D. 6.03%
Edwards & Maelyn
PO Box 250 Church Street Station
New York, NY 10008-0250
INTERMEDIATE
GOVERNMENT
INCOME FUND
Class A Wells Fargo Bank 25.18%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Investor Services Group 17.16%
FBO Wells Fargo/Portfolio Advisory Customer
211 South Gulph Road
King of Prussia, PA 194006-0001
VIRG & Co. 6.32%
C/O Wells Fargo Bank
PO Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Class B N/A
Class C MLPF&S For The Sole Benefit of its Customers 19.66%
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Sisters of St. Francis 5.13%
ATTN: Sister Maruane Hresko Osf
609 South Convent Road
Aston, PA 19014-1207
Institutional Class EMSEG & Co. 44.78%
Interim US Gov't Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- ----------
<S> <C> <C>
EMSEG & Co. 22.55%
Interim US Gov't Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & Co. 13.11%
Interim US Gov't Fund I
C/O Mutual Fund Processing
PO Box 1450 NW 8477
Minneapolis, MN 55485-1450
DENTRU & Co. 12.84%
1740 Broadway Mail 8676
Denver, CO 80274-0001
LIMITED TERM GOVERNMENT
INCOME FUND
Class A Wells Fargo Bank 19.73%
FBO Retirement Plans Omnibus
PO Box 63015
San Francisco, CA 94163-0001
Merrill Lynch Trust Company TTE 12.66%
FBO Qualified Retirement Plans
ATTN: John Sebulsky
265 Davidson Avenue, 4th Floor
Somerset, NJ 00873-4120
VIRG & Co. 8.58%
C/O Wells Fargo Bank
PO Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
MLPF&S For the Sole Benefit of Its Customers 8.10%
ATTN: Mutual Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Class B N/A
Institutional Class EMSEG & CO 31.55%
Limited Term Gov't Income I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
HEP & CO 17.09%
ATTN: MF DEPT. A88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
VIRG & CO 15.00%
ATTN: MF DEPT. A88-4
P.O. Box 9800
Minneapolis, MN 55485-1450
EMSEG & CO 12.11%
Limited Term Gov't Income FDI
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- ----------
<S> <C> <C>
DIM & CO 10.75%
ATTN: MF DEPT. A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
STABLE INCOME NORWEST INVESTMENT SERVICES INC 22.44%
Class A FBO 021453811
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
NORWEST INVESTMENT SERVICES INC 10.18%
FBO 021219031
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
NORWEST INVESTMENT SERVICES INC 8.98%
FBO 705734561
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
NORWEST INVESTMENT SERVICES INC 5.08%
FBO 021263991
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Class B NORWEST INVESTMENT SERVICES INC 9.86%
FBO 731186551
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
NORWEST INVESTMENT SERVICES INC 7.56%
FBO 102953761
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
NORWEST INVESTMENT SERVICES INC 7.43%
FBO 708238851
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
NORWEST INVESTMENT SERVICES INC 5.13%
FBO 101114091
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Institutional Class EMSEG & CO 70.37%
STABLE INCOME FUND I
c/o Mutual Fund Processing
P.O. Box 1450 NEW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 9.34%
STABLE INCOME FUND I
c/o Mutual Fund Processing
P.O. Box 1450 NEW 8477
Minneapolis, MN 55485-1450
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- ----------
<S> <C> <C>
VARIABLE RATE
GOVERNMENT
Class A APCO EMPLOYEES CREDIT UNION 18.11%
1608 7th Avenue North
Birmingham, AL 35203-1987
MLPF&S FOR THE SOLE BENEFIT 8.88%
OF ITS CUSTOMERS
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East - 3rd Floor
Jacksonville, FL 32246-6484
CITIZENS EQUITY 8.35%
P.O. Box 1715
ATTN: Pete Jain, VP
Peoria, IL 61656-1715
MID-ATLANTIC FCU 7.12%
P.O. Box 8990
Gaithersburg, MD 20898-8990
VISIONS FEDERAL CREDIT UNION 6.33%
24 McKinley Avenue
Endicott, NY 13760-5415
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Trust's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements contained
in the Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
54
<PAGE>
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust. KPMG
LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolios of investments and audited financial statements for the
predecessor Stagecoach and Norwest Funds for the years ended June 30, 1999 and
May 31, 1999, respectively, are hereby incorporated by reference to the Funds'
Annual Report.
55
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
also applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1 indicates
that the security ranks in the higher end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by S&P
and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Commercial Paper
----------------
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
-------
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for commercial paper is rated "in the highest
---
category" by S&P and "the obligor's capacity to meet its financial commitment on
the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2" is
"more susceptible" to the adverse effects of changes in economic conditions or
other circumstances than commercial paper rated in higher rating categories.
A-2
<PAGE>
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented on December 17, 1999
WELLS FARGO WEALTHBUILDER GROWTH PORTFOLIO
WELLS FARGO WEALTHBUILDER GROWTH BALANCED PORTFOLIO
WELLS FARGO WEALTHBUILDER GROWTH AND INCOME PORTFOLIO
Wells Fargo Funds Trust (the "Trust") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about three funds in the Wells Fargo Funds Trust family of funds
(each a "Fund" and collectively the "Funds") -- the Wells Fargo WealthBuilder
Growth Portfolio, Wells Fargo WealthBuilder Growth Balanced Portfolio, and
Wells Fargo WealthBuilder Growth and Income Portfolio. Each Fund is considered
diversified under the Investment Company Act of 1940, as amended (the "1940
Act"). The Funds offer a single class of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 8, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained free of charge by calling 1-800-222-8222 or
writing to Wells Fargo Funds, P.O. Box 8266, Boston, MA 02266-8266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information...................................... 1
Investment Policies.............................................. 2
Additional Permitted Investment Activities and Associated Risks.. 4
Management....................................................... 20
Performance Calculations......................................... 26
Determination of Net Asset Value................................. 30
Additional Purchase and Redemption Information................... 30
Portfolio Transactions........................................... 31
Fund Expenses.................................................... 32
Federal Income Taxes............................................. 32
Capital Stock.................................................... 37
Other............................................................ 39
Counsel.......................................................... 39
Independent Auditors............................................. 39
Financial Information............................................ 39
Appendix......................................................... A-1
</TABLE>
<PAGE>
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach") and
the Board of Trustees of the Trust approved an Agreement and Plan of
Reorganization providing for, among other things, the transfer of the assets and
stated liabilities of various predecessor Norwest and Stagecoach portfolios to
the Funds (the "Reorganization"). Prior to November 5, 1999, the effective date
of the consolidation of the Funds and the predecessor Norwest and Stagecoach
portfolios, the Funds had only nominal assets.
The Funds described in this SAI were created as part of the reorganization
of the Stagecoach family of funds, advised by Wells Fargo Bank, N.A. ("Wells
Fargo Bank" or "Advisor"), and the Norwest Advantage family of funds, advised by
Norwest Investment Management, Inc. ("NIM"), into a single mutual fund complex.
The Reorganization followed the merger of the advisors' parent companies.
The chart below indicates the predecessor Norwest Funds that are the
accounting survivors of the Wells Fargo Funds.
<TABLE>
<CAPTION>
Wells Fargo Funds Predecessor Funds
- --------------------------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------------------------
Wells Fargo WealthBuilder Growth Portfolio Norwest WealthBuilder II Growth Portfolio
- --------------------------------------------------------------------------------------------------------------
Wells Fargo WealthBuilder Growth Balanced Norwest WealthBuilder II Growth Balanced Portfolio
Portfolio
- --------------------------------------------------------------------------------------------------------------
Wells Fargo WealthBuilder Growth and Income Norwest WealthBuilder II Growth and Income Portfolio
Portfolio
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Wells Fargo WealthBuilder Growth Portfolio ("Growth Portfolio") will
commence operations on November 8, 1999, as successor to the WealthBuilder II
Growth Portfolio of Norwest. The Norwest WealthBuilder II Growth Portfolio
commenced operations on October 1, 1997. The financial highlights shown for
periods prior to November 8, 1999 are the financial highlights of the Norwest
WealthBuilder II Growth Portfolio.
The Wells Fargo WealthBuilder Growth Balanced Portfolio ("Growth Balanced
Portfolio") will commence operations on November 8, 1999, as successor to the
WealthBuilder II Growth Balanced Portfolio of Norwest. The Norwest
WealthBuilder II Growth Balanced Portfolio commenced operations on October 1,
1997. The financial highlights shown for periods prior to November 8, 1999 are
the financial highlights of the Norwest WealthBuilder II Growth Balanced
Portfolio.
The Wells Fargo WealthBuilder Growth and Income Portfolio ("Growth and
Income Portfolio") will commence operations on November 8, 1999, as successor to
the WealthBuilder II Growth and Income Portfolio of Norwest. The Norwest
WealthBuilder II Growth and Income Portfolio commenced operations on October 1,
1997. The financial highlights shown for periods prior to November 8, 1999 are
the financial highlights of the Norwest WealthBuilder II Growth and Income
Portfolio.
<PAGE>
INVESTMENT POLICIES
Each Fund seeks to achieve its investment objective by investing
substantially all of its investable assets in the securities of affiliated and
non-affiliated open-ended management investment companies or series (the
"Underlying Funds"). Accordingly, the investment experience of each of these
Funds will correspond directly with the investment experience of its respective
Underlying Funds.
Information concerning each Fund's investment objective is set forth in the
Prospectus for the Funds. There can be no assurance that the Funds will achieve
their objectives. The principal features of the Funds' investment programs and
the primary risks associated with those investment programs are discussed in the
Prospectus. The principal features and certain risks of the Underlying Funds
also are discussed in the Prospectus. However, since certain Underlying Funds
are not advised by the Advisor and are not affiliated with the Funds, there can
be no assurance that the Underlying Funds will follow their stated policies.
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment policies, all of which are
fundamental policies; that is, they may not be changed without approval by the
vote of the holders of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Fund.
The Funds may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of a Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that this
restriction does not limit a Fund's investments in: (i) U.S. Government
securities; (ii) repurchase agreements; or (iii) securities of other investment
companies;
(2) purchase securities of any issuer if, as a result, with respect to 75%
of a Fund's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of any one issuer, provided
that this restriction does not limit a Fund's investments in securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder;
(4) issue senior securities, except to the extent permitted under the 1940
Act, including the rules, regulations and exemptions thereunder;
(5) make loans to other parties if, as a result, the aggregate value of
such loans would exceed one-third of a Fund's total assets. For the purposes of
this limitation, entering into
2
<PAGE>
repurchase agreements, lending securities and acquiring any debt securities are
not deemed to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business); nor
(8) purchase or sell commodities, provided that (i) currency will not be
deemed to be a commodity for purposes of this restriction, (ii) this restriction
does not limit the purchase or sale of futures contracts, forward contracts or
options, and (iii) this restriction does not limit the purchase or sale of
securities or other instruments backed by commodities or the purchase or sale of
commodities acquired as a result of ownership of securities or other
instruments.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by the Trustees of the Trust at any time without approval of such Fund's
shareholders.
(1) Each Fund may invest in shares of other open-end management investment
companies, to the extent permitted under the 1940 Act, including the rules,
regulations and exemptions thereunder.
(2) Each Fund may not invest or hold more than 15% of the Fund's net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) Each Fund may invest in futures or options contracts regulated by the
CFTC for (i) bona fide hedging purposes within the meaning of the rules of the
CFTC and (ii) for other purposes if, as a result, no more than 5% of the Fund's
net assets would be invested in initial margin and premiums (excluding amounts
"in-the-money") required to establish the contracts.
(4) Each Fund may lend securities from its portfolio to approved brokers,
dealers and financial institutions, to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder, which currently
limit such activities to one-third of the value of a Fund's total assets
(including the value of the collateral received). Any such loans of portfolio
securities will be fully collateralized based on values that are marked-to-
market daily.
3
<PAGE>
(5) Each Fund may not make investments for the purpose of exercising
control or management, provided that this restriction does not limit a Fund's
investments in securities of other investment companies or investments in
entities created under the laws of foreign countries to facilitate investment in
securities in that country.
(6) Each Fund may not purchase securities on margin (except for short-term
credits necessary for the clearance of transactions).
(7) Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
General
-------
Notwithstanding the foregoing policies, any other investment companies in
which the Funds may invest have adopted their own investment policies, which may
be more or less restrictive than those listed above, thereby allowing a Fund to
participate in certain investment strategies indirectly that are prohibited
under the fundamental and non-fundamental investment policies listed above.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND ASSOCIATED RISKS
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total
assets.
Each Fund seeks to achieve its investment objective by investing
substantially all of its assets in the securities of the Underlying Funds.
Therefore, although the following discusses the additional permitted investment
activities and associate risks of the Funds, it applies equally to the
Underlying Funds, which may invest in one or more of the following types of
investments. Thus, as used herein, the term "Funds" shall refer equally to both
the Funds of the Trust as well as the Underlying Funds in each Fund's portfolio.
However, since certain Underlying Funds are non-affiliated with the Advisor or
the Funds, there can be no assurance that the Underlying Funds will continue to
invest in these permitted investment activities.
Although each Fund intends to invest substantially all of its assets in the
Underlying Funds, each Fund reserves the right to invest assets not so invested
in other instruments as outlined in the Prospectus.
4
<PAGE>
Asset-Backed Securities
-----------------------
The Funds may invest in various types of asset-backed securities. Asset-
backed securities are securities that represent an interest in an underlying
security. The asset-backed securities in which the Funds invest may consist of
undivided fractional interests in pools of consumer loans or receivables held in
trust. Examples include certificates for automobile receivables ("CARS") and
credit card receivables ("CARDS"). Payments of principal and interest on these
asset-backed securities are "passed through" on a monthly or other periodic
basis to certificate holders and are typically supported by some form of credit
enhancement, such as a surety bond, limited guaranty, or subordination. The
extent of credit enhancement varies, but usually amounts to only a fraction of
the asset-backed security's par value until exhausted. Ultimately, asset-backed
securities are dependent upon payment of the consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse to the entity
that originated the loans or receivables. The actual maturity and realized
yield will vary based upon the prepayment experience of the underlying asset
pool and prevailing interest rates at the time of prepayment. Asset-backed
securities are relatively new instruments and may be subject to greater risk of
default during periods of economic downturn than other instruments. Also, the
secondary market for certain asset-backed securities may not be as liquid as the
market for other types of securities, which could result in a Fund experiencing
difficulty in valuing or liquidating such securities. The Funds may also invest
in securities backed by pools of mortgages. The investments are described under
the heading "Mortgage-Related Securities."
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of domestic issuers. Such risks include possible future political
and economic developments, the possible imposition of foreign withholding taxes
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers'
5
<PAGE>
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The other short-term obligations may include uninsured, direct
obligations, bearing fixed, floating- or variable-interest rates.
Bonds
-----
The Funds may invest in bonds. A bond is an interest-bearing security
issued by a company or governmental unit. The issuer of a bond has a contractual
obligation to pay interest at a stated rate on specific dates and to repay
principal (the bond's face value) periodically or on a specified maturity date.
An issuer may have the right to redeem or "call" a bond before maturity, in
which case the investor may have to reinvest the proceeds at lower market rates.
The value of fixed-rate bonds will tend to fall when interest rates rise and
rise when interest rates fall. The value of "floating-rate" or "variable-rate"
bonds, on the other hand, fluctuate much less in response to market interest
rate movements than the value of fixed rate bonds.
Bonds may be senior or subordinated obligations. Senior obligations
generally have the first claim on a corporation's earnings and assets and, in
the event of liquidation, are paid before subordinated debt. Bonds may be
unsecured (backed only by the issuer's general creditworthiness) or secured
(also backed by specified collateral). See also "High Yield/Junk Bonds."
Borrowing
---------
The Funds may borrow money for temporary or emergency purposes, including
the meeting of redemption requests. Borrowing involves special risk
considerations. Interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and instrumentalities) will consist of
issues that are rated in one of the two
6
<PAGE>
highest rating categories by a Nationally Recognized Ratings Organization
("NRRO"). Commercial paper may include variable- and floating-rate instruments.
See also "Nationally Recognized Ratings Organization."
Convertible Securities
----------------------
The Funds may invest in convertible securities. A convertible security is
generally a debt obligation or preferred stock that may be converted within a
specified period of time into a certain amount of common stock of the same or a
different user. A convertible security provides a fixed-income stream and the
opportunity, through its conversion feature, to participate in the capital
appreciation resulting from a market price advance in its underlying common
stock. As with a straight fixed-income security, a convertible security tends
to increase in market value when interest rates decline and decrease in value
when interest rates rise. Like a common stock, the value of a convertible
security also tends to increase as the market value of the underlying stock
rises, and it tends to decrease as the market value of the underlying stock
declines. Because its value can be influenced by both interest rate and market
movements, a convertible security is not as sensitive to interest rates as a
similar fixed-income security, nor is it as sensitive to changes in share price
as its underlying stock.
The creditworthiness of the issuer of a convertible security may be
important in determining the security's true value. This is because the holder
of a convertible security will have recourse only to the issuer. In addition, a
convertible security may be subject to redemption by the issuer, but only after
a specified date and under circumstances established at the time the security is
issued.
While the Funds use the same criteria to rate a convertible debt security
that it uses to rate a more conventional debt security, a convertible preferred
stock is treated like a preferred stock for a Funds' financial reporting, credit
rating, and investment limitation purposes. A preferred stock is subordinated
to all debt obligations in the event of insolvency, and an issuer's failure to
make a dividend payment is generally not an event of default entitling the
preferred shareholder to take action. A preferred stock generally has no
maturity date, so that its market value is dependent on the issuer's business
prospects for an indefinite period of time. In addition, distributions from
preferred stock are dividends, rather than interest payments, and are usually
treated as such for corporate tax purposes.
Derivative Securities
---------------------
The Funds may invest in various instruments that may be considered
"derivatives," including structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices or financial indicators ("References") or the relative
change in two or more References. Some derivative securities represent
relatively recent innovations in the bond markets, and the trading market for
these instruments is less developed than the markets for traditional types of
debt instruments. It is uncertain how these instruments will perform under
different economic and interest rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss.
Derivative securities and their underlying instruments may experience periods of
illiquidity, which could
7
<PAGE>
cause a Fund to hold a security it might otherwise sell or could force the sale
of a security at inopportune times or for prices that do not reflect current
market value. The possibility of default by the issuer or the issuer's credit
provider may be greater for these structured and derivative instruments than for
other types of instruments. As new types of derivative securities are developed
and offered to investors, the Advisor will, consistent with the Funds'
investment objective, policies and quality standards, consider making
investments in such new types of derivative securities.
See also "Futures Contracts and Options."
Dollar Roll Transactions
------------------------
A Fund may enter into "dollar roll" transactions wherein a Fund sells fixed
income securities, typically mortgage-backed securities, and makes a commitment
to purchase similar, but not identical, securities at a later date from the same
party. Like a forward commitment, during the roll period no payment is made for
the securities purchased and no interest or principal payments on the security
accrue to the purchaser, but a Fund assumes the risk of ownership. A Fund is
compensated for entering to dollar roll transactions by the difference between
the current sales price and the forward price for the future purchase, as well
as by the interest earned on the cash proceeds of the initial sale. Like other
when-issued securities or firm commitment agreements, dollar roll transaction
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is committed to purchase similar
securities. In the event the buyer of securities under a dollar roll
transaction becomes insolvent, the Funds use of the proceeds of the transaction
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Funds obligation to repurchase the securities.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations such as
demand notes and bonds. Variable-rate demand notes include master demand notes
that are obligations that permit a Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between a Fund, as
lender, and the borrower. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. The issuer of such obligations ordinarily has a right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Frequently, such obligations are secured by
letters of credit or other credit support arrangements provided by banks.
There generally is no established secondary market for these obligations
because they are direct lending arrangements between the lender and borrower.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if the Advisor determines that
at the time of investment the obligations are of comparable quality to the other
obligations in which such Fund
8
<PAGE>
may invest. The Advisor, on behalf of each Fund, considers on an ongoing basis
the creditworthiness of the issuers of the floating- and variable-rate demand
obligations in such Fund's portfolio. Floating- and variable-rate instruments
are subject to interest-rate risk and credit risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
Foreign Obligations and Securities
----------------------------------
Each Fund may invest in high-quality, short-term debt obligations of
foreign branches of U.S. banks, U.S. branches of foreign banks and short-term
debt obligations of foreign governmental agencies that are denominated in and
pay interest in U.S. dollars. Investments in foreign obligations involve certain
considerations that are not typically associated with investing in domestic
obligations. There may be less publicly available information about a foreign
issuer than about a domestic issuer and the available information may be less
reliable. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign tax laws, and there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect investments in, the
liquidity of, and the ability to enforce contractual obligations with respect
to, securities of issuers located in those countries. The Funds may invest in
securities denominated in currencies other than the U.S. dollar and may
temporarily hold funds in bank deposits or other money market investments
denominated in foreign currencies. Therefore, the Funds may be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rate between such currencies and the dollar. Changes in foreign
currency exchange rates influence values within a Fund from the perspective of
U.S. investors. The rate of exchange between the U.S. dollar and other
currencies is determined by the forces of supply and demand in the foreign
exchange markets. These forces are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors.
The Funds may enter into forward currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Funds from adverse changes in
the relationship between currencies or to enhance income. A forward contract is
an obligation to buy or sell a specific currency for an agreed price at a future
date which is individually negotiated and is privately traded by currency
traders and their customers. The Funds will either cover a position in such a
transaction or maintain, in a segregated account with their custodian bank, cash
or high-grade marketable money market securities having an aggregate value equal
to the amount of any such commitment until payment is made.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
-----------------------------------------------------------------
The Funds may purchase or sell securities on a when-issued or delayed
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement
9
<PAGE>
date. The Funds will establish a segregated account in which they will maintain
cash, U.S. Government obligations or other high-quality debt instruments in an
amount at least equal in value to each such Fund's commitments to purchase when-
issued securities. If the value of these assets declines, a Fund will place
additional liquid assets in the account on a daily basis so that the value of
the assets in the account is equal to the amount of such commitments.
Futures Contracts and Options
-----------------------------
A Fund may seek to enhance its return through the writing (selling) and
purchasing of exchange-traded and over-the-counter options on fixed income
securities or indices. A Fund may also attempt to hedge against a decline in
the value of securities owned by it or an increase in the price of securities
which it plans to purchase through the use of those options and the purchase and
sale of interest rate futures contracts and options on those futures contracts.
These instruments are often referred to as "derivatives," which may be defined
as financial instruments whose performance is derived, at least in part, from
the performance of another asset (such as a security, currency or an index of
securities).
A call option is a contract pursuant to which the purchaser of the call
option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation upon exercise of the option to deliver the underlying security
against payment of the exercise price during the option period. A put option
gives its purchaser, in return for a premium, the right to sell the underlying
security at a specified price during the term of the option. The writer of the
put, who receives the premium, has the obligation to buy the underlying
security, upon exercise at the exercise price during the option period. The
amount of premium received or paid is based upon certain factors, including the
market price of the underlying security or index, the relationship of the
exercise price to the market price, the historical price volatility of the
underlying security or index, the option period, supply and demand and interest
rates.
Certain futures strategies employed by a Fund in making temporary
allocations may not be deemed to be for bona fide hedging purposes, as defined
by the Commodity Futures Trading Commission.
A Fund's use of options and futures contracts subjects a Fund to certain
investment risks and transaction costs to which it might not otherwise be
subject. These risks include: (1) dependence on the Advisor's ability to
predict movements in the prices of individual securities and fluctuations in the
general securities markets; (2) imperfect correlations between movements in the
prices of options or futures contracts and movements in the price of the
securities hedged or used for cover which may cause a given hedge not to achieve
its objective; (3) the fact that the skills and techniques needed to trade these
instruments are different from those needed to select the other securities in
which a Fund invests; (4) lack of assurance that a liquid secondary market will
exist for any particular instrument at any particular time, which, among other
things, may hinder a Fund's ability to limit exposures by closing its positions;
(5) the possible need to defer closing out of certain options, futures contracts
and related options to avoid adverse tax consequences; and (6) the potential for
unlimited loss when investing in futures contracts or writing options for which
an offsetting position is not held.
10
<PAGE>
Other risks include the inability of a Fund, as the writer of covered call
options, to benefit from any appreciation of the underlying securities above the
exercise price and the possible loss of the entire premium paid for options
purchased by a Fund. In addition, the futures exchanges may limit the amount of
fluctuation permitted in certain futures contract prices during a single trading
day. A Fund may be forced, therefore, to liquidate or close out a futures
contract position at a disadvantageous price. There can be no assurance that a
liquid market will exist at a time when a Fund seeks to close out a futures
position or that a counterparty in an over-the-counter option transaction will
be able to perform its obligations.
Guaranteed Investment Contracts
-------------------------------
The Funds may invest in guaranteed investment contracts ("GICs") issued by
insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a deposit fund of the insurance company's general account. The
insurance company then credits to the deposit fund on a monthly basis guaranteed
interest at a rate based on an index. The GICs provide that this guaranteed
interest will not be less than a certain minimum rate. The insurance company
may assess periodic charges against a GIC for expense and service costs
allocable to it, and these charges will be deducted from the value of the
deposit fund. A Fund will purchase a GIC only when the Advisor has determined
that the GIC presents minimal credit risks to the Fund and is of comparable
quality to instruments in which the Fund may otherwise invest. Because a Fund
may not receive the principal amount of a GIC from the insurance company on
seven days' notice or less, a GIC may be considered an illiquid investment. The
term of a GIC will be one year or less.
The interest rate on a GIC may be tied to a specified market index and is
guaranteed not to be less than a certain minimum rate.
High Yield/Junk Bonds
---------------------
The Funds may invest in high yield bonds, also known as "junk bonds."
Securities rated less than Baa by Moody's or BBB by S&P are classified as non-
investment grade securities and are considered speculative by those rating
agencies. Junk bonds may be issued as a consequence of corporate
restructurings, such as leveraged buyouts, mergers, acquisitions, debt
recapitalizations, or similar events or by smaller or highly leveraged
companies. Although the growth of high yield/high risk securities market in the
1980's had paralleled a long economic expansion, many issuers subsequently have
been affected by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest rates is likely to
have a negative effect on: (1) the high yield bond market; (2) the value of
high yield/high risk securities; and (3) the ability of the securities' issuers
to service their principal and interest payment obligations, to meet their
projected business goals or to obtain additional financing. In addition, the
market for high yield/high risk securities, which is concentrated in relatively
few market makers, may not be as liquid as the market for investment grade
securities. Under adverse market or economic conditions, the market for high
yield/high risk securities could contract further, independent of any specific
adverse changes in the condition of a particular issuer. As a result, a Fund
could find it more difficult to sell these securities or may be able to sell the
securities only at prices lower than if such securities were widely traded.
Prices realized upon the sale of such lower rated or unrated
11
<PAGE>
securities, under these circumstances, may be less than the prices used in
calculating a Fund's net asset value.
In periods of reduced market liquidity, prices of high yield/high risk
securities may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for high yield/high risk securities by various dealers. Under such conditions,
a Fund may have to use subjective rather than objective criteria to value its
high yield/high risk securities investments accurately and rely more heavily on
the judgment of the Advisor.
Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Advisor may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Fund experiences unexpected net
redemptions, the Advisor may be forced to sell a Fund's higher rated securities,
resulting in a decline in the overall credit quality of a Fund's investment
portfolio and increasing the exposure of a Fund to the risks of high yield/high
risk securities.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the Securities Act
of 1933, as amended (the "1933 Act") and other securities subject to legal or
other restrictions on resale. Because such securities may be less liquid than
other investments, they may be difficult to sell promptly at an acceptable
price. Delay or difficulty in selling securities may result in a loss or be
costly to a Fund.
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities pursuant to guidelines approved
by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned securities; and (4) the aggregate market value of
securities loaned will not at any time exceed the limits established by the 1940
Act.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested subject to the investment objectives,
principal investment strategies and policies of the Fund. In connection with
lending securities, a Fund may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail
to return the securities or may fail to provide additional collateral. In
either case, a Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities.
Although voting rights, or rights to consent, attendant to securities on loan
pass
12
<PAGE>
to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur. A Fund may pay a portion of the interest or fees earned
from securities lending to a borrower or securities lending agent. Borrowers
and placing brokers may not be affiliated, directly or indirectly, with the
Trust, the Advisor, or the Distributor.
Mortgage-Related Securities
---------------------------
The Funds may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Payment of
principal and interest on some mortgage pass-through securities (but not the
market value of the securities themselves) may be guaranteed by the full faith
and credit of the U.S. Government or its agencies or instrumentalities.
Mortgage pass-through securities created by non- government issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers) may be supported
by various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance, and letters of credit, which may be issued by
governmental entities, private insurers or the mortgage poolers.
Prepayment Risk. The stated maturities of mortgage-related securities may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular mortgage-related security. Variations in the
maturities of mortgage-related securities will affect the yield of the Funds.
Early repayment of principal on mortgage-related securities may expose a Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities.
Collateralized Mortgage Obligations ("CMOs") and Adjustable Rate Mortgages
("ARMs"). The Funds may also invest in investment grade CMOs. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association ("FNMA"). CMOs
are structured into multiple classes, with each class bearing a different stated
maturity. Payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
As new types of mortgage-related securities are developed and offered to
investors, the Advisor will, consistent with a Fund's investment objective,
policies and quality standards, consider making investments in such new types of
mortgage-related securities.
The Funds each may invest in ARMs issued or guaranteed by the GNMA, FNMA or
the FHLMC. The full and timely payment of principal and interest on GNMA ARMs
is guaranteed by
13
<PAGE>
GNMA and backed by the full faith and credit of the U.S. Government. FNMA also
guarantees full and timely payment of both interest and principal, while FHLMC
guarantees full and timely payment of interest and ultimate payment of
principal. FNMA and FHLMC ARMs are not backed by the full faith and credit of
the United States. However, because FNMA and FHLMC are government-sponsored
enterprises, these securities are generally considered to be high quality
investments that present minimal credit risks. The yields provided by these ARMs
have historically exceeded the yields on other types of U.S. Government
securities with comparable maturities, although there can be no assurance that
this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMs issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
The interest rates on the mortgages underlying the ARMs and some of the
CMOs in which the Funds may invest generally are readjusted at periodic
intervals ranging from one year or less to several years in response to changes
in a predetermined commonly-recognized interest rate index. The adjustable rate
feature should reduce, but will not eliminate, price fluctuations in such
securities, particularly when market interest rates fluctuate. The net asset
value of a Funds' shares may fluctuate to the extent interest rates on
underlying mortgages differ from prevailing market interest rates during interim
periods between interest rate reset dates. Accordingly, investors could
experience some loss if they redeem their shares of a Fund or if a Fund sells
these portfolio securities before the interest rates on the underlying mortgages
are adjusted to reflect prevailing market interest rates. The holder of ARMs
and CMOs are also subject to repayment risk.
The Funds will not invest in CMOs that, at the time of purchase, are "high-
risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities. High-risk mortgage securities are generally those with long
durations or those which are likely to be more sensitive to interest-rate
fluctuations.
Mortgage Participation Certificates. The Funds also may invest in the
following types of FHLMC mortgage pass-through securities. FHLMC issues two
types of mortgage pass-through securities: mortgage participation certificates
("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA
certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool of mortgages. GMCs also
represent a pro rata interest in a pool of mortgages. These instruments,
however, pay interest semiannually and return principal once a year in
guaranteed minimum payments. These mortgage pass-through securities differ from
bonds in that principal is paid back by the borrower over the length of the loan
rather than returned in a lump sum at maturity. They are called "pass-through"
securities because both interest and principal payments, including prepayments,
are passed through to the holder of the security. PCs and GMCs are both subject
to prepayment risk.
Municipal Bonds
---------------
The Funds may invest in municipal bonds. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. Municipal
bonds are debt obligations
14
<PAGE>
issued to obtain funds for various public purposes. Industrial development bonds
are a specific type of revenue bond backed by the credit and security of a
private user. Certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Moreover the Funds
cannot predict what legislation, if any, may be proposed in the state
legislature regarding the state income tax status of interest on such
obligations, or which proposals, if any, might be enacted. Such proposals,
while pending or if enacted, might materially and adversely affect the
availability of municipal obligations generally for investment by the Funds and
the liquidity and value of a Fund's portfolio. In such an event, a Fund would
re-evaluate its investment objective and policies and consider possible changes
in its structure or possible dissolution.
Certain of the municipal obligations held by a Fund may be insured as to
the timely payment of principal and interest. The insurance policies usually
are obtained by the issuer of the municipal obligation at the time of its
original issuance. In the event that the issuer defaults on interest or
principal payment, the insurer will be notified and will be required to make
payment to the bondholders. There is, however, no guarantee that the insurer
will meet its obligations. In addition, such insurance does not protect against
market fluctuations caused by changes in interest rates and other factors.
Municipal Notes. The Funds may invest in municipal notes. Municipal notes
include, but are not limited to, tax anticipation notes ("TANs"), bond
anticipation notes ("BANs"), revenue anticipation notes ("RANs") and
construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such events as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used
15
<PAGE>
to meet other obligations could affect the ability of the issuer to pay the
principal of, and interest on, RANs.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk).
Other Investment Companies
--------------------------
The principal investment strategy of each Fund is to invest in shares of
other open-end management investment companies, up to the limits prescribed in
Section 12(d) of the 1940 Act and pursuant to the portfolio allocation
percentages discussed in the Prospectus. Each Fund seeks to achieve its
investment objective by investing substantially all of its investable assets in
the Underlying Funds. Accordingly, the investment experience of each of these
Funds will correspond directly with the investment experience of its respective
Underlying Funds. Under the 1940 Act, a Fund's investment in such securities
currently is limited to, subject to certain exceptions, (i) 3% of the total
voting stock of any one investment company, (ii) 5% of such Fund's total assets
with respect to any one investment company and (iii) 10% of such Fund's total
assets. Other investment companies in which the Funds invest can be expected to
charge fees for operating expenses, such as investment advisory and
administration fees, that would be in addition to those charged by the Funds.
Privately Issued Securities
---------------------------
The Funds may invest in privately issued securities, including those which
may be resold only in accordance with Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). Rule 144A Securities are restricted securities that
are not publicly traded. Accordingly, the liquidity of the market for specific
Rule 144A Securities may vary. Delay or difficulty in selling such securities
may result in a loss to a Fund. Privately issued or Rule 144A securities that
are determined by the investment advisor to be "illiquid" are subject to the
Funds' policy of not investing more than 15% of its net assets in illiquid
securities. The investment advisor, under guidelines approved by Board of
Trustees of the Company, will evaluate the liquidity characteristics of each
Rule 144A Security proposed for purchase by a Fund on a case-by-case basis and
will consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the Rule
144A Security; and (4) the nature of the Rule 144A Security and the nature of
the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).
Repurchase Agreements.
---------------------
Each Fund may enter into repurchase agreements, wherein the seller of a
security to a Fund agrees to repurchase that security from a Fund at a mutually
agreed upon time and price. A Fund may enter into repurchase agreements only
with respect to securities that could otherwise be purchased by such Fund. All
repurchase agreements will be fully collateralized at 102% based on
16
<PAGE>
values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, a Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Funds'
disposition of the security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's net assets would be invested in repurchase agreements with maturities of
more than seven days and illiquid securities. A Fund will only enter into
repurchase agreements with primary broker/dealers and commercial banks that meet
guidelines established by the Board of Trustees and that are not affiliated with
the Advisor. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by the Advisor.
Reverse Repurchase Agreements
-----------------------------
The Funds may enter into reverse repurchase agreements. Reverse repurchase
agreements are transactions in which a Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon rate or
maturity of the sold security. For certain demand agreements, there is no
agreed upon repurchase date and interest payments are calculated daily, often
based on the prevailing overnight repurchase rate. Because certain of the
incidents of ownership of the security are retained by a Fund, reverse
repurchase agreements may be viewed as a form of borrowing by a Fund from the
buyer, collateralized by the security sold by the Fund. A Fund will use the
proceeds of reverse repurchase agreements to Fund redemptions or to make
investments. In most cases these investments either mature or have a demand
feature to resell to the issuer on a date not later than the expiration of the
agreement. Interest costs on the money received in a reverse repurchase
agreement may exceed the return received on the investments made by the Fund
with those monies. Any significant commitment of a Fund's assets to the reverse
repurchase agreements will tend to increase the volatility of a Fund's net asset
value per share.
Short Sales
-----------
The Funds may make short sales of securities they own or have the right to
acquire at no added cost through conversion or exchange of other securities they
own (referred to as short sales "against the box") and to make short sales of
securities which they do not own or have the right to acquire. A short sale
that is not made "against the box" is a transaction in which a Fund sells a
security it does not own in anticipation of a decline in the market price for
the security. When a Fund makes a short sale, the proceeds it receives are
retained by the broker until that Fund replaces the borrowed security. In order
to deliver the security to the buyer, a Fund must arrange through a broker to
borrow the security and, in so doing, a Fund becomes obligated to replace the
security borrowed at its market price at the time of replacement, whatever the
price may be.
If the Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a
17
<PAGE>
short position in the securities sold until it delivers the securities sold, at
which time it receives the proceeds of the sale. The Fund's decision to make a
short sale "against the box" may be a technique to hedge against market risks
when the Advisor believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security convertible
into or exchangeable for such security. In such case, any future losses in the
Fund's long position would be reduced by an offsetting future gain in the short
position. The Fund's ability to enter into short sales transactions is limited
by certain tax requirements.
Each Fund may not sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short
Stripped Securities
-------------------
The Funds may purchase Treasury receipts, securities of government-
sponsored enterprises ("GSEs"), and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. The stripped securities the
Funds may purchase are issued by the U.S. Government (or a U.S. Government
agency or instrumentality) or by private issuers such as banks, corporations and
other institutions at a discount to their face value. The Funds will not
purchase stripped mortgage-backed securities ("SMBS"). The stripped securities
purchased by the Funds generally are structured to make a lump-sum payment at
maturity and do not make periodic payments of principal or interest. Hence, the
duration of these securities tends to be longer and they are therefore more
sensitive to interest rate fluctuations than similar securities that offer
periodic payments over time. The stripped securities purchased by the Funds are
not subject to prepayment or extension risk.
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors.
Swap Agreements
---------------
To manage its exposure to different types of investments, a Fund may enter
into interest rate, currency and mortgage (or other asset) swap agreements and
may purchase and sell interest rate "caps," "floors" and "collars." In a
typical interest rate swap agreement, one party agrees to make regular payments
equal to a floating interest rate on a specified amount (the "notional principal
amount") in return for payments equal to a fixed interest rate on the same
amount for a specified period. If a swap agreement provides for payment in
different currencies, the parties may also agree to exchange the notional
principal amount. Mortgage swap agreements are similar to interest rate swap
agreements, except that the notional principal amount is tied to a reference
pool of mortgages. In a cap or floor arrangement, one party agrees, usually in
return for a fee, to make payments under particular circumstances. For example,
the purchaser of an interest rate cap has
18
<PAGE>
the right to receive payments to the extent a specified interest rate exceeds a
agreed upon level; the purchaser of an interest rate floor has the right to
receive payments to the extent a specified interest rate falls below an agreed
upon level. A collar arrangement entitles the purchaser to receive payments to
the extent a specified interest rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending
on how they are used they may have a considerable impact on the Fund's
performance. Swap agreements involve risks depending upon the counterparties'
creditworthiness and ability to perform as well as the Fund's ability to
terminate its swap agreements or reduce its exposure through offsetting
transactions.
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations
are subject to fluctuations in market value due to fluctuations in market
interest rates. As a general matter, the value of debt instruments, including
U.S. Government Obligations, declines when market interest rates increase and
rises when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Warrants
--------
The Funds may invest in warrants. A warrant is an option to purchase an
equity security at a specified price (usually representing a premium over the
applicable market value of the underlying equity security at the time of the
warrant's issuance) and usually during the specified period of time. The price
of warrants does not necessarily move parallel to the prices of the underlying
securities. Warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer. Unlike convertible securities
and preferred stocks, warrants do not pay a fixed dividend. Investments in
warrants involve certain risks, including the possible lack of a liquid market
for the resale of the warrants, potential price fluctuations as a result of a
speculation or other factors and failure of the price of the underlying security
to reach a level at which the warrant can be prudently exercised. To the extent
that the market value of the security that may be purchased upon exercise of the
warrant rises above the exercise price, the value of the warrant will tend to
rise. To the extent that the exercise price equals or exceed the market value
of such security, the warrants will have little or no market value. If a
warrant is not exercised within the specified time period, it will become
worthless and the Fund will lose the purchase price paid for the warrant and the
right to purchase the underlying security.
19
<PAGE>
Zero Coupon Bonds
-----------------
The Funds may invest in zero coupon bonds. Zero coupon bonds are
securities that make no periodic interest payments, but are instead sold at
discounts from face value. The buyer of such a bond receives the rate of return
by the gradual appreciation of the security, which is redeemed at face value on
a specified maturity date. Because zero coupon bonds bear no interest, they are
more sensitive to interest-rate changes and are therefore more volatile. When
interest rates rise, the discount to face value of the security deepens and the
securities decrease more rapidly in value, when interest rates fall, zero coupon
securities rise more rapidly in value because the bonds carry fixed interest
rates that become more attractive in a falling interest rate environment.
Nationally Recognized Ratings Organizations
-------------------------------------------
The ratings of Moody's, S&P, divisions of McGraw Hill, Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc., Thomson Bank Watch and IBCA Inc.
represent their opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by the Funds, an issue of debt securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Funds. The Advisor will consider such an event in determining whether the Fund
involved should continue to hold the obligation.
See the "Appendix" regarding the ratings systems of Moody's and S&P.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Portfolios." The principal occupations during the past five years of the
Trustees and principal executive Officer[s] of the Trust are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Trustees deemed to be "interested persons" of the Trust for
purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- --------------------
<S> <C> <C>
*Robert C. Brown, 65 Trustee, Director, Federal Farm Credit Banks Funding
1431 Landings Place Secretary and Corporation and Farm Credit System Financial
Sarasota, FL 34231 Treasurer Assistance Corporation since February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- --------------------
<S> <C> <C>
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Suite 410 Roxane Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee and Private Investor.
31 Dellwood Court President
San Rafael, CA 94901
Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer;
Four Beaufain Street Chairman of Vault Holdings, LLC.
Charleston, SC 29401
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm
500 North State Street of Himle-Horner since January 1995 and Senior
Waseca, MN 56095 Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since
January 1995.
Donald C. Willeke, 58 Trustee Principal of the law firm of Willeke & Daniels
201 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
Each of the Trustees and Officers listed above act in the identical
capacities for Wells Fargo Variable Trust and Wells Fargo Core Trust
(collectively the "Fund Complex"). Each Trustee receives an annual retainer
(payable quarterly) of $40,000 from the Fund Complex, and also receives a
combined fee of $1,000 for attendance at Fund Complex Board meetings, and a
combined fee of $250 for attendance at committee meetings. If a committee
meeting is held absent a full Board meeting, each attending Trustee will receive
a $1,000 combined fee. These fees apply equally for in-person or telephonic
meetings, and Trustees are reimbursed for all out-of-pocket expenses related to
attending meetings. For 1999, the Trustees will receive a pro rata share of the
annual retainer, calculated from the closing date of the Reorganization. The
Trustees do not receive any retirement benefits or deferred compensation from
the Trust or an other member of the Fund Complex.
21
<PAGE>
As of the date of this SAI, Trustees and Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
Investment Advisor. Wells Fargo Bank provides investment advisory services
------------------
to the Funds. As the Advisor, Wells Fargo Bank furnishes investment guidance and
policy direction in connection with the daily portfolio management of the Funds.
Wells Fargo Bank furnishes to the Trust's Board of Trustees periodic reports on
the investment strategy and performance of each Fund.
As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rates indicated below of each Fund's average
daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
- ---- ---------------------------
<S> <C>
Growth Portfolio 0.35%
Growth Balanced Portfolio 0.35%
Growth and Income Portfolio 0.35%
</TABLE>
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amount of advisory
(and other) fees paid shows the dollar amount of fees paid to the advisor by the
predecessor portfolio that is considered the surviving entity for accounting
purposes.
NIM served as advisor to the predecessor Norwest Funds. As compensation
for its services, NIM was entitled to receive investment advisory and allocation
fees from each Fund at an annual rate of 0.35% of the Funds average daily net
assets.
For the periods indicated below, the predecessor Funds paid to NIM the
following advisory fees and NIM waived the indicated amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended
5/31/99 5/31/98
------- -------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
---- ---- ------ ---- -------
<S> <C> <C> <C> <C>
Growth Portfolio $31,672 $31,609 $5,939 $5,939
Growth Balanced Portfolio $57,033 $48,437 $9,786 $9,786
Growth and Income Portfolio $36,303 $32,146 $7,907 $7,907
</TABLE>
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract
22
<PAGE>
may be terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
The Funds are unique from the other funds of the Trust in that, as a "fund
of funds" which invests all of their assets in the Underlying Funds, the Funds
do not have an investment sub-advisor.
Administrator. The Trust has retained Wells Fargo Bank as Administrator on
-------------
behalf of each Fund. Under the Administration Agreement between Wells Fargo
Bank and the Trust, Wells Fargo Bank shall provide as administration services,
among other things: (i) general supervision of the Funds' operations, including
coordination of the services performed by each Fund's Advisor, transfer agent,
custodian, shareholder servicing agent(s), independent auditors and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the U.S. Securities and Exchange
Commission ("SEC") and state securities commissions; and preparation of proxy
statements and shareholder reports for each Fund; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Trust's officers and Board of Trustees. Wells Fargo
Bank also furnishes office space and certain facilities required for conducting
the Funds' business together with ordinary clerical and bookkeeping services.
The Administrator is entitled to receive a fee of up to 0.15% of each Fund's
average daily net assets on an annual basis.
With respect to the predecessor Norwest Funds, Forum Financial Services,
Inc. ("Forum") managed all aspects of the operation of the Funds, except those
which were the responsibility of Forum Administrative Services, LLC ("FAS") as
administrator or Norwest in its capacity as administrator.
For the periods indicated below, the predecessor portfolios paid the
following dollar amounts as administration fees:
<TABLE>
<CAPTION>
Year Ended Year Ended
5/31/99 5/31/98
------- -------
Fees Fees Fees Fees
Fund Paid Waived Paid Waived
----- ---- ------ ---- ------
<S> <C> <C> <C> <C>
Growth Portfolio $4,525 $4,523 $1,697 $1,697
Growth Balanced Portfolio $8,148 $1,043 $2,796 $2,796
Growth and Income Portfolio $5,186 $4,792 $2,259 $2,259
</TABLE>
Distributor. Stephens Inc. ("Stephens," the "Distributor"), located at 111
-----------
Center Street, Little Rock, Arkansas 72201, serves as Distributor for the
Funds. The Funds have adopted a distribution plan (a "Plan") under Section
12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plan was
adopted by the Trust's Board of Trustees, including a majority of the Trustees
who were not "interested persons" (as defined in the 1940 Act) of the Funds and
who had no direct or indirect financial interest in the operation of the Plan or
in any agreement related to the Plan (the "Non-Interested Trustees").
23
<PAGE>
Under the Plan and pursuant to the related Distribution Agreement, each
Fund pays Stephens up to 0.75% of the average daily net assets of the Fund as
compensation for distribution-related services or as reimbursement for
distribution-related expenses.
The actual fee payable to the Distributor by the Funds is determined,
within such limits, from time to time by mutual agreement between the Trust and
the Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD") under the Conduct Rules of the NASD. The Distributor may enter into
selling agreements with one or more selling agents (which may include Wells
Fargo Bank and its affiliates) under which such agents may receive compensation
for distribution-related services from the Distributor, including, but not
limited to, commissions or other payments to such agents based on the average
daily net assets of Fund shares attributable to their customers. The Distributor
may retain any portion of the total distribution fee payable thereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
The predecessor Funds had retained Forum as distributor for each Fund
pursuant to a distribution plan. The distribution plan authorized monthly
payments at an annual rate of up to 0.75% of the Fund's average daily net
assets.
For the year ended May 31, 1999, Forum received the following fees for
distribution-related services, as set forth below, under each Fund's plan:
<TABLE>
<CAPTION>
Fund Total
--- -----
<S> <C>
Growth Portfolio $ 67,869
Growth Balanced Portfolio $122,213
Growth and Income Portfolio $ 77,793
</TABLE>
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Trustees of the Trust and
the Non-Interested Trustees. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Trustees and the Non-Interested
Trustees. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Fund or by vote of a majority of the
Non-Interested Trustees on not more than 60 days' written notice. The Plan may
not be amended to increase materially the amounts payable thereunder without the
approval of a majority of the outstanding voting securities of the Fund, and no
material amendment to the Plan may be made except by a majority of both the
Trustees of the Trust and the Non-Interested Trustees.
The Plan requires that the Treasurer of Trust shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes
24
<PAGE>
therefor) under the Plan. The Rule also requires that the selection and
nomination of Trustees who are not "interested persons" of the Trust be made by
such disinterested Trustees.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Trust, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plan. The Board of Trustees has concluded that the Plan is
reasonably likely to benefit the Funds and their shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
---------
Norwest Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as
Custodian for each Fund. The Custodian, among other things, maintains a custody
account or accounts in the name of each Fund, receives and delivers all assets
for each Fund upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of each
Fund, and pays all expenses of each Fund. For its services as Custodian,
Norwest Bank is entitled to receive a fee of 0.02% of the average daily net
assets of each Fund.
Fund Accountant. Forum Accounting Services, LLC ("Forum Accounting"),
---------------
located at Two Portland Square, Portland, Maine 04101, serves as Fund Accountant
for the Funds. For its services as Fund Accountant, Forum Accounting is
entitled to receive a monthly base fee per Fund ranging from $2,000 up to $5,833
for Funds with significant holdings of asset-backed securities. Forum
Accounting is also entitled to receive a fee equal to 0.0025% of the average
annual daily net assets of each Fund.
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
--------------------------------------
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts
as Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, BFDS is entitled to receive a per-account fee plus transaction fees
and certain out-of-pocket costs. BFDS is also entitled to receive a complex
base fee from all the Fund of the Trust, Wells Fargo Core Trust and Wells Fargo
Variable Trust.
Underwriting Commissions. Stephens serves as the principal underwriter
------------------------
distributing securities of the Funds on a continuous basis. Forum served as
underwriter of the predecessor Norwest portfolios. The information shown below
regarding underwriting commissions paid for the last two fiscal years reflects
the amounts paid by the predecessor Norwest fund family.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Forum by the predecessor Funds and the amounts
retained by Forum are as follows:
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended
5/31/99 5/31/98
---------- ----------
Paid Retained Paid Retained
---- -------- ---- --------
<S> <C> <C> <C> <C>
Growth Portfolio $ 74,000 $ 0 $ 55,000 $ 0
Growth Balanced
Portfolio $ 232,000 $ 0 $ 116,000 $ 0
Growth and Income
Portfolio $ 52,000 $ 0 $ 94,000 $ 0
</TABLE>
For the year ended May 31, 1999, Norwest Investment Services Inc. received
$4,049,102.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund may be useful in reviewing the
performance of such Fund and for providing a basis for comparison with
investment alternatives. The performance of a Fund, however, may not be
comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds. Annual
and Semi-Annual Reports for the Funds may contain additional performance
information, and are available free of charge upon request.
Average Annual Total Return: The Funds may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)/n/=ERV.
26
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return for the Period Ended May 31, 1999
-------------------------------------------------------------
Fund Inception One Year Five Years Ten Years
---- --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Growth Portfolio 8.63% 19.62% N/A N/A
Growth Balanced Portfolio 11.83% 28.15% N/A N/A
Growth and Income Portfolio 9.03% 25.96% N/A N/A
</TABLE>
Cumulative Total Return. In addition to the above performance information,
-----------------------
each Fund may also advertise the cumulative total return of the Fund.
Cumulative total return is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
<TABLE>
<CAPTION>
Cumulative Total Return for the Period Ended May 31, 1999
---------------------------------------------------------
Fund Inception Three Year Five Years
---- --------- ---------- ----------
<S> <C> <C> <C>
Growth Portfolio 17.97% N/A N/A
Growth Balanced Portfolio 25.02% N/A N/A
Growth and Income Portfolio 18.84% N/A N/A
</TABLE>
The yields for each share will fluctuate from time to time, unlike bank
deposits or other investments that pay a fixed yield for a stated period of
time, and do not provide a basis for determining future yields since they are
based on historical data. Yield is a function of portfolio quality, composition,
maturity and market conditions as well as the expenses allocated to a Fund.
From time to time and only to the extent the comparison is appropriate for
a Fund, the Trust may quote the performance or price-earning ratio of a Fund in
advertising and other types of literature as compared with the performance of
the S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money
Fund Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the Federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
27
<PAGE>
Benchmark Index, the Consumer Price Index (as published by the U.S. Bureau of
Labor Statistics), other managed or unmanaged indices or performance data of
bonds, municipal securities, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a Fund also may be compared to
that of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services which monitor the performance of
mutual funds. The Funds' performance will be calculated by relating net asset
value per share of each Fund at the beginning of a stated period to the net
asset value of the investment, assuming reinvestment of all gains distributions
paid, at the end of the period. The Funds' comparative performance will be based
on a comparison of yields or total return, as reported by Lipper, Survey
Publications, Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds with the performance of a Fund's competitors. Of
course, past performance cannot be a guarantee of future results. The Trust
also may include, from time to time, a reference to certain marketing approaches
of the Distributor, including, for example, a reference to a potential
shareholder being contacted by a selected broker or dealer. General mutual fund
statistics provided by the Investment Company Institute (the "ICI") may also be
used.
The Trust also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
a Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund or on returns in
general, may be illustrated by graphs, charts, etc., where such graphs or charts
would compare, at various points in time, the return from an investment in the
Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund invests
may be compared to relevant indices of stocks or surveys (e.g., S&P Industry
Surveys) to evaluate the historical performance or current or potential value of
a Fund with respect to the particular industry or sector.
The Trust also may use, in advertisements and other types of literature,
information and statements: (1) showing that bank savings accounts offer a
guaranteed return of principal and a fixed rate of interest, but no opportunity
for capital growth; and (2) describing Wells Fargo Bank, and its affiliates and
predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Trust also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
28
<PAGE>
The Trust also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRRO, such as Standard & Poors
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of a Fund's shares or the suitability of a Fund for a particular investor.
In addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to a Fund or its investments. The Trust may compare the performance of each
class of shares of a Fund with other investments which are assigned ratings by
NRROs. Any such comparisons may be useful to investors who wish to compare each
class' past performance with other rated investments.
From time to time, a Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Wells Fargo Funds Trust, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Wells Fargo Funds Trust's account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Wells Fargo Funds Trust account statements."
The Trust also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management, Inc., a subsidiary of
Wells Fargo Bank, is listed in the top 100 by Institutional Investor magazine in
----------------------
its July 1997 survey "America's Top 300 Money Managers." This survey ranks money
managers in several asset categories. The Trust also may disclose in advertising
and other types of sales literature the assets and categories of assets under
management by the Trust's Advisor and the total amount of assets and mutual fund
assets managed by Wells Fargo Bank. As of June 30, 1999, Wells Fargo Bank
and its affiliates managed over $131 billion in assets.
The Trust may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Trust may also disclose the ranking of Wells Fargo
Bank as one of the largest money managers in the United States.
29
<PAGE>
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund is determined as of the close of
regular trading (currently 1:00 p.m. (Pacific time), 3:00 p.m. (Central time),
4:00 p.m. (Eastern time)), on each day the New York Stock Exchange ("NYSE") is
open for business. Expenses and fees, including advisory fees, are accrued daily
and are taken into account for the purpose of determining the net asset value of
the Funds' shares.
Securities of a Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other Fund securities, including U.S. Government securities but
excluding money market instruments and debt securities maturing in 60 days or
less, the valuations are based on latest quoted bid prices. Money market
instruments and debt securities maturing in 60 days or less are valued at
amortized cost. Futures contracts will be marked to market daily at their
respective settlement prices determined by the relevant exchange. Prices may be
furnished by a reputable independent pricing service approved by the Trust's
Board of Trustees. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
a Fund for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Trust's Board of Trustees and
in accordance with procedures adopted by the Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. Each Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Funds. For further
information about this form of payment please contact the Distributor. In
connection with an in-kind securities payment, the Funds will require, among
other things, that the securities be valued on the day of purchase in accordance
with the pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The
30
<PAGE>
Trust may also redeem shares involuntarily or make payment for redemption in
securities or other property if it appears appropriate to do so in light of the
Trust's responsibilities under the 1940 Act. In addition, the Trust may redeem
shares involuntarily to reimburse the Fund for any losses sustained by reason of
the failure of a shareholder to make full payment for shares purchased or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to shares of a Fund as provided from time to
time in the Prospectus.
Purchases and Redemptions Through Brokers and/or Their Affiliates
-----------------------------------------------------------------
A broker may charge transaction fees on the purchase and/or sale of Fund shares
in addition to those fees described in the Prospectus in the Summary of
Expenses. The Trust has authorized one or more brokers to receive on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an authorized broker or, if applicable, a broker's
authorized designee, receives the order.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Trust are
prohibited from dealing with the Trust as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available. The Fund may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Trustees.
Wells Fargo Bank, as the Investment Advisor to the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
31
<PAGE>
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Trust
bears all costs of its operations, including the compensation of its Trustees
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; and pricing services, organizational expenses and any extraordinary
expenses. Expenses attributable to the Fund are charged against Fund assets.
General expenses of the Trust are allocated among all of the funds of the Trust,
including the Funds, in a manner proportionate to the net assets of each Fund,
on a transactional basis, or on such other basis as the Trust's Board of
Trustees deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of each Fund
generally describes the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning federal income taxes.
General. The Trust intends to continue to qualify each Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interests of
the Fund's shareholders. Each Fund will
32
<PAGE>
be treated as a separate entity for federal income tax purposes. Thus, the
provisions of the Code applicable to regulated investment companies generally
will be applied separately to each Fund, rather than to the Trust as a whole. In
addition, capital gains, net investment income, and operating expenses will be
determined separately for each Fund. As a regulated investment company, each
Fund will not be taxed on its net investment income and capital gain distributed
to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government obligations and
the securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (including, for this
purpose, net short-term capital gain) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Funds intend to pay out substantially all of their net
investment income and net realized capital gains (if any) for each year.
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a Fund will generally be capital gains
and losses. Such gains and losses will ordinarily be long-term capital gains and
losses if the securities have been held by the Fund for more than one year at
the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation (including tax-
exempt obligations) purchased by a Fund at a market discount (generally at a
price less than its principal amount) will be treated as ordinary income to the
extent of the portion of market discount which
33
<PAGE>
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by the Fund pursuant to the exercise of a call option written by it,
the Fund will add the premium received to the sale price of the securities
delivered in determining the amount of gain or loss on the sale. If securities
are purchased by a Fund pursuant to the exercise of a put option written by it,
such Fund will subtract the premium received from its cost basis in the
securities purchased.
The amount of any gain or loss realized by a Fund on closing out a
regulated futures contract will generally result in a realized capital gain or
loss for federal income tax purposes. Regulated futures contracts held at the
end of each fiscal year will be required to be "marked to market" for federal
income tax purposes pursuant to Section 1256 of the Code. In this regard, they
will be deemed to have been sold at market value. Sixty percent (60%) of any net
gain or loss recognized on these deemed sales, and sixty percent (60%) of any
net realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund generally will recognize ordinary
income or loss to the extent that gain or loss realized on the disposition of
portfolio securities is attributable to changes in foreign currency exchange
rates. In addition, gain or loss realized on the disposition of a foreign
currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, will generally be treated as ordinary
income or loss. The Funds will attempt to monitor Section 988 transactions,
where applicable, to avoid adverse Federal income tax impact.
Offsetting positions held by a Fund involving certain financial forward,
futures or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Section 1256. If a Fund were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The Fund may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
34
<PAGE>
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company"
("PFIC"), the Fund may be subject to Federal income tax and an interest charge
imposed by the IRS upon certain distributions from the PFIC or the Fund's
disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends
to make an available election to mark-to-market its interest in PFIC shares.
Under the election, the Fund will be treated as recognizing at the end of each
taxable year the difference, if any, between the fair market value of its
interest in the PFIC shares and its basis in such shares. In some circumstances,
the recognition of loss may be suspended. The Fund will adjust its basis in the
PFIC shares by the amount of income (or loss) recognized. Although such income
(or loss) will be taxable to the Fund as ordinary income (or loss)
notwithstanding any distributions by the PFIC, the Fund will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC under the election.
Foreign Taxes. Income and dividends received by a Fund from sources within
-------------
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. In certain circumstances, a regulated investment
company is eligible to file an election with the IRS pursuant to which the
regulated investment company may pass-through to its shareholders foreign taxes
paid by the regulated investment company, which may be claimed either as a
credit or deduction by the shareholders. None of the Funds expects to qualify
for the election.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do exceed the Fund's actual net
capital gains for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to be received in the case of an exchange) and the
cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund
35
<PAGE>
will be disallowed to the extent that substantially identical shares are
acquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. The loss disallowance rules described in this paragraph do not
apply to losses realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Trust may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on all distributions
and redemption proceeds (including proceeds from exchanges and redemptions in-
kind) paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Trust also could subject the investor to penalties imposed by
the IRS.
Foreign Shareholders. Under the Code, distributions attributable to net
--------------------
investment income, net short-term capital gain and certain other items realized
by a Fund and paid to a nonresident alien individual, foreign trust (i.e., trust
which a U.S. court is able to exercise primary supervision over administration
of that trust and one or more U.S. persons have authority to control substantial
decisions of that trust), foreign estate (i.e., the income of which is not
subject to U.S. tax regardless of source), foreign corporation, or foreign
partnership (each, a "foreign shareholder") will be subject to U.S. withholding
tax (at a rate of 30% or a lower treaty rate, if applicable). Withholding will
not apply if a distribution paid by the Fund to a foreign shareholder is
"effectively connected" with a U.S. trade or business (or, if an income tax
treaty applies, is attributable to a U.S. permanent establishment of the foreign
shareholder), in which case the reporting and withholding requirements
applicable to U.S. persons will apply. Capital gain distributions generally are
not subject to tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S.
36
<PAGE>
income tax withholding and information reporting rules applicable to foreign
shareholders. The New Regulations will generally be effective for payments made
after December 31, 2000, subject to certain transition rules. Among other
things, the New Regulations will permit the Funds to estimate the portion of
their distributions qualifying as capital gain distributions for purposes of
determining the portion of such distributions paid to foreign shareholders that
will be subject to federal income tax withholding. Prospective investors are
urged to consult their own tax advisors regarding the New Regulations.
Corporate Shareholders. Corporate shareholders of the Funds may be
----------------------
eligible for the dividends-received deduction on dividends distributed out of a
Fund's income attributable to dividends received from domestic corporations,
which, if received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
Tax-Deferred Plan. The shares of the Funds are available for a variety of
-----------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes. Investors
should contact their selling agents for details concerning retirement plans.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Funds without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the Federal tax considerations
generally affecting investments in the Funds. Each investor is urged to consult
his or her tax advisor regarding specific questions as to federal, state, local
or foreign taxes.
CAPITAL STOCK
The Funds are three of the funds in the Wells Fargo Funds Trust family of
funds. The Trust was organized as a Delaware business trust on March 10, 1999.
Most of the Trust's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Trust's funds also are
37
<PAGE>
authorized to issue other classes of shares, which are sold primarily to
institutional investors. Each class of shares in a fund represents an equal,
proportionate interest in a fund with other shares of the same class.
Shareholders of each class bear their pro rata portion of the fund's operating
expenses, except for certain class-specific expenses (e.g., any state securities
registration fees, shareholder servicing fees or distribution fees that may be
paid under Rule 12b-1) that are allocated to a particular class. Please contact
Shareholder Services at 1-800-222-8222 if you would like additional information
about other funds or classes of shares offered by the Trust.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy affects only one series and would be voted
upon only by shareholders of the Fund involved. Additionally, approval of an
advisory contract, since it affects only one Fund, is a matter to be determined
separately by Series. Approval by the shareholders of one Series is effective as
to that Series whether or not sufficient votes are received from the
shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of the Trust as a whole, means the vote of the lesser of (i)
67% of the Trust's shares represented at a meeting if the holders of more than
50% of the Trust's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Trust's outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares are
issued in uncertificated form only, and, when issued, will be fully paid and
non-assessable by the Trust. The Trust may dispense with an annual meeting of
shareholders in any year in which it is not required to elect Trustees under the
1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Fund are entitled to
receive the assets attributable to that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Trustees in their sole discretion may determine.
Set forth below, as of October 25, 1999, is the name, address and share
ownership of each person known by the Trust to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities as a whole. The term "N/A" is used where a shareholder holds 5% or
more of a class, but less than 5% of a Fund as a whole.
38
<PAGE>
5% OWNERSHIP AS OF OCTOBER 25, 1999
-----------------------------------
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
---- ---------------- --------
<S> <C> <C>
GROWTH PORTFOLIO Norwest Investment Services Inc. 8.13%
FBO 013879761
Northstar Building East-9th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
GROWTH BALANCED PORTFOLIO N/A N/A
GROWTH AND INCOME PORTFOLIO Norwest Investment Services Inc. 8.57%
FBO 011836151
Northstar Building East-8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Trust's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements contained
in the Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust. KPMG
LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolios of investments and audited financial statements for the
predecessor Norwest portfolios for the year ended May 31, 1999 are hereby
incorporated by reference to the Funds' Annual Report.
39
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
also applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1 indicates
that the security ranks in the higher end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by S&P
and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Commercial Paper
----------------
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
-------
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
S&P: The "A-1" rating for commercial paper is rated "in the highest
---
category" by S&P and "the obligor's capacity to meet its financial commitment on
the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal
A-1
<PAGE>
commercial paper rated "A-2" is "more susceptible" to the adverse effects of
changes in economic conditions or other circumstances than commercial paper
rated in higher rating categories.
A-2
<PAGE>
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented on December 17, 1999
CALIFORNIA TAX-FREE MONEY MARKET FUND
CALIFORNIA TAX-FREE MONEY MARKET TRUST
CASH INVESTMENT MONEY MARKET FUND
GOVERNMENT MONEY MARKET FUND
MINNESOTA MONEY MARKET FUND
MONEY MARKET FUND
MONEY MARKET TRUST
NATIONAL TAX-FREE INSTITUTIONAL MONEY MARKET FUND
NATIONAL TAX-FREE MONEY MARKET FUND
NATIONAL TAX-FREE MONEY MARKET TRUST
OVERLAND EXPRESS SWEEP FUND
PRIME INVESTMENT MONEY MARKET FUND
TREASURY PLUS INSTITUTIONAL MONEY MARKET FUND
TREASURY PLUS MONEY MARKET FUND
100% TREASURY MONEY MARKET FUND
Class A, Class B, Service Class and Institutional Class
Wells Fargo Funds Trust (the "Trust") is an open-end, management
investment company. This Statement of Additional Information ("SAI") contains
additional information about fifteen Funds in the Wells Fargo Funds Trust family
of funds (each, a "Fund" and collectively, the "Funds") -- the California Tax-
Free Money Market Fund, California Tax-Free Money Market Trust, Cash Investment
Money Market Fund, Government Money Market Fund, Minnesota Money Market Fund,
Money Market Fund, Money Market Trust, National Tax-Free Institutional Money
Market Fund, National Tax-Free Money Market Fund, National Tax-free Money Market
Trust, Overland Express Sweep Fund, Prime Investment Money Market Fund, Treasury
plus Institutional Money Market Fund, Treasury Plus Money Market Fund and 100%
Treasury Money Market Fund. Each Fund is considered diversified under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Minnesota
Money Market, National Tax-Free Money Market and Treasury Plus Money Market
Funds offer Class A shares. The Money Market Fund offers Class A and Class B
shares. The California Tax-Free Money Market, Government Money Market, 100%
Treasury Money Market Funds offer Class A and Service Class shares. The Cash
Investment Money Market, National Tax-Free Institutional Money Market and
Treasury Plus Institutional Money Market Funds offer Service Class and
Institutional Class shares. The Prime Investment Money Market Fund offers only
Service Class shares. The California Tax-Free Money Market Trust, Money Market
Trust, National Tax-Free Money Market Trust and Overland Express Sweep Fund
offer a single unnamed class of shares. This SAI relates to all such classes of
shares.
<PAGE>
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 8, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained without charge by calling 1-800-222-8222 or
writing to Wells Fargo Funds, P.O. Box 8266, Boston, MA 02266-8266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information........................................ 1
Investment Policies................................................ 4
Additional Permitted Investment Activities and Associated Risks.... 6
Special Considerations Affecting California Municipal Obligations.. 13
Special Considerations Affecting Minnesota Municipal Obligations... 16
Management......................................................... 18
Performance Calculations........................................... 33
Determination of Net Asset Value................................... 42
Additional Purchase and Redemption Information..................... 44
Portfolio Transactions............................................. 45
Fund Expenses...................................................... 46
Federal Income Taxes............................................... 46
Capital Stock...................................................... 54
Other.............................................................. 62
Counsel............................................................ 62
Independent Auditors............................................... 62
Financial Information.............................................. 62
Appendix........................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach") and
the Board of Trustees of the Trust approved an Agreement and Plan of
Reorganization providing for, among other things, the transfer of assets and
stated liabilities of various predecessor Norwest and Stagecoach portfolios to
the Funds (the "Reorganization"). Prior to November 5, 1999, the effective date
of the consolidation of the Funds and the predecessor Norwest and Stagecoach
portfolios, the Funds had only nominal assets.
The Funds described in this SAI were created as part of the reorganization
of the Stagecoach family of funds advised by Wells Fargo Bank, N.A. ("Wells
Fargo Bank" or "Advisor"), and the Norwest Advantage family of funds advised by
Norwest Investment Management, Inc. ("NIM"), into a single mutual fund complex.
The Reorganization followed the merger of the advisors' parent companies.
The chart below indicates the predecessor Stagecoach and Norwest Funds that
are the accounting survivors of the Wells Fargo Funds.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Wells Fargo Funds Predecessor Funds
- ------------------------------------------------------------------------------------------------------------
<S> <C>
California Tax-Free Money Market Fund Stagecoach California Tax-Free Money Market Fund
- ------------------------------------------------------------------------------------------------------------
California Tax-Free Money Market Trust Stagecoach California Tax-Free Money Market Trust
- ------------------------------------------------------------------------------------------------------------
Cash Investment Money Market Fund Norwest Cash Investment Fund
- ------------------------------------------------------------------------------------------------------------
Government Money Market Fund Norwest U.S. Government Fund
- ------------------------------------------------------------------------------------------------------------
Minnesota Money Market Fund N/A
- ------------------------------------------------------------------------------------------------------------
Money Market Fund Stagecoach Money Market Fund
- ------------------------------------------------------------------------------------------------------------
Money Market Trust Stagecoach Money Market Trust
- ------------------------------------------------------------------------------------------------------------
National Tax-Free Institutional Money Market Fund Norwest Municipal Money Market Fund
- ------------------------------------------------------------------------------------------------------------
National Tax-Free Money Market Fund Norwest Municipal Money Market Fund
- ------------------------------------------------------------------------------------------------------------
National Tax-Free Money Market Trust Stagecoach National Tax-Free Money Market Trust
- ------------------------------------------------------------------------------------------------------------
Overland Express Sweep Fund Stagecoach Overland Express Sweep Fund
- ------------------------------------------------------------------------------------------------------------
Prime Investment Money Market Fund Norwest Ready Cash Investment Fund (Public
Entities Shares)
- ------------------------------------------------------------------------------------------------------------
Treasury Plus Institutional Money Market Fund Stagecoach Treasury Plus Money Market Fund
- ------------------------------------------------------------------------------------------------------------
Treasury Plus Money Market Fund Stagecoach Treasury Plus Money Market Fund
- ------------------------------------------------------------------------------------------------------------
100% Treasury Money Market Fund Norwest Treasury Fund
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The California Tax-Free Money Market Fund commenced operations on November
8, 1999, as successor to the California Tax-Free Money Market Fund of
Stagecoach. The predecessor Stagecoach California Tax-Free Money Market Fund
was originally organized as a fund of Stagecoach and commenced operations on
July 1, 1992.
The California Tax-Free Money Market Trust commenced operations on November
8, 1999, as successor to the California Tax-Free Money Market Trust of
Stagecoach. The predecessor Stagecoach California Tax-Free Money Market Trust
was originally organized on May 5, 1997.
The Cash Investment Money Market Fund commenced operations on November 8,
1999, as successor to the Prime Money Market Fund of Stagecoach and the Cash
Investment Fund of Norwest.
1
<PAGE>
The predecessor Stagecoach Prime Money Market Fund commenced operations on April
30, 1981 and the predecessor Norwest Cash Investment Fund commenced operations
on October 14, 1987. For accounting purposes, the Norwest Cash Investment
predecessor portfolio is considered the surviving entity and the financial
highlights shown for periods prior to November 8, 1999 are the financial
highlights of the Norwest Cash Investment Fund.
The Government Money Market Fund commenced operations on November 8, 1999,
as successor to the Government Money Market Fund of Stagecoach and the U.S.
Government Fund of Norwest. The predecessor Stagecoach Government Money Market
Fund commenced operations on April 26, 1988 and the predecessor Norwest U.S.
Government Fund commenced operations on November 16, 1987. For accounting
purposes, the Norwest U.S. Government predecessor portfolio is considered the
surviving entity and the financial highlights shown for periods prior to
November 8, 1999 are the financial highlights of the Norwest U.S. Government
Fund.
The Minnesota Money Market Fund commenced operations on November 8, 1999 as
a new portfolio. It has no predecessor fund and thus no prior history.
The Money Market Fund commenced operations on November 8, 1999, as
successor to the Prime Money Market Fund of Stagecoach, the Money Market Fund of
Stagecoach and the Ready Cash Investment Fund of Norwest. The predecessor
Stagecoach Prime Money Market Fund commenced operations on April 30, 1981, the
predecessor Stagecoach Money Market Fund commenced operations on July 1, 1992
and the predecessor Norwest Ready Cash Investment Fund commenced operations on
September 2, 1998. For accounting purposes, the Stagecoach Money Market
portfolio is considered the surviving entity and the financial highlights shown
for periods prior to November 8, 1999 are the financial highlights of the
Stagecoach Money Market Fund.
The Money Market Trust commenced operations on November 8, 1999, as
successor to an investment portfolio of Pacifica Funds Trust ("Pacifica"), an
open-end management investment company. Pacifica was organized on July 17, 1984
under the name "Fund Source." Pacifica changed its name to "Pacifica Funds
Trust" on February 9, 1993. The Fund originally commenced operations on
September 17, 1990 as a separate investment portfolio of Westcore Trust called
the "Prime Money Market Fund." On October 1, 1995, the Fund was organized as a
portfolio of Pacifica. On September 6, 1996, the predecessor portfolio became
the Stagecoach Money Market Trust of Stagecoach.
The National Tax-Free Institutional Money Market Fund commenced operations
on November 8, 1999, as successor to the National Tax-Free Money Market Fund of
Stagecoach and the Municipal Money Market Fund of Norwest. The predecessor
Stagecoach National Tax-Free Money Market Fund commenced operations on April 2,
1996 and the predecessor Norwest Municipal Money Market Fund commenced
operations on August 3, 1993. For accounting purposes, the Norwest Municipal
Money Market predecessor portfolio is considered the surviving entity and the
financial highlights shown for periods prior to November 8, 1999 are the
financial highlights of the Norwest Municipal Money Market Fund.
2
<PAGE>
The National Tax-Free Money Market Fund commenced operations on November 8,
1999, as successor to the National Tax-Free Money Market Fund of Stagecoach and
the Municipal Money Market Fund of Norwest. The predecessor Stagecoach National
Tax-Free Money Market Fund commenced operations on April 2, 1996 and the
predecessor Norwest Municipal Money Market Fund commenced operations on January
7, 1988. For accounting purposes, the Norwest Municipal Money Market
predecessor portfolio is considered the surviving entity and the financial
highlights shown for periods prior to November 8, 1999 are the financial
highlights of the Norwest Municipal Money Market Fund.
The National Tax-Free Money Market Trust commenced operations on November
8, 1999, as successor to the National Tax-Free Money Market Trust of Stagecoach.
The predecessor Stagecoach National Tax-Free Money Market Trust was originally
organized as a fund of Stagecoach and commenced operations on April 2,
1996.
The Overland Express Sweep Fund commenced operations on November 8, 1999,
as successor to an investment portfolio originally organized on October 1, 1991,
as the Overland Sweep Fund (the "predecessor portfolio") of Overland Express
Funds, Inc. ("Overland"), another open-end management investment company advised
by Wells Fargo Bank. On July 23, 1997, the Overland portfolio was reorganized
as the predecessor Overland Express Sweep Fund of Stagecoach.
The Prime Investment Money Market Fund commenced operations on November 8,
1999, as successor to the Ready Cash Investment Fund of Norwest. The
predecessor Norwest Ready Cash Investment Fund was originally organized as a
fund of Norwest and commenced operations on September 2, 1998.
The Treasury Plus Institutional Money Market Fund commenced operations on
November 8, 1999, as successor to the Treasury Plus Money Market Fund of
Stagecoach and the Treasury Plus Fund of Norwest. The predecessor Stagecoach
Treasury Plus Money Market Fund commenced operations on October 1, 1985 and the
predecessor Norwest Treasury Plus Fund commenced operations on July 6, 1998.
For accounting purposes, the Stagecoach Treasury Plus Money Market predecessor
portfolio is considered the surviving entity and the financial highlights shown
for periods prior to November 8, 1999 are the financial highlights of the
Stagecoach Treasury Plus Fund Money Market Fund.
The Treasury Plus Money Market Fund commenced operations on November 8,
1999, as successor to the Treasury Plus Money Market Fund of Stagecoach. The
Fund originally commenced operations on October 1, 1985, as the Short-Term
Government Fund of the Pacific American Funds. The Fund operated as a portfolio
of Pacific American Fund through October 1, 1994, when it was reorganized as the
Pacific American U.S. Treasury Portfolio, a portfolio of Pacifica Funds Trust.
In July 1995, the Fund was renamed the Pacifica Treasury Money Market Fund. On
September 6, 1996, the Pacifica Treasury Money Market Fund was reorganized as
the predecessor Stagecoach Treasury Money Market Fund. The word "Plus" was
added to the Fund's name as of August 1, 1998.
3
<PAGE>
The 100% Treasury Money Market Fund commenced operations on November 8,
1999, as successor to the Treasury Fund of Norwest. The predecessor NORWEST
Treasury Fund was originally organized as a fund of Norwest and commenced
operations on December 3, 1990.
INVESTMENT POLICIES
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment policies, all of which are
fundamental policies; that is, they may not be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund.
The Funds may not:
(1) purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after the purchase and as a result
thereof, the value of a Fund's investments in that industry would equal or
exceed 25% of the current value of the Fund's total assets, provided that this
restriction does not limit a Fund's: (i) investments in securities of other
investment companies, (ii) investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, (iii) investments in
municipal securities (for the purpose of this restriction, private activity
bonds and notes shall not be deemed municipal securities if the payments of
principal and interest such bonds or notes is the ultimate responsibility of
non-government issuers), or (iv) investments in repurchase agreements; provided
further that each Fund reserves freedom of action to concentrate in the
obligations of domestic banks (as such term is interpreted by the Securities and
Exchange Commission (the "SEC") or its staff); and provided further that each of
the California Tax-Free Money Market Fund, the California Tax-Free Money Market
Trust, the Minnesota Money Market Fund, the National Tax-Free Institutional
Money Market Fund, the National Tax-Free Money Market Fund and the National Tax-
Free Money Market Trust (a) may invest 25% or more of the current value of its
total assets in private activity bonds or notes that are the ultimate
responsibility of non-government issuers conducting their principal business
activity in the same industry and (b) may invest 25% or more of the
current value of its total assets in securities whose issuers are located in the
same state or securities the interest and principal on which are paid from
revenues of similar type projects;
(2) purchase securities of any issuer if, as a result, with respect to 75%
of a Fund's total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer or the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer, provided that
this restriction does not limit a Fund's investments in securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder;
(4) issue senior securities, except to the extent permitted under the 1940
Act, including the rules, regulations and exemptions thereunder;
(5) make loans to other parties if, as a result, the aggregate value of
such loans would exceed one-third of a Fund's total assets. For the purposes of
this limitation, entering into repurchase
4
<PAGE>
agreements, lending securities and acquiring any debt securities are not deemed
to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities
in accordance with a Fund's investment program may be deemed to be an
underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business); nor
(8) purchase or sell commodities, provided that (i) currency will not be
deemed to be a commodity for purposes of this restriction, (ii) this restriction
does not limit the purchase or sale of futures contracts, forward contracts or
options, and (iii) this restriction does not limit the purchase or sale of
securities or other instruments backed by commodities or the purchase or sale of
commodities acquired as a result of ownership of securities or other
instruments.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by the Trustees of the Trust at any time without approval of such Fund's
shareholders.
(1) Each Fund may invest in shares of other investment companies, to the
extent permitted under the 1940 Act, including the rules, regulations and
exemptions thereunder.
(2) Each Fund may not invest or hold more than 10% of the Fund's net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, and (c) repurchase agreements not terminable
within seven days.
(3) Each Fund may lend securities from its portfolio to approved brokers,
dealers and financial institutions, to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder, which currently
limit such activities to one-third of the value of a Fund's total assets
(including the value of the collateral received). Any such loans of portfolio
securities will be fully collateralized based on values that are marked-to-
market daily.
(4) Each Fund may not make investments for the purpose of exercising
control or management, provided that the restriction does not limit a Fund's
investments in securities of other investment companies or in entities created
under the laws of foreign countries to facilitate investment in securities in
that country.
(5) Each Fund may not purchase securities on margin (except for short-term
credits necessary for the clearance of transactions).
5
<PAGE>
(6) Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.
General
-------
Notwithstanding the foregoing policies, any other investment companies in
which the Funds may invest have adopted their own investment policies, which may
be more or less restrictive than those listed above, thereby allowing a Fund to
participate in certain investment strategies indirectly that are prohibited
under the fundamental and non-fundamental investment policies listed above.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND ASSOCIATED RISKS
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total
assets.
Asset-Backed Securities
-----------------------
The Funds may purchase asset-backed securities unrelated to mortgage loans.
These asset-backed securities may consist of undivided fractional interests in
pools of consumer loans or receivables held in trust. Examples include
certificates for automobile receivables (CARS) and credit card receivables
(CARDS). Payments of principal and interest on these asset-backed securities
are "passed through" on a monthly or other periodic basis to certificate holders
and are typically supported by some form of credit enhancement, such as a letter
of credit, surety bond, limited guaranty, or subordination. The extent of
credit enhancement varies, but usually amounts to only a fraction of the asset-
backed security's par value until exhausted. Ultimately, asset-backed
securities are dependent upon payment of the consumer loans or receivables by
individuals, and the certificate holder frequently has no recourse to the entity
that originated the loans or receivables. The actual maturity and realized
yield vary based upon the prepayment experience of the underlying asset pool and
prevailing interest rates at the time of prepayment.
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic and foreign banks, foreign subsidiaries of domestic banks, foreign
branches of domestic banks, and domestic and foreign branches of foreign banks,
domestic savings banks and associations and other banking institutions. With
respect to such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to
6
<PAGE>
additional investment risks that are different in some respects from those
incurred by a fund which invests only in debt obligations of domestic issuers.
Such risks include possible future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
the securities, the possible establishment of exchange controls or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on these securities and the possible seizure
or nationalization of foreign deposits. In addition, foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting and recordkeeping standards
than those applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are
credit instruments evidencing the obligation of a bank to pay a draft drawn on
it by a customer. These instruments reflect the obligation both of the bank and
of the drawer to pay the face amount of the instrument upon maturity. The other
short-term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
Borrowing
---------
The Funds may borrow money for temporary or emergency purposes, including
the meeting of redemption requests. Borrowing involves special risk
considerations. Interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and
7
<PAGE>
instrumentalities) will consist of issues that are rated in one of the two
highest rating categories by a Nationally Recognized Ratings Organization
("NRRO"). Commercial paper may include variable- and floating-rate
instruments.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations such as
demand notes and bonds. of thirteen months, but they permit the holder to demand
payment of principal at any time, or at specified intervals not exceeding
thirteen months. Variable-rate demand notes include master demand notes that are
obligations that permit a Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Fund, as
lender, and the borrower. The interest rates on these notes fluctuates from time
to time, but the Funds may only invest in floating- or variable-rate securities
that bear interest at a rate that resets quarterly or more frequently and that
resets based on standard money market rate indices. The issuer of such
obligations ordinarily has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations.
Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, a Fund's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. Such obligations frequently
are not rated by credit rating agencies and each Fund may invest in obligations
which are not so rated only if the Advisor determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which such Fund may invest. The Advisor, on behalf of each Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and variable-
rate demand obligations in such Fund's portfolio. Floating- and variable-rate
instruments are subject to interest-rate risk and credit risk.
Foreign Obligations
-------------------
The Funds may invest in high-quality, short-term (thirteen months or less)
debt obligations of foreign branches of U.S. banks or U.S. branches of foreign
banks that are denominated in and pay interest in U.S. dollars. Investments in
foreign obligations involve certain considerations that are not typically
associated with investing in domestic obligations. There may be less publicly
available information about a foreign issuer than about a domestic issuer.
Foreign issuers also are not subject to the same uniform accounting, auditing
and financial reporting standards or governmental supervision as domestic
issuers. In addition, with respect to certain foreign countries, taxes may be
withheld at the source under foreign income tax laws and there is a possibility
of expropriation or confiscatory taxation, political or social instability, or
diplomatic developments
8
<PAGE>
that could affect adversely investments in, the liquidity of, and the ability to
enforce contractual obligations with respect to, securities of issuers located
in those countries.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
---------------------------------------------------------------
Transactions
- ------------
Each Fund may purchase or sell securities on a when-issued or delayed-
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Securities purchased or
sold on a when-issued, delayed-delivery or forward commitment basis involve a
risk of loss if the value of the security to be purchased declines, or the value
of the security to be sold increases, before the settlement date.
Each Fund will segregate cash, U.S. Government obligations or other high-
quality debt instruments in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will segregate additional liquid assets on a daily basis so
that the value of the segregated assets is equal to the amount of such
commitments.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the 1933 Act and
other securities subject to legal or other restrictions on resale. Because such
securities may be less liquid than other investments, they may be difficult to
sell promptly at an acceptable price. Delay or difficulty in selling securities
may result in a loss or be costly to a Fund.
Letters of Credit
-----------------
Certain of the debt obligations (including certificates of participation,
commercial paper and other short-term obligations) which the Funds may purchase
may be backed by an unconditional and irrevocable letter of credit of a bank,
savings and loan association or insurance company which assumes the obligation
for payment of principal and interest in the event of default by the issuer.
Only banks, savings and loan associations and insurance companies which, in the
opinion of Wells Fargo Bank, are of comparable quality to issuers of other
permitted investments of each such Fund may be used for letter of credit-backed
investments.
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities pursuant to guidelines approved
by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will receive any interest or
dividends paid on the loaned
9
<PAGE>
securities; and (4) the aggregate market value of securities loaned will not at
any time exceed the limits established by the 1940 Act.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested subject to the investment objectives,
principal investment strategies and policies of the Fund. In connection with
lending securities, a Fund may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail
to return the securities or may fail to provide additional collateral. In
either case, a Fund could experience delays in recovering securities or
collateral or could lose all or part of the value of the loaned securities.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur. A Fund may pay a portion of the interest or fees earned
from securities lending to a borrower or securities lending agent. Borrowers and
placing brokers may not be affiliated, directly or indirectly, with the Trust,
the Advisor, or the Distributor.
Money Market Instruments
------------------------
The Funds may invest in money market instruments. Money market instruments
consist of: (a) short-term securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (including government-sponsored
enterprises) (U.S. Government obligations"); (b) negotiable certificates of
deposit, bankers' acceptances and fixed time deposits and other short-term
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of the investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation
("FDIC"); (c) commercial paper rated at the date of purchase "Prime-1" by
Moody's Investors Service, Inc. ("Moody's") or "A-1+" or "A-1" by Standard &
Poor's Ratings Group ("S&P"), or, if unrated, by comparable qualify as
determined by Wells Fargo Bank; (d) certain repurchase agreements; and (e)
short-term U.S. dollar-denominated obligations of foreign banks (including U.S.
branches) that at the time of investment; (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among the largest
foreign banks in the world as determined on the basis of assets; and (iii) have
branches or agencies in the United States.
Municipal Bonds
---------------
The Fund may invest in municipal bonds. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. Municipal bonds
are debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as bridges,
highways, housing, hospitals, mass transportation, schools, streets, and water
and sewer works. Other purposes for which municipal bonds may be issued include
the refunding of outstanding obligations and obtaining funds for general
operating expenses or to loan to other public institutions and facilities.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated housing facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities and certain local facilities for water
supply, gas, electricity, or sewage or solid waste disposal. Assessment bonds,
wherein a specially created district or project area levies a tax (generally on
its taxable property) to
10
<PAGE>
pay for an improvement or project may be considered a variant of either
category. There are, of course, other variations in the types of municipal
bonds, both within a particular classification and between classifications,
depending on numerous factors.
Municipal Notes. Municipal notes include, but are not limited to, tax
---------------
anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
----
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
----
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
----
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
- -
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
- -
outstanding securities, including those held in the Fund's portfolio, will
decline and (if purchased at par value) sell at a discount. If interests rates
fall, the values of outstanding securities will generally increase and (if
purchased at par value) sell at a premium.
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's total assets with respect to any one
investment company and (iii) 10% of such Fund's total assets. Other investment
companies in which the Funds invest can be expected to charge fees for operating
expenses such as investment advisory and administration fees, that would be in
addition to those charged by the Funds.
11
<PAGE>
Repurchase Agreements
---------------------
The Funds may enter into repurchase agreements wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed upon time and price. A Fund may enter into repurchase agreements
only with respect to securities that could otherwise be purchased by the Fund.
All repurchase agreements will be fully collateralized at least 102% based on
values that are marked to market daily. The maturities of the underlying
securities in a repurchase agreement transaction may be greater than twelve
months, although the maximum term of a repurchase agreement will always be less
than twelve months. If the seller defaults and the value of the underlying
securities has declined, a Fund may incur a loss. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund's
disposition of the security may be delayed or limited.
Each Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 10% of the market value of such
Fund's total assets would be invested in repurchase agreements with maturities
of more than seven days and illiquid securities. A Fund will only enter into
repurchase agreements with primary broker/dealers and commercial banks that meet
guidelines established by the Board of Trustees and that are not affiliated with
the investment advisor. The Funds may participate in pooled repurchase agreement
transactions with other funds advised by Wells Fargo Bank.
Unrated and Downgraded Investments
----------------------------------
The Funds may purchase instruments that are not rated if, in the opinion of
the Advisor, such obligations are of comparable quality to other rated
investments that are permitted to be purchased by the Funds. The Funds may
purchase unrated instruments only if they are purchased in accordance with the
Funds' procedures adopted by Trust's Board of Trustees in accordance with Rule
2a-7 under the 1940 Act. After purchase by a Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. In the event that a portfolio security ceases to be an "Eligible
Security" or no longer "presents minimal credit risks," immediate sale of such
security is not required, provided that the Board of Trustees has determined
that disposal of the portfolio security would not be in the best interests of
the Fund.
U.S. Government and U.S. Treasury Obligations
---------------------------------------------
The Funds may invest in obligations of agencies and instrumentalities of
the U.S. Government ("U.S. Government obligations"). Payment of principal and
interest on U.S. Government obligations (i) may be backed by the full faith and
credit of the United States (as with U.S. Treasury bills and GNMA certificates)
or (ii) may be backed solely by the issuing or guaranteeing agency or
instrumentality itself (as with FNMA notes). In the latter case investors must
look principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, which agency or instrumentality may be
privately owned. There can be no assurance that the U.S. Government will provide
financial support to its agencies or instrumentalities where it is not obligated
to do so. In addition, U.S. Government obligations are subject to fluctuations
in market value due to fluctuations in market interest rates. As a general
matter, the value of debt instruments,
12
<PAGE>
including U.S. Government obligations, declines when market interest rates
increase and rises when market interest rates decrease. Certain types of U.S.
Government obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies, available as of the date of this SAI. While the
Trust has not independently verified such information, it has no reason to
believe that such information is incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
----------------------------------------------
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession.
Unemployment reached 10.1% in January 1994, but fell sharply to 7.7% in October
and November 1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health
and welfare programs. In addition, the state was faced with a structural
imbalance in its budget with the largest programs supported by the General Fund
(e.g., K-12 schools and community colleges--also known as "K-14 schools," health
and welfare, and corrections) growing at rates higher than the growth rates for
the principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to
meet its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
13
<PAGE>
However, since the start of 1994, California's economy has been
recovering steadily. Unemployment has come down from its 10% recession peak to
under 5.8% for 1998. Because of the improving economy and California's fiscal
austerity, the state has forecast an overall balanced budget by June 30, 2000.
Also, Standard & Poors upgraded its rating of California municipal obligations
back to "A+" on July 15, 1996 and the projected level of the SFEU as of June 30,
1999 was $1.255 billion.
State Finances. The moneys of California are segregated into the General
--------------
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be
credited to any other fund, as well as earnings from state moneys not allocable
to another fund. The General Fund is the principal operating fund for the
majority of governmental activities and is the depository of most major revenue
sources of the state. The General Fund may be expended as the result of
appropriation measures by California's Legislature and approved by the Governor,
as well as appropriations pursuant to various constitutional authorizations and
initiative statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required
to return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add
the balance in the SFEU to the balance in the General Fund so as to show the
total moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-1999
Budget Act provides authority for expenditures of $57.3 billion from the General
Fund, $14.7 billion from Special Funds, and $3.4 billion from bond funds.
Changes in California Constitutional and Other Laws. In 1978, California
---------------------------------------------------
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee schedules.
14
<PAGE>
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
In 1996, California voters approved "Proposition 218," which added
Articles XIIIC and XIIID to the state's Constitution generally requiring voter
approval of most tax or fee increases by local governments and curtailing local
government use of benefit assessments to fund certain property-related services
to finance infrastructure. Proposition 218 also limits the use of special
assessments or "property-related" fees to services or infrastructure that confer
a "special benefit" to specific property; police, fire and other services are
now deemed to benefit the public at large and, therefore, could not be funded by
special assessments. Finally, the amendments enable the voters to use their
initiative power to repeal previously-authorized taxes, assessments, fees and
charges. The interpretation and application of Proposition 218 will
ultimately be determined by the courts. Proposition 218 is generally viewed as
restricting the fiscal flexibility of local governments, and for this reason,
some ratings of California cities and counties have been, and others may be,
reduced. It remains to be seen, as such, what impact these Articles will have
on existing and future California security obligations.
The Governor recently proposed that California reduce its Vehicle License Fee (a
personal property tax on the value of automobiles, the "VLF") by 75% over five
years, by which time the tax cut would be more than $3.5 billion annually.
Under current law, the VLF is entirely dedicated to city and county government,
and the Governor proposed to use the General Fund to offset the loss of VLF
funds to local government. All of the Governor's proposals must be negotiated
with the State Legislature of California as part of the annual budget process.
Starting on January 1, 1999, the VLF will be reduced by 25%, at a cost to the
General Fund of approximately 500 million in the 1998-1999 Fiscal Year and about
$1 billion annually thereafter.
Other Information. Certain debt obligations held by the Funds may be
-----------------
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate
funding for lease payments in its annual budget for each fiscal year. In case
of a default under the lease, the only remedy available against the lessor is
that of reletting the property; no acceleration of lease payments is permitted.
Each of these factors presents a risk that the lease financing obligations held
by a Fund would not be paid in a timely manner.
15
<PAGE>
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
nearly half of $105 billion in total exports, will not adversely affect the
market value of California municipal securities or the ability of obligors to
continue to make payments on such securities. Recently, however, the economic
picture has brightened considerably, as both the nation and California appear to
have avoided a major slowdown emanating from the crisis in Asia and Latin
America. Based on continued growth in real gross domestic product, increased
retail sales based upon strong consumer confidence and other factors.
Employment data revisions in California revealed that instead of slowing in late
1998 and early 1999, as assumed, wage and salary jobs in the state continued to
expand at a healthy pace. This trend is expected to continue through 1999.
SPECIAL CONSIDERATIONS
AFFECTING MINNESOTA MUNICIPAL OBLIGATIONS
The following highlights some of the more significant financial trends and
issues affecting Minnesota and its economy and is based on information drawn
from official statements, government web sites and other resources publicly
available as of the date of this Statement of Additional Information. Wells
Fargo Bank has not independently verified any of the information contained in
such resources, but is unaware of any fact which would render such information
inaccurate.
Constitutional State Revenue Limitations. Minnesota's constitutionally
----------------------------------------
prescribed fiscal period is a biennium. No agency or other entity may spend more
than its "allotment." The State's Commissioner of Finance, with the approval of
the Governor, is required to reduce excess allotments to the extent necessary to
balance expenditures and forecasted available resources for the then current
biennium. The Governor may seek legislative action when a large reduction in
expenditures appears necessary, and if the State's legislature is not in
session, the Governor is empowered to convene a special legislative
session.
Effect of Limitations on Ability to Pay Bonds. There are no constitutional
---------------------------------------------
or statutory provisions which would impair the ability of Minnesota
municipalities, agencies or instrumentalities to meet their bond obligations if
the bonds have been properly issued.
Minnesota's Economy. Diversity and a significant natural resource base
-------------------
are two important characteristics of Minnesota's economy. When viewed in 1996 on
an aggregate level, the structure of the State's economy parallels the structure
of the United States economy as a whole. State employment in 10 major sectors
was distributed in approximately the same proportions as national employment. In
all sectors, the share of total State employment was within 2.5 percentage
points of national employment share.
16
<PAGE>
In 1996, Minnesota's per capita gross state product (GSP) of $30,395 was
more than 5 percent higher than the U.S.'s per capita gross domestic product
(GDP) of $28,766. In addition, between 1988 and 1996, Minnesota's GSP increased
by 26.5 percent compared to an 18.3 percent increase of U.S. GDP.
Minnesota's employment in the finance, insurance and real estate (FIRE)
sector grew at a rate of 20.1 percent, increasing from 117,738 employees in 1988
to 141,413 in 1996. This rate of increase was nearly seven times that of the
nation's FIRE sector. Employment in Minnesota's business services industry grew
by more than 68 percent between 1988 and 1996. This increase was driven in part
by the outstanding growth in the computer programming, data processing, and
other computer related services industry, which grew by more than 120 percent
during the same period.
Minnesota has one of the fastest growing populations in the Midwest.
Migration from other states, a low death rate, a moderate birth rate and
increasing minority populations have all contributed to Minnesota's population
increase. The eight fastest growing counties in Minnesota between 1990 and 1996
are counties on the suburban fringe of the Minneapolis-St. Paul metropolitan
area. More than 71 percent of Minnesota's population lives in the state's ten
largest metropolitan statistical areas and cities.
Minnesota's real per capita personal income grew by 3.6 percent between
1995 and 1996 - more than double the rate of the national average. Minnesota had
the highest per capita personal income among the Plains states and the second
highest among all Midwest states in 1996. Nationally, Minnesota ranked 11th in
per capita personal income in 1996, up from 19th place in 1995 and 17th place in
1990.
For 1998, Minnesota's annual average unemployment rate, at 2.5 percent, is
the lowest in the nation. The national annual average unemployment rate in 1998
was 4.5 percent. Minnesota's labor force participation rate, at 74.5 percent,
was the second highest in the nation in 1997. The national labor force
participation rate was 67.1 percent in 1997.
Minnesota had the 12/th/ lowest poverty rate nationally, at 9.7 percent in
1996/97. The national poverty rate was 13.5 percent in 1996/97. Minnesota had
the seventh highest median income for a four-person family, at $60,577 in 1997.
The national median income for a four-person family was $53,350 in 1997.
Minnesota had the 11th highest per capita personal income, at $27,510 in 1998.
The national per capita personal income was $26,412 in 1998.
The State of Minnesota has recently enjoyed a budget surplus. The 1999
Legislature allocated $28.3 billion in general fund resources for the three year
period of fiscal years 1999, 2000 and 2001. Of the $28.3 billion, $2.9 billion
resulted from revenue surpluses available in FY 1999 and $25 billion is from
resources projected to be available in FY 2000 and 2001. An additional $400
million was made available by converting $400 million of capital projects funded
with general fund appropriations to projects funded with the sale of general
obligation bonds.
For 1999, the Legislature enacted a sales tax rebate of $1.25 billion which
was funded out of FY 1999 resources. Tobacco settlement funds received in FY
1999 of $460.8 million were
17
<PAGE>
transferred to the tobacco settlement fund in FY 1999. Supplemental
appropriations of about $77 million were also made in FY 1999. Allocations in FY
2000-01 include state tax reductions of $1.4 billion, another $507 million to
the tobacco settlement fund and $23.44 billion for programs. The general fund is
the largest single portion of the state budget. Appropriations from other funds
will bring all appropriations in the state budget for FY 2000-01 to
approximately $37 billion. Other funds are usually dedicated for specific
purposes such as health care access and highways and bridges.
The State of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Fund are expected
to be obligations other than general obligations of the State of Minnesota
itself, there can be no assurance that the same factors that adversely affect
the economy of the State generally will not also affect adversely the market
value or marketability of such other obligations, or the ability of the obligors
to pay the principal of or interest on such obligations.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Trustees
and principal executive Officers of the Trust are listed below. The address of
each, unless otherwise indicated, is 111 Center Street, Little Rock, Arkansas
72201. Trustees deemed to be "interested persons" of the Trust for purposes of
the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -----------------------------------------------
<S> <C> <C>
*Robert C. Brown, 65 Trustee, Director, Federal Farm Credit Banks Funding
1431 Landings Place Secretary and Corporation and Farm Credit System
Sarasota, FL 34231 Treasurer Financial Assistance Corporation since
February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Suite 410 Roxane Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee and Private Investor.
31 Dellwood Court President
San Rafael, CA 94901
Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer;
Four Beaufain Street Chairman of Vault Holdings, LLC.
Charleston, SC 29401
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm
500 North State Street of Himle-Horner since January 1995 and Senior
Waseca, MN 56095 Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since
January 1995.
Donald C. Willeke, 58 Trustee Principal of the law firm of Willeke & Daniels.
201 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
Each of the Trustees and Officers listed above act in the identical
capacities for Wells Fargo Variable Trust and Wells Fargo Core Trust
(collectively the "Fund Complex"). Each Trustee receives an annual retainer
(payable quarterly) of $40,000 from the Fund Complex, and also receives a
combined fee of $1,000 for attendance at Fund Complex Board meetings, and a
combined fee of $250 for attendance at committee meetings. If a committee
meeting is held absent a full Board meeting, each attending Trustee will receive
a $1,000 combined fee. These fees apply equally for in-person or telephonic
meetings, and Trustees are reimbursed for all out-of-pocket expenses related to
attending meetings. For 1999, the Trustees will receive a pro rata share of the
annual retainer, calculated from the closing date of the Reorganization. The
Trustees do not receive any retirement benefits or deferred compensation from
the Trust or an other member of the Fund Complex.
As of the date of this SAI, Trustees and Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Company.
INVESTMENT ADVISOR. Wells Fargo Bank provides investment advisory services
------------------
to the Funds. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Trust's Board of Trustees
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds with, among other things, money market security
and fixed-
19
<PAGE>
income research, analysis and statistical and economic data and information
concerning interest rate and securities markets trends, portfolio composition,
and credit conditions.
As compensation for its advisory services, Wells Fargo Bank is entitled to
receive a monthly fee at the annual rates indicated below of each Fund's average
daily net assets:
<TABLE>
<CAPTION>
Annual Rate
Fund (as percentage of net assets)
---- ----------------------------
<S> <C>
California Tax-Free Money Market 0.30%
California Tax-Free Money Market Trust 0.20%
Cash Investment Money Market 0.10%
Government Money Market 0.35%
Minnesota Money Market 0.30%
Money Market 0.40%
Money Market Trust 0.20%
National Tax-Free Institutional Money Market 0.10%
National Tax-Free Money Market Trust 0.20%
National Tax-Free Money Market 0.25%
Overland Express Sweep 0.45%
Prime Investment Money Market 0.10%
Treasury Plus Institutional Money Market 0.10%
Treasury Plus Money Market 0.35%
100% Treasury Money Market 0.35%
</TABLE>
As discussed in the "Historical Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amount of advisory
(and other) fees paid shows the dollar amount of fees paid to either Wells Fargo
Bank or NIM by the predecessor portfolio that is considered the surviving entity
for accounting purposes.
For the periods indicated below, the following Funds paid to Wells Fargo
Bank the following advisory fees and Wells Fargo Bank waived the indicated
amounts:
20
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
3/31/99 3/31/98 3/31/97
-------- ----------- -----------
Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
---- --------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
California Tax-Free Money
Market $ 2,582,252 $ 8,080,829 $ 1,558,667 $ 6,538,104 $ 1,503,717 $ 1,687,408
California Tax-Free Money
Market Trust $ 222,601 $ 2,587,650 $ 177,771/1/ $ 1,584,831/1/ N/A N/A
Money Market $19,972,073 $15,848,357 $13,524,289 $11,407,557 $ 8,856,102 $ 979,244
Money Market Trust $ 209,758 $ 1,105,896 $ 338,449 $ 1,356,100 N/A N/A
National Tax-Free Money
Market Trust $ 91,087 $ 474,374 $ 113,030/2/ $ 103,939/2/ N/A N/A
Overland Express Sweep/3/ $11,667,208 $ 934,459 $ 2,679,378 $ 104,602 $ 3,310,083 $ 0
Treasury Plus Institutional
Money Market $ 1,243,305 $ 1,468,464 $ 708,927 $ 1,647,461 $1,518,347/4/ $ 751,971/4/
Treasury Plus Money
Market $ 1,297,540 $ 1,995,453 $ 507,237 $ 1,721,124 $1,518,347/4/ $ 751,971/4/
</TABLE>
_______________________
/1/ For the period begun May 5, 1997 and ended March 31, 1998.
/2/ For the period begun November 10, 1997 and ended March 31, 1998.
/3/ Amounts shown for the fiscal year ended March 31, 1998 include combined
figures for the three-month period ended March 31, 1998 and the fiscal year
ended December 12, 1997. The Overland Express Sweep Fund predecessor
portfolio paid $5,540,534 in advisory fees, without waiver, for the 1997
fiscal year. Amounts shown for the six-month period ended March 31, 1997
represent figures from the fiscal year ended December 31, 1996 for the
Overland Express Funds predecessor portfolio.
/4/ For the six-month period ended 3/31/97.
California Tax-Free Money Market Fund and Money Market Fund. For the
-----------------------------------------------------------
period indicated below, the predecessor Stagecoach Money Market and California
Tax-Free Money Market Funds paid to Wells Fargo Bank the following advisory fees
and Wells Fargo Bank waived the indicated amounts:
Nine-Month
Period Ended
9/30/96
-------
Fees Fees
Fund Paid Waived
------ ---- ------
California Tax-Free
Money Market $ 4,867,523 $0
Money Market $12,729,506 $0
Treasury Plus Institutional Money Market and Treasury Plus Money Market
-----------------------------------------------------------------------
Funds. On January 12, 1995, San Diego Financial Corporation merged into First
- -----
Interstate Investment Services, Inc., a direct wholly-owned subsidiary of First
Interstate Bank of California, which has since changed its name to First
Interstate Capital Management, Inc.
21
<PAGE>
The Pacifica Treasury Money Market Fund was reorganized as the Stagecoach
Treasury Plus Money Market Fund on September 6, 1996. Prior to September 6,
1996, Wells Fargo Investment Management, Inc. ("WFIM") and its predecessor,
First Interstate Capital Management, Inc. ("FICM") served as Advisor to the
Pacifica Treasury Money Market Fund. As of September 6, 1996, Wells Fargo Bank
became the Advisor to the Stagecoach Treasury Plus Money Market Fund, which is
the predecessor portfolio to the Treasury Plus Institutional Money Market Fund
and Treasury Plus Money Market Fund.
For the period begun April 1, 1996 and ended September 5, 1996, the
predecessor portfolio paid to WFIM, and for the period begun September 6, 1996,
and ended September 30, 1996, the Fund paid to Wells Fargo Bank, the advisory
fees indicated below and the indicated amounts were waived:
Year Ended
9/30/96
-------
Fund Fees Paid Fees Waived
---- --------- -----------
Treasury Plus Money Market $2,442,922 $2,073,426
Money Market Trust. Prior to the Reorganization, Wells Fargo Investment
------------------
Management, Inc. ("WFIM") and its predecessor, First Interstate Capital
Management, Inc. ("FICM") served as adviser to the Predecessor Portfolios of
Pacifica. On September 6, 1996, Wells Fargo Bank became the adviser to the Fund.
For the periods indicated below, the Fund paid to FICM, WFIM and Wells Fargo
Bank, the advisory fees indicated below and the indicated amount was waived:
Six Months Ended 3/31/97 Year Ended 9/30/96/1/
------------------------ -------------------
Fees Paid Fees Waived Fees Paid Fees Waived
--------- ----------- --------- -----------
$0 $1,044,401 $151,546 $2,021,955
______________
/1/ For the period begun October 1, 1995 and ended March 31, 1996 the
Predecessor Portfolio paid advisory fees to FICM, for the period begun April
1, 1996 and ended September 5, 1996 the Predecessor Portfolio paid advisory
fees to WFIM, and for the period begun September 6, 1996 and ended September
30, 1996 the Fund paid advisory fees to Wells Fargo Bank, and each such
investment adviser waived varying amounts of such fees. The advisory fees
did not change from investment adviser to investment adviser during the year
ended September 30, 1996, and were as follows: computed daily and paid
monthly, at an annual rate of 0.30% of the first $500 million of the average
daily net assets of the Fund, 0.25% of the next $500 million of the Fund's
average daily net assets, and 0.20% of the Fund's average daily net assets
in excess of $1 billion.
For the periods indicated below, the following Funds paid to NIM the
following advisory fees and NIM waived the indicated amounts:
22
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
------- ------- -------
Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
---- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash Investment Money
Market Fund $ 0 $0 $8,604,888 $640,532 $2,805,919 $ 0
Government Money Market
Fund $3,827,097 $0 $3,114,327 $ 0 $2,538,240 $ 0
National Tax-Free
Institutional Money
Market Fund $3,911,866 $0 $2,961,387 $165,379 $2,394,475 $369,405
National Tax-Free Money
Market Fund $3,911,866 $0 $2,961,387 $165,379 $2,394,475 $369,405
Prime Investment Money
Market Fund $ 0 $0 $3,344,445 $ 0 $6,216,897 $ 50,148
100% Treasury Money
Market Fund $2,328,016 $0 $1,836,567 $ 0 $1,548,275 $ 0
</TABLE>
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days written notice by either party
and will terminate automatically if assigned.
Investment Sub-Advisor. Wells Fargo Bank has engaged Wells Capital
----------------------
Management ("WCM") to serve as investment sub-advisor to the Funds. Subject to
the direction of the Trust's Board of Trustees and the overall supervision and
control of Wells Fargo Bank and the Trust, WCM makes recommendations regarding
the investment and reinvestment of the Funds' assets. WCM furnishes to Wells
Fargo Bank periodic reports on the investment activity and performance of the
Funds. WCM and also furnishes such additional reports and information as Wells
Fargo Bank and the Trust's Board of Trustees and officers may reasonably
request.
As compensation for its sub-advisory services to each Fund, except the
California Tax-Free Money Market Trust, Money Market Trust and National Money
Market Trust, WCM is entitled to receive a monthly fee equal to an annual rate
of 0.05% of the first $1 billion of the Fund's average daily net assets and
0.04% of net assets over $1 billion. These fees may be paid by Wells Fargo Bank
or directly by the Funds. If the sub-advisory fee is paid directly by the Fund,
the compensation paid to Wells Fargo Bank for advisory fees will be reduced
accordingly. WCM will not receive compensation for providing sub-advisory
services to the California Tax-Free Money Market Trust, Money Market Trust and
National Tax-Free Money Market Trust.
Administrator. The Trust has retained Wells Fargo Bank as Administrator on
-------------
behalf of each Fund. Under the Administration Agreement between Wells Fargo
Bank and the Trust, Wells Fargo Bank shall provide as administration services,
among other things: (i) general supervision of the Funds' operations, including
coordination of the services performed by each Fund's investment Advisor,
transfer agent, custodian, shareholder servicing agent(s), independent auditors
and legal
23
<PAGE>
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions; and preparation of proxy statements and shareholder reports for
each Fund; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Trust's
officers and Board of Trustees. Wells Fargo Bank also furnishes office space and
certain facilities required for conducting the Funds' business together with
ordinary clerical and bookkeeping services. The Administrator is entitled to
receive a fee of up to 0.15% of each Fund's average daily net assets on an
annual basis.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amounts of
administration fees paid shows the dollar amount of fees paid to the
Administrator(s) by the predecessor portfolio that is considered the surviving
entity for accounting purposes.
FORMER STAGECOACH FUNDS
-----------------------
The predecessor Stagecoach Funds had retained Wells Fargo Bank as
Administrator from March 25, 1999 through the date of the Reorganization, on the
same terms as are currently in effect. Prior to March 25, 1999, the predecessor
Stagecoach Funds had retained Wells Fargo Bank as Administrator and Stephens as
Co-Administrator on behalf of each Fund. Wells Fargo Bank and Stephens were
entitled to receive monthly fees of 0.03% and 0.04%, respectively, of the
average daily net assets of each Fund. Prior to February 1, 1998, Wells Fargo
Bank and Stephens received a monthly fees of 0.04% and 0.02%, respectively, of
the average daily net assets of each Fund. In connection with the change in
fees, the responsibility for performing various administration services was
shifted to the Co-Administrator. Except as described below, prior to February
1, 1997, Stephens served as sole Administrator and performed substantially the
same services now provided by Wells Fargo Bank.
For the periods indicated below, the following Funds paid the following
dollar amounts to Wells Fargo Bank and Stephens for administration and co-
administration fees:
24
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended
3/31/99 3/31/98
--------- -----------
Wells Wells
Former Stagecoach Fund Total Fargo Stephens Total Fargo Stephens
- ---------------------- ------ ----- -------- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
California Tax-Free Money
Market $1,493,733 $ 851,428 $ 642,305 $1,500,092 $ 673,412 $ 331,680
California Tax-Free Money
Market Trust $ 394,691 $ 224,974 $ 169,717 $ 91,088/*/ $ 61,029/*/ $ 30,059
Minnesota Money Market N/A N/A N/A N/A N/A N/A
Money Market $6,146,075 $3,503,263 $2,642,812 $3,861,514 $2,587,214 $1,274,300
Money Market Trust $ 368,383 $ 209,978 $ 158,405 $ 157,263 $ 105,366 $ 51,897
National Tax-Free Money
Market Trust $ 158,507 $ 90,349 $ 68,158 $ 52,520/2/ $ 35,188/2/ $ 17,332/2/
Overland Express Sweep $1,960,259 $1,117,348 $ 842,911 N/A N/A N/A
Treasury Plus Institutional Money
Market $1,535,588 $ 875,285 $ 660,303 $1,133,896 $ 759,710 $ 374,186
Treasury Plus Money Market $1,535,588 $ 875,285 $ 660,303 $1,133,896 $ 759,710 $ 374,186
</TABLE>
________________________
For the period begun May 5, 1997 and ended March 31, 1998.
/2/ For the period begun November 10, 1997 and ended March 31, 1998.
Six-Month
Period Ended
3/31/97
-------------
Wells
Former Stagecoach Fund Total Fargo Stephens
- ---------------------- ----- ----- --------
California Tax-Free Money
Market $253,836 $ 50,767 $203,069
California Tax-Free Money
Market Trust N/A N/A N/A
Minnesota Money Market N/A N/A N/A
Money Market $980,282 $196,056 $784,226
Money Market Trust $217,710 $ 43,542 $174,168
National Tax-Free Money
Market Trust N/A N/A N/A
Overland Express Sweep N/A N/A N/A
Treasury Plus Money Market $483,198 $ 96,640 $386,558
California Tax-Free Money Market and Money Market Funds. For the nine-
-------------------------------------------------------
month period ended September 30, 1996, the predecessor Stagecoach California
Tax-Free Money Market and Money Market Funds paid to Stephens the dollar amounts
of administration fees indicated below. Stephens, as sole Administrator during
this period, was entitled to receive a monthly fee at the annual rate of 0.03%
of each Fund's average daily net assets.
25
<PAGE>
Nine-Month
Period Ended
9/30/96
Fund -------
----
California Tax-Free Money Market $245,966
Money Market $872,577
Overland Express Sweep Fund. Prior to the Consolidation, Wells Fargo Bank
---------------------------
and Stephens served as Administrator and Co-Administrator, respectively, to the
Overland predecessor portfolio under substantially similar terms as those
described above.
For the periods indicated below, the Overland Express Sweep Fund paid to
Wells Fargo Bank and Stephens the dollar amounts in administration and co-
administration fees indicated below.
Three-Month
Period Ended Year Ended
3/31/98 12/31/97*
Total Wells Fargo Stephens Total Wells Fargo Stephens
----- ----------- -------- ----- ----------- --------
$409,092 $274,092 $135,000 $1,211,007 $ 242,201 $968,806
____________________
* Prior to December 12, 1997, these amounts reflect fees paid by the Overland
predecessor portfolio.
Prior to February 1, 1997, Stephens served as the sole Administrator and
performed substantially the same services now provided by Stephens and Wells
Fargo Bank. Stephens was entitled to receive for its services a fee, payable
monthly, at the annual rate of 0.05% of the Fund's average daily net assets. For
the year ended December 31, 1996, the Overland predecessor portfolio paid
administration fees in the amount of $317,668.
Treasury Plus Money Market Funds. The Treasury Money Market Fund was
--------------------------------
reorganized as the Stagecoach Treasury Money Market Fund on September 6, 1996.
Prior to September 6, 1996, the Administrator, Furman Selz LLC ("Furman Selz"),
of the Pacifica predecessor portfolios provided management and administration
services necessary for the operation of such Fund, pursuant to an Administrative
Services Contract. For these services, Furman Selz was entitled to receive a
fee, payable monthly, at the annual rate of 0.15% of the average daily net
assets of the predecessor portfolios.
The predecessor portfolio of the Stagecoach Prime Money Market Fund and
Treasury Plus Money Market Fund was administered through April 21, 1996 and
April 14, 1996, respectively, by the Dreyfus Corporation ("Dreyfus"), at the
annual rate of 0.10% of each of the Fund's average daily net assets.
The table below reflects the net amounts paid, and the amounts waived, for
administration services by the Funds to Stephens, as sole Administrator to the
Funds, for the period begun
26
<PAGE>
September 6, 1996 and ended September 30, 1996. During this time, Stephens was
entitled to receive a fee, payable monthly, at the annual rate of 0.05% of each
Fund's average daily net assets. The table also reflects the net administration
fees paid to the respective former Administrators of the predecessor portfolios
during the period begun October 1, 1995 and ended September 5, 1996. During the
fiscal years-ended September 30, 1996, the administration fees paid to the
Dreyfus Corporation by the Treasury Plus Money Market Fund are listed below.
Year-ended
9/30/96
-------
Fees Fees
Fund Paid Waived
---- ---- ------
Treasury Money Market Fund $1,745,759 $0
National Tax-Free Money Market Fund. For the period begun April 2, 1996
-----------------------------------
and ended September 30, 1996, Stephens served as sole Administrator to the
Stagecoach National Tax-Free Money Market Fund, and received $731 in
administration fees. Stephens was entitled to receive a monthly fee at the
annual rate of 0.05% of the Fund's average daily net assets for such services.
Money Market Trust. The net administration fee (after waivers) paid to
------------------
Furman Selz LLC and Stephens during the year ended September 30, 1996, was
$715,853.
FORMER NORWEST FUNDS
With respect to the predecessor Norwest Funds, Forum Financial Services,
Inc. ("Forum") managed all aspects of the operation of the Funds, except those
which were the responsibility of Forum Administrative Services, LLC ("FAS") as
administrator or Norwest in its capacity as administrator.
For the periods indicated below, the following Funds paid the following
dollar amounts as administration fees:
27
<PAGE>
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
------- ------- -------
Former Norwest Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
- ------------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash Investment Money
Market Fund $1,385,002 $986,018 $3,708,842 $2,416,284 $1,352,466 $ 127,192
Government Money Market
Fund $ 142,795 $ 0 $2,134,700 $ 281,603 $1,140,934 $ 12,114
National Tax-Free
Institutional Money Market
Fund $ 610,743 $514,435 $ 896,734 $ 635,716 $1,396,600 $1,098,197
National Tax-Free Money
Market Fund $ 610,743 $514,435 $ 896,734 $ 635,716 $1,396,600 $1,098,197
Prime Investment Money
Market Fund $ 641,504 $ 818 $1,182,178 $ 511 $1,070,654 $ 14,082
100% Treasury Money
Market Fund $ 803,340 $803,340 $1,154,681 $ 854,503 $ 728,447 $ 595,668
</TABLE>
Distributor. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as Distributor for the Funds. The Overland
Express Sweep Fund and Money Market Fund have adopted a distribution plan (a
"Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") for the Classes of shares listed below. The Plan was adopted by the
Trust's Board of Trustees, including a majority of the Trustees who were not
"interested persons" (as defined in the 1940 Act) of the Funds and who had no
direct or indirect financial interest in the operation of the Plans or in any
agreement related to the Plan (the "Non-Interested Trustees").
Under the Plans and pursuant to the related Distribution Agreement, the
indicated Classes of shares of the following Funds will pay Stephens the amounts
listed below as compensation for distribution-related services or as
reimbursement for distribution-related expenses. The fees are expressed as a
percentage of the average daily net assets attributable to each Class.
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
Money Market Fund
Class B 0.75%
Overland Express Sweep Fund
Single Class 0.30%
</TABLE>
The actual fee payable to the Distributor by the above-indicated Funds and
Classes is determined, within such limits, from time to time by mutual agreement
between the Trust and the Distributor and will not exceed the maximum sales
charges payable by mutual funds sold by members of the National Association of
Securities Dealers, Inc. ("NASD") under the Conduct Rules of the NASD. The
Distributor may enter into selling agreements with one or more selling agents
(which may include Wells Fargo Bank and its affiliates) under which such agents
may receive
28
<PAGE>
compensation for distribution-related services from the Distributor, including,
but not limited to, commissions or other payments to such agents based on the
average daily net assets of Fund shares attributable to their customers. The
Distributor may retain any portion of the total distribution fee payable
thereunder to compensate it for distribution-related services provided by it or
to reimburse it for other distribution-related expenses.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the fees received by the
Funds' Distributor shows the fees paid by the predecessor portfolio that is
considered the surviving entity for accounting purposes to its respective
Distributor.
For the year ended September 30, 1999, the following Funds paid Stephens
the following fees for distribution-related services:
<TABLE>
<CAPTION>
Former Stagecoach Fund Total
---------------------- -----
<S> <C>
Money Market
Class B $ 578,141
Overland Express Sweep $11,106,399
</TABLE>
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Trustees of the Trust and
the Non-Interested Trustees. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Trustees and the Non-Interested
Trustees. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the Funds or by vote of a majority of
the Non-Interested Trustees on not more than 60 days written notice. The Plans
may not be amended to increase materially the amounts payable thereunder without
the approval of a majority of the outstanding voting securities of the Funds,
and no material amendment to the Plan may be made except by a majority of both
the Trustees of the Trust and the Non-Interested Trustees.
The Plan requires that the Treasurer of Trust shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Trustees who are not "interested
persons" of the Trust be made by such disinterested Trustees.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Trust, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plan. The Board of Trustees has concluded that the Plan is
reasonably likely to benefit each Fund and its shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and
29
<PAGE>
relationships with the retail customers that the Funds are designed to serve.
These relationships and distribution channels are believed by the Board to
provide potential for increased Fund assets and ultimately corresponding
economic efficiencies (i.e., lower per-share transaction costs and fixed
expenses) that are generated by increased assets under management.
Shareholder Servicing Agent. The Funds have approved a Shareholder
---------------------------
Servicing Plan and have entered into related Shareholder Servicing Agreements
with financial institutions, including Wells Fargo Bank. Under the agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree to perform, as
agents for their customers, administrative services, with respect to Fund
shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Trust or a shareholder
may reasonably request. For providing shareholder services, a Servicing Agent
is entitled to a fee from the applicable Fund, on an annualized basis, of the
average daily net assets of the class of shares owned of record or beneficially
by the customers of the Servicing Agent during the period for which payment is
being made. The amounts payable under the Shareholder Servicing Plan and
Agreements are shown below. The Servicing Plan and related Shareholder
Servicing Agreements were approved by the Trust's Board of Trustees and provide
that a Fund shall not be obligated to make any payments under such Plan or
related Agreements that exceed the maximum amounts payable under the Conduct
Rules of the NASD.
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
California Tax-Free Money Market Fund
Class A 0.25%
Service Class N/A
California Tax-Free Money Market Trust N/A
Cash Investment Money Market Fund
Service Class 0.25%
Institutional Class N/A
Government Money Market Fund
Class A 0.25%
Service Class N/A
Minnesota Money Market Fund
Class A 0.25%
Money Market Fund
Class A 0.25%
Class B 0.25%
Money Market Trust N/A
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
National Tax-Free Institutional Money Market Fund
Service Class
Institutional Class 0.25%
N/A
National Tax-Free Money Market Fund
Class A 0.25%
National Tax-Free Money Market Trust N/A
Prime Investment Money Market Fund
Service Class 0.25%
Overland Express Sweep Fund N/A
Treasury Plus Institutional Money Market Fund
Service Class
Institutional Class 0.25%
N/A
Treasury Plus Money Market Fund
Class A 0.25%
100% Treasury Money Market Fund
Class A 0.25%
</TABLE>
General. Each Servicing Plan will continue in effect from year to year if
-------
such continuance is approved by a majority vote of the Trustees of the Trust and
the Non-Interested Trustees. Any form of Servicing Agreement related to the
Servicing Plan also must be approved by such vote of the Trustees and the Non-
Interested Trustees. Servicing Agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the Board of Trustees,
including a majority of the Non-Interested Trustees. No material amendment to
the Servicing Plan or related Servicing Agreements may be made except by a
majority of both the Trustees of the Trust and the Non-Interested Trustees.
Each Servicing Plan requires that the Administrator shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Servicing Plan.
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at 6th &
---------
Marquette, Minneapolis, Minnesota 55479, acts as Custodian for each Fund. The
Custodian, among other things, maintains a custody account or accounts in the
name of each Fund, receives and delivers all assets for each Fund upon purchase
and upon sale or maturity, collects and receives all income and other
31
<PAGE>
payments and distributions on account of the assets of each Fund and pays all
expenses of each Fund. For its services as Custodian, Norwest Bank is entitled
to receive 0.02% of the average daily net assets of each Fund.
Fund Accountant. Forum Accounting Services, LLC ("Forum Accounting"),
---------------
located at Two Portland Square, Portland, Maine 04101, serves as Fund Accountant
for the Funds except for the California Tax-Free Money Market Fund, California
Tax-Free Money Market Trust, Money Market Trust, National Tax-Free Money Market
Trust and Overland Express Sweep Fund for which Wells Fargo Bank serves as Fund
Accountant. Forum Accounting served as Fund Accountant for the predecessor
Norwest Funds whereas Wells Fargo served as Fund Accountant for the predecessor
Stagecoach Funds. In order to ensure an orderly fund accounting transition to
Forum Accounting for all the Funds, Wells Fargo will continue to serve as Fund
Accountant for the Funds mentioned above during a transition period. It is
anticipated that the transition period will last until April 1, 2000, by which
time Forum Accounting will be serving as Fund Accountant for all of the Funds.
If the conversion to Forum Accounting does not occur on or before April 1,
2000, Wells Fargo Bank will continue to serve as Fund Accountant until the
conversion occurs, but not longer than one year from November 8, 1999, at which
time it is anticipated that Forum Accounting will serve as Fund Accountant for
the Funds. Wells Fargo Bank is entitled to receive the same fees as Norwest
Bank.
For their services as Fund Accountant, Forum Accounting and Wells Fargo
Bank are each entitled to receive a monthly base fee per Fund ranging from
$2,000 up to $5,833 for Funds with significant holdings of asset-backed
securities. In addition, each Fund pays a monthly fee of $1,000 per class.
Forum Accounting and Wells Fargo Bank are each also entitled to receive a fee
equal to 0.0025% of the average annual daily net assets of each Fund.
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
--------------------------------------
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts
as Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, BFDS is entitled to receive a per-account fee plus transaction fees
and certain out-of-pocket costs. BFDS is also entitled to receive a complex
base fee from all of the Funds of the Trust, Wells Fargo Core Trust and Wells
Fargo Variable Trust.
Underwriting Commissions. Stephens serves as the principal underwriter
------------------------
distributing securities of the Funds on a continuous basis. Stephens served as
principal underwriter of the Stagecoach predecessor portfolios whereas Forum
served as underwriter of the predecessor Norwest portfolios. The information
shown below regarding underwriting commissions paid for the last three fiscal
years reflects the amounts paid by the predecessor Stagecoach Fund family and
Norwest Fund family.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Stephens by the predecessor Stagecoach Fund
family and the amounts retained by Stephens are as follows:
32
<PAGE>
<TABLE>
<CAPTION>
Period Ended Period Ended Period Ended
9/30/99 3/31/98 3/31/97
--------- --------- ---------
Paid Retained Paid Retained Paid Retained
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C>
$5,918,661 $2,643,558 $7,671,295 $939,892 $,296,243 $241,806
</TABLE>
For the period ended September 30, 1999, Wells Fargo Securities, Inc., an
affiliated broker-dealer of the Trust, retained $2,324,394.93.
For the year ended May 31, 1999, Norwest Investment Services Inc. received
$4,049,102.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating
33
<PAGE>
services or to unmanaged indices which may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year. Annual and Semi-
Annual Reports for the Funds may contain additional performance information, and
are available free of charge upon request.
Average Annual Total Return: The Funds may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV") of a hypothetical initial investment ("P")
over a period of years ("n") according to the following formula: P(1+T)/n/=ERV.
Former Stagecoach Funds
Average Annual Total Return for the Applicable Period Ended September 30,
-------------------------------------------------------------------------
1999/1/
-------
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year One Year
- ---- ------------ --------- --------
<S> <C> <C> <C>
California Tax-Free Money Market
Class A 2.61% 2.80% 2.35%
Service Class N/A N/A N/A
California Tax-Free Money Market Trust 3.03% N/A 2.73%
Minnesota Money Market
Class A N/A N/A N/A
Money Market
Class A 4.32% 4.92% 4.53%
Class B 4.32% 4.92% 4.53%
Money Market Trust 4.86% 5.48% 5.10%
National Tax-Free Money Market Trust 3.22% N/A 3.01%
Overland Express Sweep 3.69% 4.31% 3.99%
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year One Year
- ---- ------------ --------- --------
<S> <C> <C> <C>
Treasury Plus Institutional Money Market
Service Class 5.56% 4.93% 4.50%
Institutional Class 5.62% 5.21% 4.70%
Treasury Plus Money Market
Class A 5.37% 4.90% 4.29%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is the commencement date stated in the
"Historical Fund Information" section.
FORMER NORWEST FUNDS
Average Annual Total Return for the Applicable Period Ended May 31, 1999/1/
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year One Year
- ---- ------------ --------- --------
<S> <C> <C> <C>
Cash Investment Money Market
Service Class 5.73% 5.23% 5.04%
Institutional Class N/A N/A N/A
Government Money Market
Class A N/A N/A N/A
Service Class 5.49% 5.03% 4.81%
National Tax-Free Institutional Money Market
Service Class 3.60% 3.09% 2.76%
Institutional Class N/A N/A N/A
National Tax-Free Money Market
Class A 3.60% 3.09% 2.76%
Prime Investment Money Market
Service Class 5.36% 4.88% 4.68%
100% Treasury Money Market
Class A N/A N/A N/A
Service Class 4.46% 4.81%% 4.49%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is the commencement date stated in the
"Historical Fund Information" section.
Cumulative Total Return: In addition to the above performance information,
-----------------------
each Fund may also advertise the cumulative total return of the Fund.
Cumulative total return is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund
35
<PAGE>
dividends and capital gain distributions are reinvested, without reflecting the
effect of any sales charge that would be paid by an investor, and is not
annualized.
FORMER STAGECOACH FUNDS
Cumulative Total Return for the Applicable Period Ended September 30, 1999/1/
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year Three Year
- ---- ------------ --------- ----------
<S> <C> <C> <C>
California Tax-Free Money Market
Class A 20.66% 14.69% 8.38%
Service Class N/A N/A N/A
California Tax-Free Money Market Trust 6.00% N/A N/A
Minnesota Money Market
Class A N/A N/A N/A
Money Market
Class A 32.94% 26.67% 15.35%
Class B 26.67% 22.12% 13.05%
Money Market Trust 50.09% 29.96% 17.26%
National Tax-Free Money Market Trust 4.51% N/A N/A
Overland Express Sweep 31.02% 23.47% 13.65%
Treasury Plus Institutional Money Market
Service Class 108.65% 27.56% 15.78%
Institutional Class 109.92% 28.33% 16.49%
Treasury Plus Money Market
Class A 103.61% 26.60% 15.30%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is the commencement date stated in the
"Historical Fund Information" section.
36
<PAGE>
FORMER NORWEST FUNDS
Cumulative Total Return for the Applicable Period Ended September 30, 1999/1/
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten-Year Five Year Three Year
- ---- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
Cash Investment Money Market Trust
Service Class 94.33% 66.54% 29.38% 16.37%
Institutional Class N/A N/A N/A
Government Money Market
Class A N/A N/A N/A N/A
Service Class 88.22% 63.09% 28.11% 15.71%
National Tax-Free Institutional Money Market
Service Class 51.01% 39.64% 16.53% 9.17%
Institutional Class 52.86% 37.95% 17.70% 9.83%
National Tax-Free Money Market
Class A N/A N/A N/A N/A
Prime Investment Money Market
Service Class 5.22% 61.19% 27.30% 15.23%
100% Treasury Money Market
Class A
Service Class 46.89% N/A 36.72% 14.88%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares.
/2/ For purposes of showing performance information, the inception date of each
Fund's predecessor portfolio is the commencement date stated in the
"Historical Fund Information" section.
Yield Calculations: The Funds may, from time to time, include their
------------------
yields, tax-equivalent yields (if applicable) and effective yields in
advertisements or reports to shareholders or prospective investors. Quotations
of yield for the Funds are based on the investment income per share earned
during a particular seven-day or thirty-day period, less expenses accrued during
a period ("net investment income") and are computed by dividing net investment
income by the offering price per share on the last date of the period, according
to the following formula:
YIELD = 2[(a - b + 1)/6/ -1]
-----
cd
where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily number
of shares outstanding during the period that were entitled to receive dividends,
and d = the maximum offering price per share on the last day of the period.
37
<PAGE>
Tax-Equivalent Yield: Quotations of tax-equivalent yield for a Tax-Free
--------------------
Fund are calculated according the following formula:
TAX EQUIVALENT YIELD = ( E ) + t
---
1 - p
E = Tax-exempt yield
p = stated income tax rate
t = taxable yield
Effective Yield: Effective yields for the Funds are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular seven-day (or thirty-day) period, less a pro-rata share of each
Fund's expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized multiplying by 365/7 (or
365/30 for thirty-day yield), with the resulting yield figure carried to at
least the nearest hundredth of one percent. "Effective yield" for the Funds
assumes that all dividends received during the period have been reinvested.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Seven-Day Yield = [(Base Period Return +1)/365/7/]-1
Former Stagecoach Funds
Yield for the Applicable Period Ended September 30, 1999
--------------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Seven-Day Thirty-Day
Seven-Day Effective Tax-equivalent Thirty-Day Tax-Equivalent
Fund Yield Yield Yield/1/ Yield Yield/1/
- ---- ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
California Tax-Free Money Market
Class A 2.72% 2.76% 4.97% 2.42% 4.42%
California Tax-Free Money Market 3.07% 3.12% 5.60% 2.80% 5.11%
Trust
Minnesota Money Market N/A N/A N/A N/A N/A
Money Market Trust 5.25% 5.39% N/A 5.20% N/A
Overland Express Sweep 4.19% 4.27% N/A 4.15% N/A
Treasury Plus Institutional Money
Market
Service Class 4.53% 4.63% N/A 4.60% N/A
Institutional Class 4.73% 4.84% N/A 4.80% N/A
Treasury Plus Money Market
Class A 4.33% 4.43% N/A 8.03% N/A
</TABLE>
38
<PAGE>
_______________________
/1/ Based on the combined state and federal income tax rate of 45.22%.
Former Norwest Funds
Yield for the Applicable Period Ended May 31, 1999
--------------------------------------------------
<TABLE>
<CAPTION>
Seven-Day Seven-Day Thirty-Day
Fund Seven-Day Effective Tax-eqivalent Thirty-Day Tax-Equivalent
---- Yield Yield Yield/1/ Yield Yield/1/
----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Cash Investment Money Market Trust
Service Class 4.55% 4.66% N/A 4.52% N/A
Institutional Class N/A N/A N/A N/A N/A
Government Money Market
Class A N/A N/A N/A N/A N/A
Service Class 4.46% 4.56% N/A 4.39% N/A
National Tax-Free Institutional Money
Market
Service Class 2.86% 2.90% 4.80% 2.97% 4.92%
Institutional Class N/A N/A N/A N/A N/A
National Tax-Free Money Market
Class A 2.66% 2.69% 4.45% 3.77% 4.59%
Prime Investment Money Market
Service Class 4.48% 4.58% N/A 4.45% N/A
100% Treasury Money Market
Class A N/A N/A N/A N/A N/A
Service Class 4.20% 4.29% N/A 4.19% N/A
</TABLE>
_______________________
/1/ Based on the combined state and federal income tax rate of 45.22%.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Trust may quote the performance or price-
earning ratio of a Fund or Class in advertising and other types of literature as
compared to the performance of the S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by World Gold Council), Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), other managed or unmanaged indices or
performance data of bonds, municipal securities, stocks or government securities
(including data provided by Ibbotson Associates), or by other services,
companies,
39
<PAGE>
publications or persons who monitor mutual funds on overall performance or other
criteria. The S&P Index and the Dow Jones Industrial Average are unmanaged
indices of selected common stock prices. The performance of the Funds or a Class
also may be compared to that of other mutual funds having similar objectives.
This comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services which monitor the
performance of mutual funds. The Funds' performance will be calculated by
relating net asset value per share at the beginning of a stated period to the
net asset value of the investment, assuming reinvestment of all gains
distributions and dividends paid, at the end of the period. The Funds'
comparative performance will be based on a comparison of yields, as described
above, or total return, as reported by Lipper, Survey Publications, Donoghue or
Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a Class with that of competitors. Of course, past
performance cannot be a guarantee of future results. The Trust also may include,
from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
The Trust also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
In addition, the Trust also may use, in advertisements and other types of
literature, information and statements: (1) showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth; and (2) describing Wells Fargo Bank, and its
affiliates and predecessors, as one of the first investment managers to advise
investment accounts using asset allocation and index strategies. The Trust also
may include in advertising and other types of literature information and other
data from reports and studies prepared by the Tax Foundation, including
information regarding federal and state tax levels and the related "Tax Freedom
Day."
The Trust also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a
40
<PAGE>
recommendation to purchase, sell or hold the Fund's shares since the rating
would not comment on the market price of the Fund's shares or the suitability of
the Fund for a particular investor. In addition, the assigned rating would be
subject to change, suspension or withdrawal as a result of changes in, or
unavailability of, information relating to the Fund or its investments. The
Trust may compare the Fund's performance with other investments which are
assigned ratings by NRSROs. Any such comparisons may be useful to investors who
wish to compare the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Wells Fargo Funds Trust,
provides various services to its customers that are also shareholders of the
Funds. These services may include access to Wells Fargo Funds Trust Funds'
account information through Automated Teller Machines (ATMs), the placement of
purchase and redemption requests for shares of the Funds through ATMs and the
availability of combined Wells Fargo Bank and Wells Fargo Funds Trust account
statements."
The Trust also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management (formerly, Wells Fargo
Investment Management), a division of Wells Fargo Bank, is listed in the top 100
by Institutional Investor magazine in its July 1997 survey "America's Top 300
Money Managers." This survey ranks money managers in several asset categories.
The Trust may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Trust's investment
advisor and the total amount of assets and mutual fund assets managed by Wells
Fargo Bank. As of June 30, 1999, Wells Fargo Bank and its affiliates managed
over $131 billion in assets.
The Trust also may discuss in advertising and other types of literature the
features, terms and conditions of Wells Fargo Bank accounts through which
investments in the Funds may be made via a "sweep" arrangement, including,
without limitation, the Managed Sweep Account, Money Market Checking Account and
Money Market Access Account (collectively, the "Sweep Accounts"). Such
advertisements and other literature may include, without limitation, discussions
of such terms and conditions as the minimum deposit required to open a Sweep
Account, a description of the yield earned on shares of the Funds through a
Sweep Account, a description of any monthly or other service charge on a Sweep
Account and any minimum required balance to waive such service charges, any
overdraft protection plan offered in connection with a Sweep Account, a
description of any ATM or check privileges offered in connection with a Sweep
Account and any other terms, conditions, features or plans offered in connection
with a Sweep Account. Such advertising or other literature may also include a
discussion of the advantages of establishing and maintaining a Sweep Account,
and may include statements from customers as to the reasons why such customers
have established and maintained a Sweep Account.
The Trust may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and
41
<PAGE>
other literature may disclose that Wells Fargo Bank is the first major bank to
offer an on-line application for a mutual fund account that can be filled out
completely through Electronic Channels. Advertising and other literature may
disclose that Wells Fargo Bank may maintain Web sites, pages or other
information sites accessible through Electronic Channels (an "Information Site")
and may describe the contents and features of the Information Site and instruct
investors on how to access the Information Site and open a Sweep Account.
Advertising and other literature may also disclose the procedures employed by
Wells Fargo Bank to secure information provided by investors, including
disclosure and discussion of the tools and services for accessing Electronic
Channels. Such advertising or other literature may include discussions of the
advantages of establishing and maintaining a Sweep Account through Electronic
Channels and testimonials from Wells Fargo Bank customers or employees and may
also include descriptions of locations where product demonstrations may occur.
The Trust may also disclose the ranking of Wells Fargo Bank as one of the
largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value ("NAV") per share for each class of the Funds is determined
as of the times listed in the chart below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
NAV Calculation Time
FUNDS (Pacific Time)
<S> <C>
------------------------------------------------------------------------
California Tax-Free Money Market Fund 9:00 a.m.
------------------------------------------------------------------------
California Tax-Free Money Market Trust 9:00 a.m.
------------------------------------------------------------------------
Cash Investment Fund 2:00 p.m.
------------------------------------------------------------------------
Government Money Market Fund 12:00 Noon
------------------------------------------------------------------------
Minnesota Money Market Fund 9:00 a.m.
------------------------------------------------------------------------
Money Market Fund 12:00 Noon
------------------------------------------------------------------------
Money Market Trust 12:00 Noon
------------------------------------------------------------------------
National Tax-Free Institutional Money Market Fund 9:00 a.m.
------------------------------------------------------------------------
National Tax-Free Money Market Fund 11:00 a.m.
------------------------------------------------------------------------
National Tax-Free Money Market Trust 9:00 a.m.
------------------------------------------------------------------------
Overland Express Sweep Fund 12:00 Noon
------------------------------------------------------------------------
Prime Investment Money Market Fund 12:00 Noon
------------------------------------------------------------------------
Treasury Plus Institutional Money Market Fund 2:00 p.m.
------------------------------------------------------------------------
Treasury Plus Money Market Fund 2:00 p.m.
------------------------------------------------------------------------
100% Treasury Money Market Fund 10:00 a.m.
------------------------------------------------------------------------
</TABLE>
If the markets for the instruments and securities the Funds invest in close
early, the Funds may close early and may value their shares at earlier times
under these circumstances. Expenses and fees, including advisory fees, are
accrued daily and are taken into account for the purpose of determining the net
asset value of the Funds' shares.
Each Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The amortized
cost method involves valuing a security at its cost and amortizing any discount
or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides
42
<PAGE>
certainty in valuation, it may result in periods during which the value, as
determined by amortized cost, is higher or lower than the price that the Funds
would receive if the security were sold. During these periods the yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund that uses a method of valuation based upon market prices. Thus, during
periods of declining interest rates, if the use of the amortized cost method
resulted in a lower value of the Funds' portfolio on a particular day, a
prospective investor in the Funds would be able to obtain a somewhat higher
yield than would result from investment in a fund using solely market values,
and existing Fund shareholders would receive correspondingly less income. The
converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, a Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase securities having remaining maturities (as defined
in Rule 2a-7) of thirteen months or less and invest only in those high-quality
securities that are determined by the Board of Trustees to present minimal
credit risks. The maturity of an instrument is generally deemed to be the period
remaining until the date when the principal amount thereof is due or the date on
which the instrument is to be redeemed. However, Rule 2a-7 provides that the
maturity of an instrument may be deemed shorter in the case of certain
instruments, including certain variable and floating rate instruments subject to
demand features. Pursuant to Rule 2a-7, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, a Fund's
price per share as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Fund's portfolio holdings by the Board of
Trustees, at such intervals as it may deem appropriate, to determine whether the
Fund's net asset value calculated by using available market quotations deviates
from $1.00 per share based on amortized cost. The extent of any deviation will
be examined by the Board of Trustees. If such deviation exceeds 1/2 of 1%, the
Board will promptly consider what action, if any, will be initiated. In the
event the Board determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, the
Board will take such corrective action as it regards as necessary and
appropriate, including the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations. It is the intention of the Funds to maintain a per
share net asset value of $1.00, but there can be no assurance that each Fund
will do so.
Instruments having variable or floating interest rates or demand features
may be deemed to have remaining maturities as follows: (a) a government security
with a variable rate of interest readjusted no less frequently than every
thirteen months may be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate; (b) an instrument with a
variable rate of interest, the principal amount of which is scheduled on the
face of the instrument to be paid in thirteen months or less, may be deemed to
have a maturity equal to the period remaining until the next readjustment of the
interest rate; (c) an instrument with a variable rate of interest that is
subject to a demand feature may be deemed to have a maturity equal to the longer
of the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand; (d)
an instrument with a floating rate of interest that is subject to a demand
feature may be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand; and (e) a repurchase agreement
may be deemed to have a maturity equal to
43
<PAGE>
the period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur or, where no date is specified but the
agreement is subject to demand, the notice period applicable to a demand for the
repurchase of the securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business (a "Business Day"). The Funds are open on any day Wells Fargo Bank is
open. Wells Fargo Bank is open Monday through Friday and is closed on federal
bank holidays. Currently, those holidays are New Year's Day, President's Day,
Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas Day.
Purchase orders for a Fund received before such Fund's NAV calculation time
generally are processed at such time on that Business Day. Purchase Orders
received after a Fund's NAV calculation time generally are processed at such
Fund's NAV calculation time on the next Business Day. Selling Agents may
establish earlier cut-off times for processing your order. Requests received by
a Selling Agent after the applicable cut-off time will be processed on the next
Business Day. On any day the trading markets for both U.S. government securities
and money market instruments close early, the Funds will close early. On these
days, the net asset value calculation time and the dividend, purchase and
redemption cut-off times for the Funds may be earlier than 12:00 Noon.
Payment for shares may, in the discretion of the Advisor, be made in the
form of securities that are permissible investments for the Funds. For further
information about this form of payment please contact Stephens. In connection
with an in-kind securities payment, the Funds will require, among other things,
that the securities be valued on the day of purchase in accordance with the
pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Trust may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Trust's responsibilities under the 1940 Act. In addition, the
Trust may redeem shares involuntarily to reimburse the Funds for any losses
sustained by reason of the failure of a shareholders to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of a Fund.
Purchases and Redemptions Through Brokers and/or Their Affiliates
-----------------------------------------------------------------
A broker may charge transaction fees on the purchase and/or sale of Fund shares
in addition to those fees described in the Prospectus in the Summary of
Expenses. The Trust has authorized one or more brokers to receive on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an authorized broker or, if applicable, a broker's
authorized designee, receives the order.
Reduced Sales Charges for former Norwest Advantage Fund Class B
---------------------------------------------------------------
Shareholders. No contingent deferred sales charge is imposed on redemptions of
- ------------
Money Market Fund Class B shares
44
<PAGE>
received in exchange for Class B shares of a former Norwest Advantage Fund
purchased prior to October 1, 1999, to effect a distribution (other than a lump
sum distribution) from an IRA, Keogh plan or Section 403(b) custodial account or
from a qualified retirement plan.
In general Class B shares exchanged for Money Market Fund Class B shares
retain their original CDSC schedule and any reduced sales charges privileges.
Please refer to the prospectus for the original shares regarding applicable
schedules and waivers.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Trust are
prohibited from dealing with the Trust as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available. The Funds may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Trustees.
Wells Fargo Bank, as the Investment Advisor of each of the Funds, may, in
circumstances in which two or more dealers are in a position to offer comparable
results for a Fund portfolio transaction, give preference to a dealer that has
provided statistical or other research services to Wells Fargo Bank. By
allocating transactions in this manner, Wells Fargo Bank is able to supplement
its research and analysis with the views and information of securities firms.
Information so received will be in addition to, and not in lieu of, the services
required to be performed by Wells Fargo Bank under the Advisory Contracts, and
the expenses of Wells Fargo Bank will not necessarily be reduced as a result of
the receipt of this supplemental research information. Furthermore, research
services furnished by dealers through which Wells Fargo Bank places securities
transactions for a Fund may be used by Wells Fargo Bank in servicing its other
accounts, and not all of these services may be used by Wells Fargo Bank in
connection with advising the Funds.
45
<PAGE>
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank may waive fees from the Funds in whole
or in part. Any such waiver will reduce expenses and, accordingly, have a
favorable impact on a Fund's performance. Except for the expenses borne by Wells
Fargo Bank, the Trust bears all costs of its operations, including the
compensation of its Trustees who are not affiliated with Wells Fargo Bank or any
of their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, and any extraordinary expenses. Expenses attributable
to a Fund are charged against a Fund assets. General expenses of the Trust are
allocated among all of the funds of the Trust, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Trust's Board of Trustees deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of each Fund
generally describes the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning federal income taxes and,
as applicable, certain California and Minnesota taxes.
General. The Trust intends to continue to qualify each Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interests of
the Fund's shareholders. Each Fund will be treated as a separate entity for
federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied separately to each
Fund,
46
<PAGE>
rather than to the Trust as a whole. In addition, capital gains, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each Fund will not be taxed on its net investment
income and capital gain distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government obligations and
the securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (including, for this
purpose, net short-term capital gain) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Funds intend to pay out substantially all of their net
investment income and net realized capital gains (if any) for each year.
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a Fund generally be capital gains and
losses. Such gains and losses will ordinarily be long-term capital gains and
losses if the securities have been held by the Fund for more than one year at
the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation purchased by the
Fund at a market discount (generally at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of market
discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Fund held the debt obligation.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that
47
<PAGE>
position. For this purpose, a constructive sale occurs when the Fund enters into
one of the following transactions with respect to the same or substantially
identical property: (i) a short sale; (ii) an offsetting notional principal
contract; or (iii) a futures or forward contract.
Distributions; Generally. Although distributions of net investment income
------------------------
will be declared daily based on a Fund's daily earnings, for federal income tax
purposes, the Fund's "earnings and profits" will be determined at the end of
each taxable year and will be allocated pro rata over the entire year. For
federal income tax purposes, only amounts paid out of earnings and profits will
qualify as taxable distributions. Thus, if during a taxable year a Fund's
distributions (as declared daily throughout the year) exceed the Fund's earnings
and profits (generally the Fund's net investment income and capital gain) as
determined at the end of the year, only that portion of the year's distributions
which equals the year's earnings and profits will be deemed to have constituted
a taxable distribution. Distributions in excess of earnings and profits will
first be treated as a return of capital up to the amount of a shareholder's
basis in its Fund shares and then capital gain. It is expected that a Fund's
earnings and profits for a taxable year will equal its distributions applicable
to such year.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do not exceed the Fund's actual net
capital gain for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost of
the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the
48
<PAGE>
sale or exchange of those shares will be disallowed to the extent of the amount
of exempt-interest dividends received with respect to the shares. The Treasury
Department is authorized to issue regulations reducing the six months holding
requirement to a period of not less than the greater of 31 days or the period
between regular dividend distributions where a Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. The loss disallowance rules described in this
paragraph do not apply to losses realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Trust may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on all distributions
and redemption proceeds (including proceeds from exchanges and redemptions in-
kind) paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Trust also could subject the investor to penalties imposed by
the IRS.
Foreign Shareholders. Under the Code, distributions attributable to income
--------------------
on taxable investments, net short-term capital gain and certain other items
realized by a Fund and paid to a nonresident alien individual, foreign trust
(i.e., trust which a U.S. court is able to exercise primary supervision over
administration of that trust and one or more U.S. persons have authority to
control substantial decisions of that trust), foreign estate (i.e., the income
of which is not subject to U.S. tax regardless of source), foreign corporation,
or foreign partnership (each, a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a distribution paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the foreign shareholder), in which case the reporting and withholding
requirements applicable to U.S. persons will apply. Capital gain distributions
generally are not subject to tax withholding.
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 2000, subject to
49
<PAGE>
certain transition rules. Among other things, the New Regulations will permit
the Funds to estimate the portion of their distributions qualifying as capital
gain distributions for purposes of determining the portion of such distributions
paid to foreign shareholders that will be subject to federal income tax
withholding. Prospective investors are urged to consult their own tax advisors
regarding the New Regulations.
Tax-Deferred Plans. The shares of the Funds are available for a variety of
------------------
tax-deferred retirement and other plans, including Individual Retirement
Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings
Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education
IRAs, which permit investors to defer some of their income from taxes.
Investors should contact their selling agents for details concerning retirement
plans. Shares of the California Tax-Free Money Market Fund, California Tax-Free
Money Market Trust, Minnesota Money Market Fund, National Tax-Free Institutional
Money Market Fund, National Tax-Free Money Market Fund and National Tax-Free
Money Market Trust (together, the "Tax-Free Funds") would not be suitable
investments for tax-deferred plans and tax-exempt investors.
Additional Considerations for the Tax-Free Funds. If at least 50% of the
------------------------------------------------
value of a regulated investment company's total assets at the close of each
quarter of its taxable years consists of obligations the interest on which is
exempt from federal income tax, it will qualify under the Code to pay "exempt-
interest dividends." The Tax-Free Funds intend to so qualify and are designed
to provide investors with a high level of income exempt from federal income tax.
The portion of total dividends paid by a Tax-Free Fund with respect to any
taxable year that constitutes exempt-interest dividends will be the same for all
shareholders receiving dividends during such year. Distributions of capital
gains or income not attributable to interest on the Fund's tax-exempt
obligations will not constitute exempt-interest dividends and will be taxable to
its shareholders. The exemption of interest income derived from investments in
tax-exempt obligations for federal income tax purposes may not result in a
similar exemption under the laws of a particular state or local taxing
authority.
Not later than 60 days after the close of its taxable year, each Tax-Free
Fund will notify its shareholders of the portion of the dividends paid with
respect to such taxable year which constitutes exempt-interest dividends. The
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross income under Section 103 of the Code
received by the Tax-Free Fund during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. Interest
on indebtedness incurred to purchase or carry shares of a Tax-Free Fund will not
be deductible to the extent that the Fund's distributions are exempt from
federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions
and exemptions have been designated "tax preference items" which must be added
back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds." To the
extent that a Tax-Free Fund invests in private activity bonds, its shareholders
who pay AMT will be
50
<PAGE>
required to report that portion of Fund dividends attributable to income from
the bonds as a tax preference item in determining their AMT. Shareholders will
be notified of the tax status of distributions made by a Tax-Free Fund. Persons
who may be "substantial users" (or "related persons" of substantial users) of
facilities financed by private activity bonds should consult their tax advisors
before purchasing shares in a Tax-Free Fund. Furthermore, shareholders will not
be permitted to deduct any of their share of a Tax-Free Fund's expenses in
computing their AMT. With respect to a corporate shareholder of a Tax-Free Fund,
exempt-interest dividends paid by the Fund is included in the corporate
shareholder's "adjusted current earnings" as part of its AMT calculation, and
may also affect its federal "environmental tax" liability. As of the printing of
this SAI, individuals are subject to an AMT at a maximum rate of 28% and
corporations at a maximum rate of 20%. Shareholders with questions or concerns
about the AMT should consult own their tax advisors.
Additional Considerations for the California Tax-Free Money Market Fund and
---------------------------------------------------------------------------
California Tax-Free Money Market Trust. If, at the close of each quarter of its
- --------------------------------------
taxable year, at least 50% of the value of the total assets of a regulated
investment company consists of obligations the interest on which, if held by an
individual, is exempt from taxation by California ("California Exempt
Securities"), then the regulated investment company will be qualified to pay
dividends exempt from California state personal income tax to its non-corporate
shareholders (hereinafter referred to as "California exempt-interest
dividends"). For this purpose, California Exempt Securities generally are
limited to California municipal securities and certain U.S. government and U.S.
possession obligations. The California Tax-Free Money Market Fund and
California Tax-Free Money Market Trust (the "California Funds") intends to
qualify under the above requirements so that they can pay California exempt-
interest dividends. If the California Funds do not so qualify, no part of their
respective dividends to shareholders will be exempt from the California state
personal income tax.
Within sixty days after the close of its taxable year, the California Funds
will notify their respective shareholders of the portion of the dividends paid
by the respective Fund to each shareholder with respect to such taxable year
which is exempt from California state personal income tax. The total amount of
California exempt-interest dividends paid by the California Funds with respect
to any taxable year cannot exceed the excess of the amount of interest received
by the California Funds for such year on California Exempt Securities over any
amounts that, if the California Funds were treated as individuals, would be
considered expenses related to tax exempt income or amortizable bond premium and
would thus not be deductible under federal income or California state personal
income tax law. The percentage of total dividends paid for any taxable year
which qualifies as California exempt-interest dividends will be the same for all
shareholders receiving dividends from the Fund for such year.
In cases where shareholders are "substantial users" or "related persons"
with respect to California Exempt Securities held by the California Funds, such
shareholders should consult their tax advisors to determine whether California
exempt-interest dividends paid by the Fund with respect to such obligations
retain California state personal income tax exclusion. In this connection rules
similar to those regarding the possible unavailability of federal exempt-
interest dividend treatment to "substantial users" are applicable for California
state tax purposes. Interest on indebtedness incurred by a shareholder to
purchase or carry the California Funds shares is not deductible for California
state
51
<PAGE>
personal income tax purposes if the California Funds distribute California
exempt-interest dividends during the shareholder's taxable year.
The foregoing is only a summary of some of the important California state
personal income tax considerations generally affecting the California Funds and
their shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the California Funds or their
shareholders, and this discussion is not intended as a substitute for careful
planning. Further, it should be noted that the portion of any California Fund
distributions constituting California exempt-interest dividends is excludable
from income for California state personal income tax purposes only. Any
distributions paid to shareholders subject to California state franchise tax or
California state corporate income tax may be taxable for such purposes.
Accordingly, potential investors in the California Funds, including, in
particular, corporate investors which may be subject to either California
franchise tax or California corporate income tax, should consult their own tax
advisors with respect to the application of such taxes to the receipt of the
California Funds dividends and as to their own California state tax situation,
in general.
Additional Considerations for the Minnesota Money Market Fund.
-------------------------------------------------------------
Shareholders of the Fund who are individuals, estates, or trusts and who are
subject to the regular Minnesota personal income tax will not be subject to such
regular Minnesota tax on Fund dividends to the extent that such distributions
qualify as exempt-interest dividends of a regulated investment company under
Section 852(b)(5) of the Internal Revenue Code which are derived from interest
income on tax-exempt obligations of the State of Minnesota, or its political or
governmental subdivisions, municipalities, governmental agencies, or
instrumentalities ("Minnesota Sources"). The foregoing will apply, however,
only if the portion of the exempt-interest dividends from such Minnesota Sources
that is paid to all shareholders represents 95% or more of the exempt-interest
dividends that are paid by the Fund. If the 95% test is not met, all exempt-
interest dividends that are paid by the Fund generally will be subject to the
regular Minnesota personal income tax. Even if the 95% test is met, to the
extent that exempt-interest dividends that are paid by the Fund are not derived
from the Minnesota Sources described in the first sentence of this paragraph,
such dividends generally will be subject to the regular Minnesota personal
income tax. Other distributions of the Fund, including distributions from net
short-term and long-term capital gains, are generally not exempt from the
regular Minnesota personal income tax.
State legislation enacted in 1995 provides that it is the intent of the
Minnesota legislature that interest income on obligations of Minnesota
governmental units, including obligations of the Minnesota Sources described
above, and exempt-interest dividends that are derived from interest income on
such obligations, be included in the net income of individuals, estates, and
trusts for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations, is so included. This provision applies to taxable years that begun
during or after the calendar year in which such judicial decision becomes final,
regardless of the date on which the obligations were issued, and other remedies
apply for previous taxable years. The United States Supreme Court in 1995
denied certiorari in a case in which an Ohio state court upheld an exemption for
interest income on obligations of Ohio governmental issuers, even though
interest income on obligations of non-Ohio governmental issuers was subject to
tax. In 1997, the
52
<PAGE>
United States Supreme Court denied certiorari in a subsequent case from Ohio,
involving the same taxpayer and the same issue, in which the Ohio Supreme Court
refused to reconsider the merits of the case on the ground that the previous
final state court judgment barred any claim arising out of the transaction that
was the subject of the previous action. It cannot be predicted whether a similar
case will be brought in Minnesota or elsewhere, or what the outcome of such case
would be.
Subject to certain limitations that are set forth in the Minnesota rules,
Minnesota Fund dividends, if any, that are derived from interest on certain
United States obligations are not subject to the regular Minnesota personal
income tax or the Minnesota alternative minimum tax, in the case of shareholders
of the Minnesota Fund who are individuals, estates, or trusts.
Fund distributions, including exempt-interest dividends, are not excluded
in determining the Minnesota franchise tax on corporations that is measured by
taxable income and alternative minimum taxable income. Fund distributions may
also be taken into account in certain cases in determining the minimum fee that
is imposed on corporations, S corporations, and partnerships.
Minnesota presently imposes an alternative minimum tax on individuals,
estates, and trusts that is based, in part, on such taxpayers' federal
alternative minimum taxable income, which includes federal tax preference items.
The Internal Revenue Code provides that interest on specified private activity
bonds is a federal tax preference item, and that an exempt-interest dividend of
a regulated investment company constitutes a federal tax preference item to the
extent of its proportionate share of the interest on such private activity
bonds. Accordingly, exempt-interest dividends that are attributable to such
private activity bond interest, even though they are derived from the Minnesota
Sources described above, will be included in the base upon which such Minnesota
alternative minimum tax is computed. In addition the entire portion of exempt-
interest dividends that is received by such shareholders and that is derived
from sources other than the Minnesota Sources described above generally is also
subject to the Minnesota alternative minimum tax. Further, should the 95% test
that is described above fail to be met, all of the exempt-interest dividends
that are paid by the Fund, including all of those that are derived from the
Minnesota Sources described above, generally will be subject to the Minnesota
alternative minimum tax, in the case of shareholders of the Fund who are
individuals, estates or trusts.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the federal income tax (and, where
applicable California and Minnesota taxes) considerations generally affecting
investments in the Funds. Each investor is urged to consult his or her tax
advisor regarding specific questions as to federal, state, local and foreign
taxes.
53
<PAGE>
CAPITAL STOCK
The Funds are nine of the funds in the Wells Fargo Funds Trust family of
funds. The Trust was organized as a Delaware business trust on March 10, 1999.
Most of the Trust's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Trust's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain class-
specific expenses (e.g., any state securities registration fees, shareholder
servicing fees or distribution fees that may be paid under Rule 12b-1) that are
allocated to a particular class. Please contact Investor Services at 1-800-222-
8222 if you would like additional information about other funds or classes of
shares offered.
With respect to matters that affect one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in
a Fund's fundamental investment policy affects only one Series and would be
voted upon only by shareholders of the Fund involved. Additionally, approval of
an advisory contract since it affects only one Fund, is a matter to be
determined separately by each Series. Approval by the shareholders of one
Series is effective as to that Series whether or not sufficient votes are
received from the shareholders of the other Series to approve the proposal as to
those Series.
As used in the Prospectus and in this SAI, the term "majority" when
referring to approvals to be obtained from shareholders of a Class of a Fund,
means the vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such Class Fund are present in person or by proxy, or (ii) more than
50% of the outstanding shares of such Class of the Fund. The term "majority,"
when referring to the approvals to be obtained from shareholders of the Trust as
a whole, means the vote of the lesser of (i) 67% of the Trust's shares
represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Trust's outstanding shares.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. Shareholders are not entitled to
any preemptive rights. All shares are issued in uncertificated form only, and,
when issued, will be fully paid and non-assessable by the Trust.
The Trust may dispense with an annual meeting of shareholders in any year
in which it is not required to elect directors under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share in the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Fund or class are
entitled to receive the assets
54
<PAGE>
attributable to the Fund or class that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Trustees in their sole discretion may determine.
Set forth below as of October 25, 1999, is the name, address and share
ownership of each person known by the Trust to have beneficial or record
ownership of 5% or more of a class of each Fund or 5% or more of the voting
securities of each Fund as a whole. The term "N/A" is used where a shareholder
holds 5% or more of a class, but less than 5% of a Fund as a whole.
5% OWNERSHIP
AS OF OCTOBER 25, 1999
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
CALIFORNIA TAX-
FREE MONEY
MARKET FUND
Class A
WELLS FARGO BANK 74.27%
FBO MONEY MARKET CHECKING
OMNIBUS ACCOUNT
P.O. Box 7066
San Francisco, CA 94120-7066
WELLS FARGO BANK 8.06%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
DEAN WITTER REYNOLDS 8.06%
FBO WELLS FARGO SECURITIES
INC
5 World Trade Center - 6th Floor
New York, NY 10048-0205
Service Class N/A N/A
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
CALIFORNIA TAX-
FREE MONEY
MARKET TRUST
Institutional Class WELLS FARGO BANK 94.46%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
NORWEST INVESTMENT SERVICES 35.44%
c/o Alex O'Connor
608 2nd Avenue - 8h Floor MS 0130
Minneapolis, MN 55402-1916
EMSEG & CO 25.37%
VP4500022
ATTN: Cash Sweep Processing
510 Marquette Avenue 4th Floor
Minneapolis, MN 55402-1110
CASH INVESTMENT
MONEY MARKET
FUND
Service Class NORWEST INVESTMENT SERVICES 35.44%
C/O ALEX OCONNOR
608 2nd Ave S 8th Fl MS 0130
Minneapolis, MN 55402-1916
EMSEG & CO 25.37%
VP4500022
Attn: Cash Sweep Processing
510 Marquette Ave 4th Fl
Minneapolis, MN 55402-1110
Institutional Class WELLS FARGO BANK 36.70%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
WELLS FARGO BANK 13.31%
ATTN: INVESTMENT SWEEP T-15
1300 S W Fifth Avenue
Portland, OR 97201-5667
WELLS FARGO BANK 12.06%
DBA BANK DEALER OPERATIONS
P.O. Box 3780 MAC #6101-151
Portland, OR 97208-3780
HARE & CO. 7.17%
BANK OF NEW YORK
One Wall Street - 2nd Floor
ATTN: Stip/Master Note
New York, NY 10005-2501
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
GOVERNMENT
MONEY MARKET
FUND
Class A
WELLS FARGO BANK TTEE 45.08%
CHOICEMASTER
ATTN: MUTUAL FUNDS A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
WELLS FARGO BANK 34.72%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
DEAN WITTER REYNOLDS 13.30%
FBO WELLS FARGO SECURITIES
INC
5 World Trade Center - 6th Floor
New York, NY 10048-0205
Service Class EMSEG & CO 78.53%
ATTN: Cash Sweep Processing
510 Marquette Avenue 4th Floor
Minneapolis, MN 55402-1110
NORWEST INVESTMENT SERVICES 12.05%
c/o Alex O'Connor
608 2nd Avenue - 8h Floor MS 0130
Minneapolis, MN 55402-1916
ALPINE & CO. 6.60%
NON DISCRETIONARY
1740 Broadway MS 8751
Denver, Co. 80274-0001
MINNESOTA MONEY
MARKET FUND
Class A N/A N/A
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
MONEY MARKET FUND
Class A WELLS FARGO BANK 79.56%
FBO MONEY MARKET CHECKING
OMNIBUS ACCOUNT
P.O. Box 7066
San Francisco, CA 94120-7066
NORWEST INVESTMENT SERVICES 8.07%
c/o Alex O'Connor
608 2nd Avenue - 8h Floor MS 0130
Minneapolis, MN 55402-1916
Class B WELLS FARGO BANK 97.37%
FBO MONEY MARKET CHECKING
OMNIBUS ACCOUNT
P.O. Box 7066
San Francisco, CA 94120-7066
MONEY MARKET TRUST
Institutional Class WELLS FARGO BANK 96.52%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
NATIONAL TAX-FREE
INSTITUTIONAL MONEY
MARKET FUND
Service Class EMSEG & CO 41.39%
ATTN: Cash Sweep Processing
510 Marquette Avenue 4th Floor
MN 55402-1110
EMSEG & CO 34.44%
ATTN: Cash Sweep Processing
510 Marquette Avenue 4th Floor
Minneapolis, MN 55402-1110
NORWEST INVESTMENT SERVICES 11.02%
c/o Alex O'Connor
608 2nd Avenue - 8th Floor MS 0130
Minneapolis, MN 55402-1916
WELLS FARGO BANK 6.25%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
Institutional Class WELLS FARGO BANK 62.40%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - Floor 17
San Francisco, CA 94105-2708
KEITH L. THOMSON & 14.24%
JULIE A. THOMSON JITTEN
3135 NW Circle A Drive
Portland, OR 97229-3611
HARE & CO. 7.44%
BANK OF NEW YORK
One Wall Street - 2nd Floor
ATTN: Stip/Master Note
New York, NY 10005-2501
NATIONAL TAX-FREE MONEY
MARKET TRUST
Class A WELLS FARGO BANK 57.09%
FBO MONEY MARKET CHECKING
OMNIBUS ACCOUNT
P.O. Box 7066
San Francisco, CA 94120-7066
NORWEST INVESTMENT SERVICES 28.53%
c/o Alex O'Connor
608 2nd Avenue - 8th Floor MS 0130
Minneapolis, MN 55402-1916
WELLS FARGO SERVICE COMPANY 6.17%
FBO SWEEP FUNDS NTF
Retail Sweep Operations
4811 N 4th Avenue #N9721-016
Sioux Falls, SD 57104-0405
DEAN WITTER REYNOLDS 5.57%
FBO WELLS FARGO SECURITIES
INC
5 World Trade Center - 6th Floor
New York, NY 10048-0205
NATIONAL TAX-FREE MONEY WELLS FARGO BANK 99.44%
MARKET TRUST FUND OPERATIONS ACM DESK
MAC A#0103-174
Institutional Class 525 Market Street - 17th Floor
San Francisco, CA 94105-2708
OVERLAND EXPRESS WFB -WHOLESALE SWEEP 100.00%
SWEEP FUND 3440 Walnut Avenue Building B
Single Class ATTN: Mimi Johnson MAC 0247-018
Fremont, CA 94538-2210
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
PRIME INVESTMENT MONEY
MARKET FUND
Service Class NORWEST INVESTMENT SERVICES 99.04%
c/o Alex O'Connor
608 2nd Avenue - 8th Floor MS 0130
Minneapolis, MN 55402-1916
TREASURY PLUS
INSTITUTIONAL MONEY
MARKET FUND
Service Class HARE & CO. 18.27%
BANK OF NEW YORK
One Wall Street - 2nd Floor
ATTN: STF/MASTER NOTE
New York, NY 10005-2501
EMSEG & CO 17.82%
VP4530003
ATTN: Cash Sweep Processing
510 Marquette Avenue 4th Floor
Minneapolis, MN 55402-1110
WELLS FARGO BANK 10.88%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - 17th Floor
San Francisco, CA 94105-2708
WELLS FARGO BANK TTEE 8.84%
CHOICEMASTER
ATTN: MUTUAL FUNDS A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
Institutional Class WELLS FARGO BANK 29.76%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - 17th Floor
San Francisco, CA 94105-2708
WELLS FARGO BANK 27.80%
ATTN: INVESTMENT SWEEP T-15
1300 S W Fifth Avenue
Portland, OR 97201-5667
CASTLE TOWER HOLDING 22.91%
CORPORATION
510 Bering Drive Suite 500
Houston, TX 77057-1452
BAY AREA CELLULAR TELEPHONE 5.27%
CO.
651 Gateway BLVD - Suite 1500
South San Francisco, CA 94080-7040
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
TREASURY PLUS MONEY HARE & CO. 42.95%
MARKET FUND BANK OF NEW YORK
One Wall Street - 2nd Floor
Class A/1/ ATTN: STF/MASTER NOTE
New York, NY 10005-2501
WFB -WHOLESALE SWEEP 33.18%
3440 Walnut Avenue Building B
ATTN: Mimi Johnson MAC 0247-018
Fremont, CA 94538-2210
WELLS FARGO BANK 11.95%
FUND OPERATIONS ACM DESK
ATTN: MF DEPT A88-4
MAC A#0103-174
San Francisco, CA 94105
DEAN WITTER REYNOLDS 7.09%
FBO WELLS FARGO SECURITIES
INC
5 World Trade Center - 6th Floor
New York, NY 10048-0205
Institutional Class WELLS FARGO BANK 29.76%
FUND OPERATIONS ACM DESK
MAC A#0103-174
525 Market Street - 17th Floor
San Francisco, CA 94105-2708
WELLS FARGO BANK 27.80%
ATTN: INVESTMENT SWEEP T-15
1300 S W Fifth Avenue
Portland, OR 97201-5667
CASTLE TOWER HOLDING 22.91%
CORPORATION
510 Bering Drive Suite 500
Houston, TX 77057-1452
BAY AREA CELLULAR TELEPHONE 5.27%
CO.
651 Gateway BLVD - Suite 1500
South San Francisco, CA 94080-7040
100% TREASURY MONEY
MARKET FUND
Class A N/A N/A
Service Class EMSEG & CO 63.04%
ATTN: Cash Sweep Processing
510 Marquette Avenue 4th Floor
Minneapolis, MN 55402-1110
</TABLE>
______________________
/1/ 5% Ownership information as of October 28, 1999.
61
<PAGE>
<TABLE>
<CAPTION>
Name and Percentage
Fund Address of Class
---- ------- --------
<S> <C> <C>
NORWEST INVESTMENT SERVICES 22.41%
c/o Alex O'Connor
608 2nd Avenue South
8th Floor MS 0130
Minneapolis, MN 55402-1916
ALPINE & CO. 7.05%
DISCRETIONARY
1740 Broadway MS 8751
Denver, CO. 80274-0001
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one or
more controlled companies more than 25% of the voting securities of a company is
presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund) or is identified as the holder of
record or more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Trust's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements contained
in the Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
COUNSEL
Morrison & Forester LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust. KPMG
LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolios of investments and audited financial statements for the
predecessor Stagecoach and Norwest Funds for the years ended March 31, 1999 and
May 31, 1999, respectively, are hereby incorporated by reference to the Funds'
Annual Report.
62
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
- -----------------------------
Moody's: The four highest ratings for corporate and municipal bonds are
-------
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa" are
of "high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated
"A" possess many favorable investment attributes and are considered to be upper
medium grade obligations. Bonds rated "Baa" are considered to be medium grade
obligations; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1, 2
and 3 in each rating category from "Aa" through "Baa" in its rating system. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P
and have an extremely strong capacity to pay interest and repay principal. Bonds
rated "AA" have a "very strong capacity to pay interest and repay principal" and
differ "from the highest rated issued only in small degree." Bonds rated "A"
have a "strong capacity" to pay interest and repay principal, but are "somewhat
more susceptible" to adverse effects of changes in economic conditions or other
circumstances than bonds in higher rated categories. Bonds rated "BBB" are
regarded as having an "adequate capacity" to pay interest and repay principal,
but changes in economic conditions or other circumstances are more likely to
lead to a "weakened capacity" to make such repayments. The ratings from "AA" to
"BBB" may be modified by the addition of a plus or minus sign to show relative
standing within the category.
Municipal Notes
- ---------------
Moody's: The highest ratings for state and municipal short-term
-------
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG 2"
or "VMIG 2" are of "high quality," with margins of protections "ample although
not as large as in the preceding group." Notes rated "MIG 3" or "VMIG 3" are of
"favorable quality," with all security elements accounted for, but lacking the
strength of the preceding grades.
A-1
<PAGE>
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
---
principal and interest." Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.
Corporate and Municipal Commercial Paper
- ----------------------------------------
Moody's: The highest rating for corporate and municipal commercial paper
-------
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
---
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
Corporate Notes
- ---------------
S&P: The two highest ratings for corporate notes are "SP-1" and "SP-2."
---
The "SP-1" rating reflects a "very strong or strong capacity to pay principal
and interest." Notes issued with "overwhelming safety characteristics" will be
rated "SP-1+." The "SP-2" rating reflects a "satisfactory capacity" to pay
principal and interest.
A-2
<PAGE>
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented on December 17, 1999
ARIZONA TAX-FREE FUND
CALIFORNIA LIMITED TERM TAX-FREE FUND
CALIFORNIA TAX-FREE FUND
COLORADO TAX-FREE FUND
MINNESOTA INTERMEDIATE TAX-FREE FUND
MINNESOTA TAX-FREE FUND
NATIONAL LIMITED TERM TAX-FREE FUND
NATIONAL TAX-FREE FUND
OREGON TAX-FREE FUND
Class A, Class B, Class C and Institutional Class
Wells Fargo Funds Trust (the "Trust") is an open-end, management investment
company. This Statement of Additional Information ("SAI") contains additional
information about nine funds in the Wells Fargo Funds Trust family of funds
(each, a "Fund" and collectively, the "Funds") -- the Arizona Tax-Free Fund,
California Limited Term Tax-Free Fund, California Tax-Free Fund, Colorado
Tax-Free Fund, Minnesota Intermediate Tax-Free Fund, Minnesota Tax-Free Fund,
National Limited Term Tax-Free Fund, National Tax-Free Fund and Oregon Tax-Free
Fund. Each Fund, except the National Tax-Free and National Limited Term Tax-Free
Funds, is considered non-diversified under the Investment Company Act of 1940,
as amended (the "1940 Act"). The Arizona Tax-Free Fund, California Tax-Free
Fund, Colorado Tax-Free Fund, Minnesota Tax-Free Fund, National Tax-Free Fund
and Oregon Tax-Free Fund offer Class A, Class B and Institutional Class shares.
The California Tax-Free and National Tax-Free Funds also offer Class C shares.
The California Limited Term Tax-Free Income Fund offers Class A and
Institutional Class shares only. The National Limited Term Tax-Free Fund and
Minnesota Intermediate Tax-Free Fund offer Institutional Class shares only. This
SAI relates to all such classes of shares.
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated November 8, 1999. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus may be obtained free of charge by calling 1-800-222-8222 or
writing to Wells Fargo Funds, P.O. Box 8266, Boston, MA 02266-8266.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Historical Fund Information........................................ 1
Investment Policies................................................ 2
Additional Permitted Investment Activities and Associated Risks.... 4
Special Considerations Affecting Arizona Municipal Obligations..... 15
Special Considerations Affecting California Municipal Obligations.. 18
Special Considerations Affecting Colorado Municipal Obligations.... 22
Special Considerations Affecting Minnesota Municipal Obligations... 23
Special Considerations Affecting Oregon Municipal Obligations...... 26
Management......................................................... 31
Performance Calculations........................................... 42
Determination of Net Asset Value................................... 50
Additional Purchase and Redemption Information..................... 51
Portfolio Transactions............................................. 52
Fund Expenses...................................................... 53
Income Taxes....................................................... 54
Capital Stock...................................................... 61
Other.............................................................. 68
Counsel............................................................ 69
Independent Auditors............................................... 69
Financial Information.............................................. 69
Appendix........................................................... A-1
</TABLE>
i
<PAGE>
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach") and
the Board of Trustees of the Trust approved an Agreement and Plan of
Reorganization providing for, among other things, the transfer of the assets and
stated liabilities of various predecessor Norwest and Stagecoach portfolios to
the Funds. Prior to November 5, 1999, the effective date of the consolidation
of the Funds and the predecessor Norwest and Stagecoach portfolios, the Funds
had only nominal assets.
The Funds in this SAI were created as part of the reorganization of the
Stagecoach family of funds advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"
or "Advisor"), and the Norwest Advantage family of funds advised by Norwest
Investment Management, Inc. ("NIM"), into a single mutual fund complex. The
reorganization followed the merger of the advisors' parent companies.
The chart below indicates the predecessor Stagecoach and Norwest Funds that
are the accounting survivors of the Wells Fargo Funds.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Wells Fargo Funds Predecessor Fund
- -----------------------------------------------------------------------------------------
<S> <C>
Arizona Tax-Free Stagecoach Arizona Tax-Free
- -----------------------------------------------------------------------------------------
California Limited Term Tax-Free Stagecoach California Tax-Free Income
- -----------------------------------------------------------------------------------------
California Tax-Free Stagecoach California Tax-Free Bond
- -----------------------------------------------------------------------------------------
Colorado Tax-Free Norwest Colorado Tax-Free
- -----------------------------------------------------------------------------------------
Minnesota Intermediate Tax-Free Norwest Minnesota Intermediate Tax-Free
- -----------------------------------------------------------------------------------------
Minnesota Tax-Free Norwest Minnesota Tax-Free
- -----------------------------------------------------------------------------------------
National Limited Term Tax-Free Norwest Limited Term Tax-Free
- -----------------------------------------------------------------------------------------
National Tax-Free Norwest Tax-Free Income
- -----------------------------------------------------------------------------------------
Oregon Tax-Free Stagecoach Oregon Tax-Free
- -----------------------------------------------------------------------------------------
</TABLE>
The Arizona Tax-Free Fund commenced operations on November 8, 1999, as
successor to the Arizona Tax-Free Fund of Stagecoach. The predecessor Arizona
Tax-Free Fund was originally organized as an investment portfolio of Westcore
Trust under the name Arizona Intermediate Tax-Exempt Fund. On October 1, 1995,
the Fund was reorganized as the Pacifica Arizona Tax-Exempt Fund, an investment
portfolio of Pacifica Funds Trust ("Pacifica"). On September 6, 1996, the
Pacifica Arizona Tax-Exempt Fund was reorganized as the Stagecoach Arizona Tax-
Free Fund.
The California Tax-Free and California Limited Term Tax-Free Funds
(sometimes referred to as the "California Funds") commenced operations on
November 8, 1999, as successor to the California Tax-Free Bond and California
Tax-Free Income Funds of Stagecoach, respectively. The California Funds were
originally organized as funds of Stagecoach. The California Tax-Free Bond Fund
commenced operations on January 1, 1992 and the California Tax-Free Income Fund
commenced operations on November 18, 1992. On December 12, 1997, the California
Tax-Free Bond Fund of Overland Express Funds, Inc. ("Overland"), another
investment company advised by Wells Fargo Bank, was reorganized with and into
the California Tax-Free Bond of Stagecoach.
<PAGE>
The Colorado Tax-Free Fund commenced operations on November 8, 1999, as
successor to the Colorado Tax-Free Fund of Norwest. The predecessor Norwest
Advantage Fund commenced operations on June 1, 1993.
The Minnesota Intermediate Tax-Free Fund commenced operations on November
8, 1999, as successor to the Minnesota Intermediate Tax-Free Fund of Norwest.
The predecessor Norwest Advantage Fund commenced operations on September 30,
1976.
The Minnesota Tax-Free Fund commenced operations on November 8, 1999, as
successor to the Minnesota Tax-Free Fund of Norwest. The predecessor Norwest
Advantage Fund commenced operations on January 12, 1988.
The National Limited Term Tax-Free Fund commenced operations on November 8,
1999, as successor to the Limited Term Tax-Free Fund of Norwest. The
predecessor Norwest Advantage Fund commenced operations on October 1, 1996.
The National Tax-Free Fund commenced operations on November 8, 1999, as
successor to the National Tax-Free Fund of Stagecoach and the Tax-Free Income
Fund of Norwest. The predecessor Stagecoach National Tax-Free Fund commenced
operations on January 15, 1993 and the predecessor Norwest Tax-Free Income Fund
commenced operations on August 1, 1989. For accounting purposes, the Norwest
Tax-Free Income predecessor portfolio is considered the surviving entity and the
financial highlights shown for periods prior to November 8, 1999 are the
financial highlights of the Norwest Tax-Free Income Fund.
The Oregon Tax-Free Fund commenced operations on November 8, 1999, as
successor to the Oregon Tax-Free Fund of Stagecoach. The predecessor Oregon
Tax-Free Fund was originally organized as an investment portfolio of Westcore
Trust under the name Oregon Tax-Exempt Fund. On October 1, 1995, the Fund was
reorganized as the Pacifica Oregon Tax-Exempt Fund, an investment portfolio of
Pacifica. On September 6, 1996, the Pacifica Oregon Tax-Exempt Fund was
reorganized as the Stagecoach Oregon Tax-Free Fund.
INVESTMENT POLICIES
Fundamental Investment Policies
-------------------------------
Each Fund has adopted the following investment policies, all of which are
fundamental policies; that is, they may not be changed without approval by the
holders of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Fund.
The Funds may not:
(1) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after and as a result thereof, the
value of a Fund's investments in that industry would equal or exceed 25% of the
current value of the Fund's total assets, provided that (i) this restriction
does not limit a Fund's investments in securities of other investment
2
<PAGE>
companies, (ii) this restriction does not limit a Fund's investments in
municipal securities, (iii) each Fund may invest 25% or more of the current
value of its total assets in private activity bonds or notes that are the
ultimate responsibility of non-government issuers conducting their principal
business activity in the same industry; and (iv) each Fund may invest 25% or
more of the current value of its total assets in securities whose issuers are
located in the same state or securities the interest and principal on which are
paid from revenues of similar type projects;
(2) borrow money, except to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder;
(3) issue senior securities, except to the extent permitted under the 1940
Act, including the rules, regulations and exemptions thereunder;
(4) make loans to other parties if, as a result, the aggregate value of
such loans would exceed one-third of a Fund's total assets. For the purposes of
this limitation, entering into repurchase agreements, lending securities and
acquiring any debt securities are not deemed to be the making of loans;
(5) underwrite securities of other issuers, except to the extent that the
purchase of permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with a Fund's investment program may be deemed to be an
underwriting;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business); nor
(7) purchase or sell commodities, provided that (i) currency will not be
deemed to be a commodity for purposes of this restriction, (ii) this restriction
does not limit the purchase or sale of futures contracts, forward contracts or
options, and (iii) this restriction does not limit the purchase or sale of
securities or other instruments backed by commodities or the purchase or sale of
commodities acquired as a result of ownership of securities or other
instruments.
Non-Fundamental Investment Policies
-----------------------------------
Each Fund has adopted the following non-fundamental policies which may be
changed by the Trustees of the Trust at any time without approval of such Fund's
shareholders.
(1) Each Fund may invest in shares of other investment companies to the
extent permitted under the 1940 Act, including the rules, regulations and
exemptions thereunder.
(2) Each Fund may not invest or hold more than 15% of the Fund's net
assets in illiquid securities. For this purpose, illiquid securities include,
among others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale, (b)
fixed time deposits that are subject to withdrawal penalties and that
3
<PAGE>
have maturities of more than seven days, and (c) repurchase agreements not
terminable within seven days.
(3) Each Fund may lend securities from its portfolio to approved brokers,
dealers and financial institutions, to the extent permitted under the 1940 Act,
including the rules, regulations and exemptions thereunder, which currently
limit such activities to one-third of the value of a Fund's total assets
(including the value of the collateral received). Any such loans of portfolio
securities will be fully collateralized based on values that are marked-to-
market daily.
(4) Each Fund may not make investments for the purpose of exercising
control or management, provided that this restriction does not limit a Fund's
investments in securities of other investment companies or in entities created
under the laws of foreign countries to facilitate investment in securities in
that country.
(5) Each Fund may not purchase securities on margin (except for short-term
credits necessary for the clearance of transactions).
(6) Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities sold
short (short sales "against the box"), and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
General
-------
Notwithstanding the foregoing policies, any other investment companies in
which the Funds may invest have adopted their own investment policies, which may
be more or less restrictive than those listed above, thereby allowing a Fund to
participate in certain investment strategies indirectly that are prohibited
under the fundamental and non-fundamental investment policies listed above.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES AND ASSOCIATED RISKS
Set forth below are descriptions of certain investments and additional
investment policies for the Funds. For purposes of monitoring the investment
policies and restrictions of the Funds (with the exception of the loans of
portfolio securities policy described below), the amount of any securities
lending collateral held by a Fund will be excluded in calculating total
assets.
Asset-Backed Securities
-----------------------
The Funds may invest in various types of asset-backed securities. Asset-
backed securities are securities that represent an interest in an underlying
security. The asset-backed securities in which the Funds invest may consist of
undivided fractional interests in pools of consumer loans or receivables held in
trust. Examples include certificates for automobile receivables (CARS) and
credit card receivables (CARDS). Payments of principal and interest on these
asset-backed securities are "passed through" on a monthly or other periodic
basis to certificate holders and are
4
<PAGE>
typically supported by some form of credit enhancement, such as a surety bond,
limited guaranty, or subordination. The extent of credit enhancement varies, but
usually amounts to only a fraction of the asset-backed security's par value
until exhausted. Ultimately, asset-backed securities are dependent upon payment
of the consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables. The actual maturity and realized yield will vary based upon the
prepayment experience of the underlying asset pool and prevailing interest rates
at the time of prepayment. Asset-backed securities are relatively new
instruments and may be subject to greater risk of default during periods of
economic downturn than other instruments. Also, the secondary market for certain
asset-backed securities may not be as liquid as the market for other types of
securities, which could result in a Fund experiencing difficulty in valuing or
liquidating such securities. The Funds may also invest in securities backed by
pools of mortgages. The investments are described under the heading "Mortgage-
Related Securities."
Bank Obligations
----------------
The Funds may invest in bank obligations, including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. With respect to
such securities issued by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, and domestic and foreign branches of foreign
banks, a Fund may be subject to additional investment risks that are different
in some respects from those incurred by a Fund which invests only in debt
obligations of domestic issuers. Such risks include possible future political
and economic developments, the possible imposition of foreign withholding taxes
on interest income payable on the securities, the possible establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on these
securities and the possible seizure or nationalization of foreign deposits. In
addition, foreign branches of U.S. banks and foreign banks may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping standards than those applicable to domestic branches
of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Fund will not benefit from insurance from the
Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. The other short-
term obligations may include uninsured, direct obligations, bearing fixed,
floating- or variable-interest rates.
5
<PAGE>
Bonds
-----
Certain of the debt instruments purchased by the Funds may be bonds. A
bond is an interest-bearing security issued by a company or governmental unit.
The issuer of a bond has a contractual obligation to pay interest at a stated
rate on specific dates and to repay principal (the bond's face value)
periodically or on a specified maturity date. An issuer may have the right to
redeem or "call" a bond before maturity, in which case the investor may have to
reinvest the proceeds at lower market rates. The value of fixed-rate bonds will
tend to fall when interest rates rise and rise when interest rates fall. The
value of "floating-rate" or "variable-rate" bonds, on the other hand, fluctuate
much less in response to market interest rate movements than the value of fixed
rate bonds.
Bonds may be senior or subordinated obligations. Senior obligations
generally have the first claim on a corporation's earnings and assets and, in
the event of liquidation, are paid before subordinated debt. Bonds may be
unsecured (backed only by the issuer's general creditworthiness) or secured
(also backed by specified collateral).
Borrowing
---------
The Funds may borrow money for temporary or emergency purposes, including
the meeting of redemption requests. Borrowing involves special risk
considerations. Interest costs on borrowings may fluctuate with changing market
rates of interest and may partially offset or exceed the return earned on
borrowed funds (or on the assets that were retained rather than sold to meet the
needs for which funds were borrowed). Under adverse market conditions, a Fund
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. Reverse
repurchase agreements, short sales not against the box, dollar roll transactions
and other similar investments that involve a form of leverage have
characteristics similar to borrowings but are not considered borrowings if the
Fund maintains a segregated account.
Commercial Paper
----------------
The Funds may invest in commercial paper (including variable amount master
demand notes) which refers to short-term, unsecured promissory notes issued by
corporations to finance short-term credit needs. Commercial paper is usually
sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. Variable amount master demand notes are demand
obligations which permit the investment of fluctuating amounts at varying market
rates of interest pursuant to arrangements between the issuer and a commercial
bank acting as agent for the payee of such notes whereby both parties have the
right to vary the amount of the outstanding indebtedness on the notes.
Investments by the Funds in commercial paper (including variable rate demand
notes and variable rate master demand notes issued by domestic and foreign bank
holding companies, corporations and financial institutions, as well as similar
instruments issued by government agencies and instrumentalities) will consist of
issues that are rated in one of the two highest rating categories by a
Nationally Recognized Ratings Organization ("NRRO"). Commercial paper may
include variable- and floating-rate instruments.
6
<PAGE>
Derivative Securities
---------------------
The Funds may invest in various instruments that may be considered
"derivatives," including structured notes, bonds or other instruments with
interest rates that are determined by reference to changes in the value of other
interest rates, indices or financial indicators ("References") or the relative
change in two or more References. Some derivative securities represent
relatively recent innovations in the bond markets, and the trading market for
these instruments is less developed than the markets for traditional types of
debt instruments. It is uncertain how these instruments will perform under
different economic and interest rate scenarios. Because certain of these
instruments are leveraged, their market values may be more volatile than other
types of bonds and may present greater potential for capital gain or loss.
Derivative securities and their underlying instruments may experience periods of
illiquidity, which could cause a Fund to hold a security it might otherwise sell
or could force the sale of a security at inopportune times or for prices that do
not reflect current market value. The possibility of default by the issuer or
the issuer's credit provider may be greater for these structured and derivative
instruments than for other types of instruments. As new types of derivative
securities are developed and offered to investors, the advisor will, consistent
with the Funds' investment objective, policies and quality standards, consider
making investments in such new types of derivative securities.
Diversification
---------------
The Funds are non-diversified, which means that they have greater latitude
than a diversified fund with respect to the investment of their assets in the
securities of relatively few municipal issuers. As non-diversified portfolios,
these Funds may present greater risks than a diversified fund. However, each
Fund intends to comply with applicable diversification requirements of the
Internal Revenue Code. These requirements provide that, as of the last day of
each fiscal quarter: (1) with respect to 50% of its assets, a Fund may not:
(a) own the securities of a single issuer, other than a U.S. Government
security, with a value of more than 5% of the Fund's total assets; or (b) own
more than 10% of the outstanding voting securities of a single issuer; and (2) a
Fund may not own the securities of a single issuer, other than a U.S. Government
security, with a value of more than 25% of the Fund's total assets.
Floating- and Variable-Rate Obligations
---------------------------------------
The Funds may purchase floating- and variable-rate obligations such as
demand notes and bonds. Variable-rate demand notes include master demand notes
that are obligations that permit a Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the Fund,
as lender, and the borrower. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. The issuer of such obligations ordinarily has a right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. Frequently, such obligations are secured by
letters of credit or other credit support arrangements provided by banks.
7
<PAGE>
There generally is no established secondary market for these obligations
because they are direct lending arrangements between the lender and borrower.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and each Fund may
invest in obligations which are not so rated only if the Advisor determines that
at the time of investment the obligations are of comparable quality to the other
obligations in which such Fund may invest. The Advisor, on behalf of each Fund,
considers on an ongoing basis the creditworthiness of the issuers of the
floating- and variable-rate demand obligations in such Fund's portfolio.
Floating- and variable-rate instruments are subject to interest-rate risk and
credit risk.
The floating- and variable-rate instruments that the Funds may purchase
include certificates of participation in such instruments.
Forward Commitment, When-Issued and Delayed-Delivery Transactions
-----------------------------------------------------------------
The Funds may purchase or sell securities on a when-issued or delayed
delivery basis and make contracts to purchase or sell securities for a fixed
price at a future date beyond customary settlement time. Delivery and payment
on such transaction normally take place within 120 days after the date of the
commitment to purchase. Securities purchased or sold on a when-issued, delayed-
delivery or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines, or the value of the security to be sold
increases, before the settlement date. The Funds will establish a segregated
account in which they will maintain cash, U.S. Government obligations or other
high-quality debt instruments in an amount at least equal in value to each such
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, a Fund will place additional liquid assets in the account on a
daily basis so that the value of the assets in the account is equal to the
amount of such commitments.
Geographic Concentration
------------------------
The Funds (except for the National Limited Term Tax-Free Fund and the
National Tax-Free Fund) invest principally in municipal securities issued by
issuers within a particular state and the state's political subdivisions. Those
Funds are more susceptible to factors adversely affecting issuers of those
municipal securities than would be a more geographically diverse municipal
securities portfolio. These risks arise from the financial condition of the
state and its political subdivisions. To the extent state or local governmental
entities are unable to meet their financial obligations, the income derived by a
Fund, its ability to preserve or realize appreciation of its portfolio assets or
its liquidity could be impaired.
To the extent a Fund's investments are primarily concentrated in issuers
located in a particular state, the value of the Fund's shares may be especially
affected by factors pertaining to that state's economy and other factors
specifically affecting the ability of issuers of that state to meet their
obligations. As a result, the value of the Fund's assets may fluctuate more
widely than the value of shares of a portfolio investing in securities relating
to a number of different states. The ability of state, county or local
governments and quasi-government agencies to meet their obligations will depend
primarily on the availability of tax and other revenues to those
8
<PAGE>
governments and on their fiscal conditions generally. The amounts of tax and
other revenues available to governmental issuers may be affected from time to
time by economic, political and demographic conditions within their state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal, state
and local aid to governmental issuers may also affect their ability to meet
obligations. Payments of principal of and interest on private activity
securities will depend on the economic condition of the facility specific
revenue source from whose revenues the payments will be made, which in turn,
could be affected by economic, political or demographic conditions in the state.
High Yield/Junk Bonds
---------------------
The Minnesota Tax-Free Fund and Minnesota Intermediate Tax-Free Fund may
invest in bonds rated below "Baa" by Moody's or "BBB" by S&P (commonly known as
"high yield/high risk securities" or "junk bonds"). Securities rated less than
"Baa" by Moody's or "BBB" by S&P are classified as non-investment grade
securities and are considered speculative by those rating agencies. Junk bonds
may be issued as a consequence of corporate restructuring, such as leveraged
buyouts, mergers, acquisitions, debt recapitalizations, or similar events or by
smaller or highly leveraged companies. Although the growth of the high
yield/high risk securities market in the 1980's had paralleled a long economic
expansion, many issuers subsequently have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or
increase in interest rates is likely to have a negative effect on: (1) the high
yield bond market; (2) the value of high yield/high risk securities; and (3) the
ability of the securities' issuers to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. In addition, the market for high yield/high risk
securities, which is concentrated in relatively few market makers, may not be as
liquid as the market for investment grade securities.
Illiquid Securities
-------------------
The Funds may invest in securities not registered under the Securities Act
of 1933, as amended (the "1933 Act") and other securities subject to legal or
other restrictions on resale. Because such securities may be less liquid than
other investments, they may be difficult to sell promptly at an acceptable
price. Delay or difficulty in selling securities may result in a loss or be
costly to a Fund.
Loans of Portfolio Securities
-----------------------------
Each Fund may lend its portfolio securities pursuant to guidelines approved
by the Board of Trustees of the Trust to brokers, dealers and financial
institutions, provided: (1) the loan is secured continuously by collateral
consisting of cash, securities of the U.S. Government, its agencies or
instrumentalities, or an irrevocable letter of credit issued by a bank organized
under the laws of the United States, organized under the laws of a State, or a
foreign bank that has filed an agreement with the Federal Reserve Board to
comply with the same rules and regulations applicable to U.S. banks in
securities credit transactions, and such collateral being maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned plus any accrued interest or dividends; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned
upon sufficient prior notification; (3) the Fund will
9
<PAGE>
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities loaned will not at any time exceed the
limits established by the 1940 Act.
A Fund will earn income for lending its securities because cash collateral
pursuant to these loans will be invested subject to the investment objectives,
principal investment strategies and policies of the Fund. In connection with
lending securities, a Fund may pay reasonable finders, administrative and
custodial fees. Loans of securities involve a risk that the borrower may fail to
return the securities or may fail to provide additional collateral. In either
case, a Fund could experience delays in recovering securities or collateral or
could lose all or part of the value of the loaned securities. Although voting
rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur. A Fund may pay a portion of the interest or fees earned from
securities lending to a borrower or securities lending agent. Borrowers and
placing brokers may not be affiliated, directly or indirectly, with the Trust,
the Advisor, or the Distributor.
Mortgage-Related Securities
---------------------------
The Funds may invest in mortgage-related securities. Mortgage pass-through
securities are securities representing interests in "pools" of mortgages in
which payments of both interest and principal on the securities are made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the residential mortgage loans which underlie the securities (net
of fees paid to the issuer or guarantor of the securities). Payment of principal
and interest on some mortgage pass-through securities (but not the market value
of the securities themselves) may be guaranteed by the full faith and credit of
the U.S. Government or its agencies or instrumentalities. Mortgage pass-through
securities created by non- government issuers (such as commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers) may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers or the mortgage poolers.
Prepayment Risk. The stated maturities of mortgage-related securities may
be shortened by unscheduled prepayments of principal on the underlying
mortgages. Therefore, it is not possible to predict accurately the average
maturity of a particular mortgage-related security . Variations in the
maturities of mortgage-related securities will affect the yield of the Fund.
Early repayment of principal on mortgage-related securities may expose a Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities.
Collateralized Mortgage Obligations ("CMOs") and Adjustable Rate Mortgages
("ARMs"). The Funds may also invest in investment grade CMOs. CMOs may be
collateralized by whole mortgage loans but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by the Government
National Mortgage Association ("GNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage
10
<PAGE>
Association ("FNMA"). CMOs are structured into multiple classes, with each class
bearing a different stated maturity. Payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes receive principal only
after the first class has been retired. As new types of mortgage-related
securities are developed and offered to investors, the Advisor will, consistent
with the Fund's investment objective, policies and quality standards, consider
making investments in such new types of mortgage-related securities.
The Funds each may invest in ARMs issued or guaranteed by the GNMA, FNMA or
the FHLMC. The full and timely payment of principal and interest on GNMA ARMs is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA also guarantees full and timely payment of both interest and
principal, while FHLMC guarantees full and timely payment of interest and
ultimate payment of principal. FNMA and FHLMC ARMs are not backed by the full
faith and credit of the United States. However, because FNMA and FHLMC are
government-sponsored enterprises, these securities are generally considered to
be high quality investments that present minimal credit risks. The yields
provided by these ARMs have historically exceeded the yields on other types of
U.S. Government securities with comparable maturities, although there can be no
assurance that this historical performance will continue.
The mortgages underlying ARMs guaranteed by GNMA are typically insured or
guaranteed by the Federal Housing Administration, the Veterans Administration or
the Farmers Home Administration, while those underlying ARMs issued by FNMA or
FHLMC are typically conventional residential mortgages which are not so insured
or guaranteed, but which conform to specific underwriting, size and maturity
standards.
The interest rates on the mortgages underlying the ARMs and some of the
CMOs in which the Funds may invest generally are readjusted at periodic
intervals ranging from one year or less to several years in response to changes
in a predetermined commonly-recognized interest rate index. The adjustable rate
feature should reduce, but will not eliminate, price fluctuations in such
securities, particularly when market interest rates fluctuate. The net asset
value of a Funds' shares may fluctuate to the extent interest rates on
underlying mortgages differ from prevailing market interest rates during interim
periods between interest rate reset dates. Accordingly, investors could
experience some loss if they redeem their shares of a Fund or if the Funds sells
these portfolio securities before the interest rates on the underlying mortgages
are adjusted to reflect prevailing market interest rates. The holder of ARMs and
CMOs are also subject to repayment risk.
The Funds will not invest in CMOs that, at the time of purchase, are "high-
risk mortgage securities" as defined in the then current Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities. High-risk mortgage securities are generally those with long
durations or those which are likely to be more sensitive to interest-rate
fluctuations.
Mortgage Participation Certificates. The Funds also may invest in the
following types of FHLMC mortgage pass-through securities. FHLMC issues two
types of mortgage pass-through securities: mortgage participation certificates
("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA
certificates in that each PC represents a pro rata share of all interest and
principal payments made and owed on the underlying pool of mortgages. GMCs also
represent a pro rata interest in a pool of mortgages. These instruments,
however, pay interest
11
<PAGE>
semiannually and return principal once a year in guaranteed minimum payments.
These mortgage pass-through securities differ from bonds in that principal is
paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. They are called "pass-through" securities because both
interest and principal payments, including prepayments, are passed through to
the holder of the security. PCs and GMCs are both subject to prepayment risk.
Municipal Bonds
---------------
The Funds may invest in municipal bonds. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. Municipal bonds
are debt obligations issued to obtain funds for various public purposes.
Industrial development bonds are a specific type of revenue bond backed by the
credit and security of a private user. Certain types of industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide privately-operated facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under federal tax legislation
enacted in 1986, interest on certain private activity bonds must be included in
an investor's alternative minimum taxable income, and corporate investors must
treat all tax-exempt interest as an item of tax preference. Moreover the Fund
cannot predict what legislation, if any, may be proposed in the state
legislature regarding the state income tax status of interest on such
obligations, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
municipal obligations generally for investment by the Fund and the liquidity and
value of the Fund's portfolio. In such an event, the Fund would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
Certain of the municipal obligations held by the Fund may be insured as to
the timely payment of principal and interest. The insurance policies usually are
obtained by the issuer of the municipal obligation at the time of its original
issuance. In the event that the issuer defaults on interest or principal
payment, the insurer will be notified and will be required to make payment to
the bondholders. There is, however, no guarantee that the insurer will meet its
obligations. In addition, such insurance does not protect against market
fluctuations caused by changes in interest rates and other factors.
Municipal Notes
---------------
The Funds may invest in municipal notes. Municipal notes include, but are
not limited to, tax anticipation notes ("TANs"), bond anticipation notes
("BANs"), revenue anticipation notes ("RANs") and construction loan notes. Notes
sold as interim financing in anticipation of collection of taxes, a bond sale or
receipt of other revenues are usually general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such events as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
12
<PAGE>
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its BANs
is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values also will change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Changes in the value of municipal securities
held in the Fund's portfolio arising from these or other factors will cause
changes in the net asset value per share of the Fund.
Other Investment Companies
--------------------------
The Funds may invest in shares of other open-end management investment
companies, up to the limits prescribed in Section 12(d) of the 1940 Act. Under
the 1940 Act, a Fund's investment in such securities currently is limited to,
subject to certain exceptions, (i) 3% of the total voting stock of any one
investment company, (ii) 5% of such Fund's total assets with respect to any one
investment company and (iii) 10% of such Fund's total assets. Other investment
companies in which the Funds invest can be expected to charge fees for operating
expenses, such as investment advisory and administration fees, that would be in
addition to those charged by the Funds.
Repurchase Agreements
---------------------
Each Fund may enter into repurchase agreements, wherein the seller of a
security to a Fund agrees to repurchase that security from a Fund at a mutually
agreed upon time and price. A Fund may enter into repurchase agreements only
with respect to securities that could otherwise be purchased by such Fund. All
repurchase agreements will be fully collateralized at 102% based on values that
are marked to market daily. The maturities of the underlying securities in a
repurchase agreement transaction may be greater than twelve months, although the
maximum term of a repurchase agreement will always be less than twelve months.
If the seller defaults and the value of the underlying securities has declined,
a Fund may incur a loss. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, the Funds' disposition of the
security may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of more
than seven days, if, as a result, more than 15% of the market value of such
Fund's total net assets would be invested in repurchase agreements with
maturities of more than seven days, restricted securities
13
<PAGE>
and illiquid securities. A Fund will only enter into repurchase agreements with
primary broker/dealers and commercial banks that meet guidelines established by
the Board of Trustees and that are not affiliated with the Advisor. The Funds
may participate in pooled repurchase agreement transactions with other funds
advised by the Advisor.
Reverse Repurchase Agreements
-----------------------------
The Funds may enter into reverse repurchase agreements. Reverse repurchase
agreements are transactions in which a Fund sells a security and simultaneously
commits to repurchase that security from the buyer at an agreed upon price on an
agreed upon future date. The resale price in a reverse repurchase agreement
reflects a market rate of interest that is not related to the coupon rate or
maturity of the sold security. For certain demand agreements, there is no agreed
upon repurchase date and interest payments are calculated daily, often based on
the prevailing overnight repurchase rate. Because certain of the incidents of
ownership of the security are retained by a Fund, reverse repurchase agreements
may be viewed as a form of borrowing by a Fund from the buyer, collateralized by
the security sold by the Fund. A Fund will use the proceeds of reverse
repurchase agreements to Fund redemptions or to make investments. In most cases
these investments either mature or have a demand feature to resell to the issuer
on a date not later than the expiration of the agreement. Interest costs on the
money received in a reverse repurchase agreement may exceed the return received
on the investments made by the Fund with those monies. Any significant
commitment of a Fund's assets to the reverse repurchase agreements will tend to
increase the volatility of a Fund's net asset value per share.
Stripped Securities
-------------------
The Funds may purchase Treasury receipts, securities of government-
sponsored enterprises (GSEs), and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments on U.S. Government and other obligations. The stripped securities the
Funds may purchase are issued by the U.S. Government (or a U.S. Government
agency or instrumentality) or by private issuers such as banks, corporations and
other institutions at a discount to their face value. The Funds will not
purchase stripped mortgage-backed securities ("SMBS"). The stripped securities
purchased by the Funds generally are structured to make a lump-sum payment at
maturity and do not make periodic payments of principal or interest. Hence, the
duration of these securities tends to be longer and they are therefore more
sensitive to interest rate fluctuations than similar securities that offer
periodic payments over time. The stripped securities purchased by the Funds are
not subject to prepayment or extension risk.
The Funds may purchase participations in trusts that hold U.S. Treasury
securities (such as TIGRs and CATS) or other obligations where the trust
participations evidence ownership in either the future interest payments or the
future principal payments on the obligations. These participations are normally
issued at a discount to their "face value," and can exhibit greater price
volatility than ordinary debt securities because of the way in which their
principal and interest are returned to investors.
14
<PAGE>
U.S. Government Obligations
---------------------------
The Funds may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Payment of principal and interest on U.S. Government Obligations (i) may be
backed by the full faith and credit of the United States (as with U.S. Treasury
bills and GNMA certificates) or (ii) may be backed solely by the issuing or
guaranteeing agency or instrumentality itself (as with FNMA notes). In the
latter case investors must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, which agency or
instrumentality may be privately owned. There can be no assurance that the U.S.
Government will provide financial support to its agencies or instrumentalities
where it is not obligated to do so. In addition, U.S. Government Obligations are
subject to fluctuations in market value due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
Zero Coupon Bonds
-----------------
The Funds may invest in zero coupon bonds. Zero coupon bonds are securities
that make no periodic interest payments, but are instead sold at discounts from
face value. The buyer of such a bond receives the rate of return by the gradual
appreciation of the security, which is redeemed at face value on a specified
maturity date. Because zero coupon bonds bear no interest, they are more
sensitive to interest-rate changes and are therefore more volatile. When
interest rates rise, the discount to face value of the security deepens and the
securities decrease more rapidly in value, when interest rates fall, zero coupon
securities rise more rapidly in value because the bonds carry fixed interest
rates that become more attractive in a falling interest rate environment.
Nationally Recognized Ratings Organizations
-------------------------------------------
The ratings of Moody's, S&P, Division of McGraw Hill, Duff & Phelps Credit
Rating Co., Fitch Investors Service, Inc. Thomson Bank Watch and IBCA Inc.
represent their opinions as to the quality of debt securities. It should be
emphasized, however, that ratings are general and not absolute standards of
quality, and debt securities with the same maturity, interest rate and rating
may have different yields while debt securities of the same maturity and
interest rate with different ratings may have the same yield. Subsequent to
purchase by the Funds, an issue of debt securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Funds. The Advisor will consider such an event in determining whether the Fund
involved should continue to hold the obligation.
SPECIAL CONSIDERATIONS
AFFECTING ARIZONA MUNICIPAL OBLIGATIONS
The concentration of the Arizona Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
15
<PAGE>
Under its Constitution, the State of Arizona is not permitted to issue
general obligation bonds secured by the State's full faith and credit. However,
agencies and instrumentalities of the State are authorized under specified
circumstances to issue bonds secured by revenues. The State enters into certain
lease transactions that are subject to annual renewal at its option. Local
governmental units in the State are also authorized to incur indebtedness. The
major source of financing for such local government indebtedness is an ad
valorem property tax. In addition, to finance public projects, local governments
may issue revenue bonds to be paid from the revenues of an enterprise or the
proceeds of an excise tax, from assessment bonds payable from special proceeds
of an excise tax, or from assessment bonds payable by special assessments.
Arizona local governments have also financed public projects through leases that
are subject to annual appropriation at the option of the local government.
There are periodic attempts in the form of voter initiatives and
legislative proposals to further limit the amount of annual increases in taxes
that can be levied by the various taxing jurisdictions without voter approval.
It is possible that if such a proposal were enacted, there would be an adverse
impact on State or local government financing. It is not possible to predict
whether any such proposals will be enacted in the future or what would be their
possible impact on state or local government financing.
The State is required by law to maintain a balanced budget. To achieve this
objective, it has in the past utilized a combination of spending reductions and
tax increases. In recent years, the State's fiscal situation has improved, even
while tax reduction measures have been enacted each year since 1992. In 1992,
voters passed a measure that requires a two-thirds vote of the legislature to
increase state taxes.
The State's population, because of continued employment growth, is expected
to record above-average growth rates. After population growth of 3% in 1997 and
2.9% in 1998, 2.8% growth is expected in 1999 and 2.6% in 2000. That translates
into almost 132,000 more people in the state in 1999 and 126,000 in 2000.
The State's diversified economic base is not dependent on any single
industry. Principal economic sectors include services, manufacturing, mining,
tourism, and the military. Agriculture, at one time a major sector, plays a much
smaller role in the economy. For several decades, the population has grown at a
substantially higher rate than the population of the United States.
The economy of the State is growing. Since the current boom peaked in 1994,
when employment grew by 6.8%, the rate of growth has slowed, but only modestly.
Through November 1998 (the latest data available), employment was 4.7% higher
than the year before.
Different parts of the State have different growth rates and structures.
The Phoenix metropolitan area accounts for 70.6% of all Arizona jobs and almost
80% of the State's employment growth. The Tucson area saw growth accelerate in
1998 by 3%, versus 1.8% in 1997. The balance of the State also grew at more
moderate levels.
16
<PAGE>
On a percentage basis, this expansion has not been as strong as previous
expansions. Yet, in terms of absolute employment growth, this expansion has
created more jobs than any period of economic growth in the State's history. For
example, since the beginning of the current expansion in March 1991, more than
580,000 jobs have been created. In comparison, 297,200 jobs were created in the
1975-1980 expansion, and about 450,000 jobs were created in the expansion that
lasted from 1982 to 1990.
According to the national Blue Chip Economic Indicators, after real GDP
growth of 3.9% in 1997 and 3.6% in 1998, growth is expected to moderate to 2.2%
in 1999. Inflation is expected to remain low and interest rates are also likely
to be low and through most of 1999.
As of 1998, 47% of all manufacturing employment in the Phoenix area and 25%
in Pima County is in high technology. The national average is 14.3%. The high-
tech areas include computers, telecommunications, electronic components,
aviation, and instrumentation. In the Phoenix area, the economy is weighted
towards electronic components employment, which accounts for 27% of all
manufacturing jobs. Tucson's high-tech manufacturing employment is more evenly
spread among computers, electronic components, aviation and instrumentation.
It is expected that international trade in the high-tech industry will
continue to grow, which will be a positive for the Arizona economy. But in the
near term, the unbalanced mix of employment could be a problem. Roughly 52% of
Arizona manufacturing exports are of high-tech products; further, nearly 40% of
the state's exports are to Japan, Malaysia, Taiwan, Hong Kong and Singapore, all
of which are experiencing some degree of economic problems.
In 1997, Arizona's total exports as a percent of personal income ranked
fifth in the U.S. at 13.5%, compared to 9.2% for the nation. When analyzing data
using only high-tech exports, Arizona ranked second at 7.1%, versus 2.1%
nationally. Thus, the impact of the reduction in high-tech exports will likely
affect Arizona more than other states. This will undoubtedly result in some
continued layoffs in the manufacturing sector.
The unemployment rate, 4.1% for 1998, should also stay relatively low,
especially in the State's metropolitan areas. However, it is expected to
increase in both 1999 and 2000. The current level of unemployment, the lowest in
nearly three decades, suggests a tight labor market. The modest rise in
unemployment projected for 1999 suggests that labor markets will moderately
soften. After employment growth of 5.6% in 1996, 4.5% in 1997 and an estimated
4.6% in 1998, employment should increase by another 3.5% in 1999 with growth
continuing at about 3% in 2000 and 2001. The Phoenix area's unemployment rate
remains low, at about 2.7%.
The outlook for continued, albeit slower, growth for the U.S. economy acts
as a base for the Arizona economy. The state has been one of the top five
employment-growth states for quite some time, and it should remain in the top
five through 1999. There are other positive factors as well. First, as of
November 1998, manufacturing was 2.3% above the November 1997 rate. Second, the
unemployment rate is low in greater Phoenix and for many other parts of Arizona.
That suggests that job growth will continue. Third, California, the State's
leading domestic trading partner, is expected to enjoy continued, albeit slower,
growth. Fourth, single-family
17
<PAGE>
housing markets continue to boom. Although the absolute level of permits is
expected to decline from 1998's record levels, the outlook is for a relatively
strong housing market.
Housing, which should be up by about 15% in 1998, should decrease by about
10% in 1999. The slowdown is expected to be in single-family activity. In 1999,
even if single-family housing slows, commercial construction should continue to
do well throughout most of the year, despite higher vacancy rates in the
Phoenix-area office and industrial markets. This is expected to prevent any
significant problem in construction employment in 1999, despite the likelihood
of a slowdown.
Another uncertainty is the tourism market. Given the strong economy,
tourist activity should be strong. But declines in the value of the Canadian
dollar, the peso and other currencies versus the U.S. dollar could hurt winter
visitation in Arizona.
As was mentioned earlier, Arizona should not be evaluated as an economic
monolith. Tucson should continue to grow in the 3% to 4% range. The rest of the
state will continue to grow at about 3%. The Phoenix area has been the engine
that has driven the state's economy, and that engine will slow modestly this
year.
Personal income, after growing by 8% in 1996 and 7.3% in 1997, should grow
by another 8% in 1998, 7.8% in 1999, and 7% in 2000. Personal income has
historically been revised upward during periods of boom; 1997 and 1998 will not
be exceptions.
Overall, General Fund revenues are expected to grow modestly, including 4%
in FY 1999 and 5.7% in FY 2001. However, the FY 1999 rate of growth reflects the
impact of the $120 million tax reduction program passed last year, and the FY
2000 revenue estimate includes an incremental reduction to account for an
additional $60 million of tax reductions already enacted.
The Governor's budget proposals in 1999 sought to limit overall spending,
continue the growth of the State's "rainy day" funds, reflect conservative
revenue forecasts to reflect a slowing economy, and propose for the 8th and 9th
consecutive years tax reductions.
State policy makers have been very successful in recent years in depositing
monies into various accounts that have been established for a "rainy day." These
monies are reserved for a true budget emergency precipitated by an economic
downturn. By the end of FY 2001, the rainy day fund is expected to reach $425
million, or 7.08% of the General Fund revenues.
SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS
Certain California constitutional amendments, legislative measures,
executive orders, civil actions and voter initiatives, as well as the general
financial condition of the state, could adversely affect the ability of issuers
of California municipal obligations to pay interest and principal on such
obligations. The following information constitutes only a brief summary, does
not purport to be a complete description, and is based on information drawn from
official statements relating to securities offerings of the State of California
and various local agencies,
18
<PAGE>
available as of the date of this SAI. While the Trust has not independently
verified such information, it has no reason to believe that such information is
incorrect in any material respect.
The California Economy and General Information. From mid-1990 to late
----------------------------------------------
1993, the state suffered a recession with the worst economic, fiscal and budget
conditions since the 1930s. Construction, manufacturing (particularly related to
defense), exports and financial services, among others, were all severely
affected. Job losses had been the worst of any post-war recession. Unemployment
reached 10.1% in January 1994, but fell sharply to 7.7% in October and November
1994, reflecting the state's recovery from the recession.
The recession seriously affected California tax revenues, which basically
mirror economic conditions. It also caused increased expenditures for health and
welfare programs. In addition, the state was faced with a structural imbalance
in its budget with the largest programs supported by the General Fund (e.g., K-
12 schools and community colleges--also known as "K-14 schools," health and
welfare, and corrections) growing at rates higher than the growth rates for the
principal revenue sources of the General Fund. As a result, the state
experienced recurring budget deficits in the late 1980s and early 1990s. The
state's Controller reported that expenditures exceeded revenues for four of the
five fiscal years ending with 1991-92. Moreover, California accumulated and
sustained a budget deficit in its Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993.
The accumulated budget deficits during the early 1990's, together with
expenditures for school funding which are not reflected in the state's budget,
and reduction of available internal borrowable funds, combined to significantly
deplete the state's cash resources to pay its ongoing expenses. In order to meet
its cash needs, the state has had to rely for several years on a series of
external borrowings, including borrowings past the end of a fiscal year. Such
borrowings are expected to continue in future fiscal years. To meet its cash
flow needs in the 1995-96 fiscal year, California issued $2 billion of revenue
anticipation warrants which matured on June 28, 1996. Because of the state's
deteriorating budget and cash situation, the rating agencies reduced the state's
credit ratings between October 1991 and July 1994. Moody's Investors Service
lowered its rating from "Aa" to "A1," Standard & Poor's Ratings Group lowered
its rating from "AAA" to "A" and termed its outlook as "stable," and Fitch
Investors Service lowered its rating from "AA" to "A."
However, since the start of 1994, California's economy has been
recovering steadily. Unemployment has come down from its 10% recession peak to
under 5.8% for 1998. Because of the improving economy and California's fiscal
austerity, the state has forecast an overall balanced budget by June 30, 2000.
Also, Standard & Poor's upgraded its rating of California municipal obligations
back to "A+" on July 15, 1996 and the projected level of the SFEU as of June 30,
1999 was $1.255 billion.
State Finances. The moneys of California are segregated into the General
--------------
Fund and approximately 600 Special Funds. The General Fund consists of the
revenues received by the state's Treasury and not required by law to be credited
to any other fund, as well as earnings from state moneys not allocable to
another fund. The General Fund is the principal operating fund for the majority
of governmental activities and is the depository of most major revenue sources
of the state. The General Fund may be expended as the result of appropriation
measures
19
<PAGE>
by California's Legislature and approved by the Governor, as well as
appropriations pursuant to various constitutional authorizations and initiative
statutes.
The SFEU is funded with General Fund revenues and was established to
protect California from unforeseen revenue reductions and/or unanticipated
expenditure increases. Amounts in the SFEU may be transferred by the state's
Controller to meet cash needs of the General Fund. The Controller is required to
return moneys so transferred without payment of interest as soon as there are
sufficient moneys in the General Fund. Any appropriation made from the SFEU is
deemed an appropriation from the General Fund, for budgeting and accounting
purposes. For year-end reporting purposes, the Controller is required to add the
balance in the SFEU to the balance in the General Fund so as to show the total
moneys then available for General Fund purposes.
Inter-fund borrowing has been used for several years to meet temporary
imbalances of receipts and disbursements in the General Fund. The 1998-1999
Budget Act provides authority for expenditures of $57.3 billion from the General
Fund, $14.7 billion from Special Funds, and $3.4 billion from bond funds.
Changes in California Constitutional and Other Laws. In 1978, California
---------------------------------------------------
voters approved an amendment to the California Constitution known as
"Proposition 13," which added Article XIIIA to the California Constitution.
Article XIIIA limits ad valorem taxes on real property and restricts the ability
of taxing authorities to increase real property taxes. However, legislation
passed subsequent to Proposition 13 provided for the redistribution of
California's General Fund surplus to local agencies, the reallocation of
revenues to local agencies and the assumption of certain local obligations by
the state so as to assist California municipal issuers to raise revenue to pay
their bond obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers to pay
their obligations. California is also subject to another Constitutional
Amendment, Article XIIIB, which may have an adverse impact on California state
and municipal issuers. Article XIIIB restricts the state from spending certain
appropriations in excess of an appropriation's limit imposed for each state and
local government entity. If revenues exceed such appropriation's limit, such
revenues must be returned either as revisions in the tax rates or fee schedules.
In 1988, California voters approved "Proposition 98," which amended Article
XIIIB and Article XVI of the state's Constitution. Proposition 98 (as modified
by "Proposition 111," which was enacted in 1990), changed state funding of
public education below the university level and the operation of the state's
appropriations limit, primarily by guaranteeing K-14 schools a minimum share of
General Fund revenues. In 1986, California voters approved "Proposition 62,"
which provided in part that any tax for general governmental purposes imposed by
a local government be approved by a two-thirds vote of the governmental entity's
legislative body and by a majority of its electorate and that any special tax
imposed by a local government be approved by a two-thirds vote of the
electorate. In September 1995, the California Supreme Court upheld the
constitutionality of Proposition 62, creating uncertainty as to the legality of
certain local taxes enacted by nonchartered cities in California without voter
approval.
20
<PAGE>
In 1996, California voters approved "Proposition 218," which added Articles
XIIIC and XIIID to the state's Constitution generally requiring voter approval
of most tax or fee increases by local governments and curtailing local
government use of benefit assessments to fund certain property-related services
to finance infrastructure. Proposition 218 also limits the use of special
assessments or "property-related" fees to services or infrastructure that confer
a "special benefit" to specific property; police, fire and other services are
now deemed to benefit the public at large and, therefore, could not be funded by
special assessments. Finally, the amendments enable the voters to use their
initiative power to repeal previously-authorized taxes, assessments, fees and
charges. The interpretation and application of Proposition 218 will ultimately
be determined by the courts. Proposition 218 is generally viewed as restricting
the fiscal flexibility of local governments, and for this reason, some ratings
of California cities and counties have been, and others may be, reduced. It
remains to be seen, as such, what impact these Articles will have on existing
and future California security obligations.
The Governor recently proposed that California reduce its Vehicle License
Fee (a personal property tax on the value of automobiles, the 'VLF') by 75% over
five years, by which time the tax cut would be more than $3.5 billion annually.
Under current law, the VLF is entirely dedicated to city and county government,
and the Governor proposed to use the General Fund to offset the loss of VLF
funds to local government. All of the Governor's proposals must be negotiated
with the State Legislature of California as part of the annual budget process.
Starting on January 1, 1999, the VLF will be reduced by 25%, at a cost to the
General Fund of approximately 500 million in the 1998-1999 Fiscal Year and about
$1 billion annually thereafter.
Other Information. Certain debt obligations held by the Funds may be
-----------------
obligations payable solely from lease payments on real or personal property
leased to the state, cities, counties or their various public entities.
California law provides that a lessor may not be required to make payments
during any period that it is denied use and occupancy of the property in
proportion to such loss. Moreover, the lessor only agrees to appropriate funding
for lease payments in its annual budget for each fiscal year. In case of a
default under the lease, the only remedy available against the lessor is that of
reletting the property; no acceleration of lease payments is permitted. Each of
these factors presents a risk that the lease financing obligations held by a
Fund would not be paid in a timely manner.
Certain debt obligations held by the Funds may be obligations payable
solely from the revenues of health care institutions. The method of
reimbursement for indigent care, California's selective contracting with health
care providers for such care and selective contracting by health insurers for
care of its beneficiaries now in effect under California and federal law may
adversely affect these revenues and, consequently, payment on those debt
obligations.
There can be no assurance that general economic difficulties or the
financial circumstances of California or its towns and cities or its trading
partners in Asia, where California exports $50 billion in goods representing
nearly half of $105 billion in total exports, will not adversely affect the
market value of California municipal securities or the ability of obligors to
continue to make payments on such securities. Recently, however, the economic
picture has brightened considerably, as both the nation and California appear to
have avoided a major slowdown emanating from the crisis in Asia and Latin
America. Based on continued growth in real gross domestic product, increased
retail sales based upon strong consumer
21
<PAGE>
confidence and other factors. Employment data revisions in California revealed
that instead of slowing in late 1998 and early 1999, as assumed, wage and salary
jobs in the state continued to expand at a healthy pace. This trend is expected
to continue through 1999.
SPECIAL CONSIDERATIONS AFFECTING
COLORADO MUNICIPAL OBLIGATIONS
Among the most significant sectors of the State's economy are services,
trade, manufacture of durable and non-durable goods and tourism. During the mid-
1980's, the State's economy was adversely affected by numerous factors,
including the contraction of the energy sector, layoffs by advanced technology
firms and an excess supply of both residential and nonresidential buildings
causing employment in the construction sector decline. As a result of these
conditions, certain areas of the State experienced particularly high
unemployment. Furthermore, in 1986, for the first time in 32 years, job
generation in the State was negative and, in 1986, for the first time in 21
years, the State experienced negative migration, with more people leaving the
State than moving in.
From 1989 through 1998, there has been steady improvement in the Colorado
economy: per-capita income increased approximately 59.1% (6.7% in 1998) and
retail trade sales revenues increased approximately 84.1% (6.6% in 1998). The
State's estimated growth rate is above the national growth rate and the State's
unemployment rate is still below the national unemployment rate (in 1998 the
State's unemployment rate was 3.8%).
The State of Colorado's political subdivisions include approximately 1,600
units of local government in Colorado, including counties, statutory cities and
towns, home-rule cities and counties, school districts and a variety of water,
irrigation, and other special districts and special improvement districts, all
with various constitutional and statutory authority to levy taxes and incur
indebtedness.
The Colorado economy has become increasingly diversified during the 1990s,
moving from an economy formerly reliant on agriculture and mining to one based
on services, communications, transportation, tourism and manufacturing. Small
businesses predominate among Colorado businesses. Certain obligations of
Colorado State and local public entities are subject to particular economic
risks, including, but not limited to, the vulnerabilities of resort economies
which depend on seasonal tourism, the possibility of downturns in sales tax and
other revenues, and fluctuations in the real estate market.
The State derives all of its General Fund revenues from taxes. The two most
important sources of these revenues are sales and use taxes and personal income
taxes, which accounted for approximately 32.2% and 63.4%, respectively, of total
General Fund revenues during fiscal year 1997 and approximately 31.0% and 63.8%,
respectively, of total net General Fund revenues during fiscal year 1998. The
ending General Fund balance for fiscal year 1997 was $712.2 million and for
fiscal year 1998 was approximately $718.0 million.
The Colorado Constitution contains strict limitations on the ability of the
State to create debt except under certain very limited circumstances. However,
the constitutional provision has been interpreted not to limit the ability of
the State to issue certain obligations which do not
22
<PAGE>
constitute debt, including short-term obligations which do not extend beyond the
fiscal year in which they are incurred and certain lease purchase obligations
which are subject to annual appropriation. The State is authorized pursuant to
State statutes to issue short-term notices to alleviate temporary cash flow
shortfalls. The most recent issue of such notes, issued on July 1, 1999, was
given the highest rating available for short-term obligations by S&P (SP-1+) and
Fitch (F-1+) (A rating on such notes was not requested from, and consequently no
rating was given by, Moody's). Because of the short-term nature of such notes,
their ratings should not be considered necessarily indicative of the State's
general financial condition.
On November 3, 1992, the Colorado voters approved a State constitutional
amendment (the "Amendment") that restricts the ability of the Sate and local
governments to increase taxes, revenues, debt and spending. The Amendment
provides that its provisions supersede conflicting State constitutional, State
statutory, charter or other State or local provisions.
Among other provisions, the Amendment requires the establishment of
emergency reserves, limits increases in district revenues and in district fiscal
year spending, and requires voter approval for new taxes, tax increases or debt
not meeting certain exceptions. As a general matter, annual State fiscal year
spending may change not more than inflation plus the percentage change in State
population in the prior calendar year. Annual local district fiscal year
spending may change no more than inflation in the prior calendar year plus
annual local growth, as defined in and subject to the adjustments provided in
the Amendment. The Amendment provides that annual district property tax revenues
may change no more than inflation in the prior calendar year plus annual local
growth, as defined in and subject to the adjustments provided in the Amendment.
District revenues in excess of the limits prescribed by the Amendment are
required, absent voter approval, to be refunded by any reasonable method,
including temporary tax credits or rate reductions. During 1999, the State
refunded revenues in excess of the applicable limits to certain taxpayers in the
State in accordance with the amendment. The Amendment also provides that a local
district may reduce or end its subsidy to any program (other than public
education through grade 12 or as required by federal law) delegated to it by the
State General Assembly for administration.
This description is not intended to constitute a complete description of
all of the provisions of the Amendment. Furthermore, many provisions of the
Amendment and their application are unclear. Several statutes have been enacted
since the passage of the Amendment attempting to clarify the application of the
Amendment with respect to certain governmental entities and activities and
numerous court decisions have been rendered interpreting certain of the
Amendment's provisions, including a recent State Supreme Court decision holding
that certain proposed transportation revenue participation notes would be
subject to the Amendment's requirements for prior voter approval. However, many
provisions of the Amendment may require further legislative or judicial
clarification. The future impact of the Amendment on the financial operations
and obligations of the State and local governments in the State cannot be
determined at this time.
SPECIAL CONSIDERATIONS
AFFECTING MINNESOTA MUNICIPAL OBLIGATIONS
The following highlights some of the more significant financial trends and
issues affecting Minnesota and its economy and is based on information drawn
from official statements,
23
<PAGE>
government web sites and other resources publicly available as of the date of
this Statement of Additional Information. Wells Fargo Bank has not independently
verified any of the information contained in such resources, but is unaware of
any fact which would render such information inaccurate.
Constitutional State Revenue Limitations. Minnesota's constitutionally
----------------------------------------
prescribed fiscal period is a biennium. No agency or other entity may spend more
than its "allotment." The State's Commissioner of Finance, with the approval of
the Governor, is required to reduce excess allotments to the extent necessary to
balance expenditures and forecasted available resources for the then current
biennium. The Governor may seek legislative action when a large reduction in
expenditures appears necessary, and if the State's legislature is not in
session, the Governor is empowered to convene a special legislative session.
Effect of Limitations on Ability to Pay Bonds. There are no constitutional
---------------------------------------------
or statutory provisions which would impair the ability of Minnesota
municipalities, agencies or instrumentalities to meet their bond obligations if
the bonds have been properly issued.
Minnesota's Economy. Diversity and a significant natural resource base are
-------------------
two important characteristics of Minnesota's economy. When viewed in 1996 on an
aggregate level, the structure of the State's economy parallels the structure of
the United States economy as a whole. State employment in 10 major sectors was
distributed in approximately the same proportions as national employment. In all
sectors, the share of total State employment was within 2.5 percentage points of
national employment share.
In 1996, Minnesota's per capita gross state product (GSP) of $30,395 was
more than 5 percent higher than the U.S.'s per capita gross domestic product
(GDP) of $28,766. In addition, between 1988 and 1996, Minnesota's GSP increased
by 26.5 percent compared to an 18.3 percent increase of U.S. GDP.
Minnesota's employment in the finance, insurance and real estate (FIRE)
sector grew at a rate of 20.1 percent, increasing from 117,738 employees in 1988
to 141,413 in 1996. This rate of increase was nearly seven times that of the
nation's FIRE sector. Employment in Minnesota's business services industry grew
by more than 68 percent between 1988 and 1996. This increase was driven in part
by the outstanding growth in the computer programming, data processing, and
other computer related services industry, which grew by more than 120 percent
during the same period.
Minnesota has one of the fastest growing populations in the Midwest.
Migration from other states, a low death rate, a moderate birth rate and
increasing minority populations have all contributed to Minnesota's population
increase. The eight fastest growing counties in Minnesota between 1990 and 1996
are counties on the suburban fringe of the Minneapolis-St. Paul metropolitan
area. More than 71 percent of Minnesota's population lives in the state's ten
largest metropolitan statistical areas and cities.
Minnesota's real per capita personal income grew by 3.6 percent between
1995 and 1996 - more than double the rate of the national average. Minnesota had
the highest per capita
24
<PAGE>
personal income among the Plains states and the second highest among all Midwest
states in 1996. Nationally, Minnesota ranked 11/th/ in per capita personal
income in 1996, up from 19/th/ place in 1995 and 17/th/ place in 1990.
For 1998, Minnesota's annual average unemployment rate, at 2.5 percent, is
the lowest in the nation. The national annual average unemployment rate in 1998
was 4.5 percent. Minnesota's labor force participation rate, at 74.5 percent,
was the second highest in the nation in 1997. The national labor force
participation rate was 67.1 percent in 1997.
Minnesota had the 12/th/ lowest poverty rate nationally, at 9.7 percent in
1996/97. The national poverty rate was 13.5 percent in 1996/97. Minnesota had
the seventh highest median income for a four-person family, at $60,577 in 1997.
The national median income for a four-person family was $53,350 in 1997.
Minnesota had the 11/th/ highest per capita personal income, at $27,510 in 1998.
The national per capita personal income was $26,412 in 1998.
The State of Minnesota has recently enjoyed a budget surplus. The 1999
Legislature allocated $28.3 billion in general fund resources for the three year
period of fiscal years 1999, 2000 and 2001. Of the $28.3 billion, $2.9 billion
resulted from revenue surpluses available in FY 1999 and $25 billion is from
resources projected to be available in FY 2000 and 2001. An additional $400
million was made available by converting $400 million of capital projects funded
with general fund appropriations to projects funded with the sale of general
obligation bonds.
For 1999, the Legislature enacted a sales tax rebate of $1.25 billion which
was funded out of FY 1999 resources. Tobacco settlement funds received in FY
1999 of $460.8 million were transferred to the tobacco settlement fund in FY
1999. Supplemental appropriations of about $77 million were also made in FY
1999. Allocations in FY 2000-01 include state tax reductions of $1.4 billion,
another $507 million to the tobacco settlement fund and $23.44 billion for
programs. The general fund is the largest single portion of the state budget.
Appropriations from other funds will bring all appropriations in the state
budget for FY 2000-01 to approximately $37 billion. Other funds are usually
dedicated for specific purposes such as health care access and highways and
bridges.
The State of Minnesota has no obligation to pay any bonds of its political
or governmental subdivisions, municipalities, governmental agencies, or
instrumentalities. The creditworthiness of local general obligation bonds is
dependent upon the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability of
particular designated revenue sources or the financial conditions of the
underlying obligors. Although most of the bonds owned by the Fund are expected
to be obligations other than general obligations of the State of Minnesota
itself, there can be no assurance that the same factors that adversely affect
the economy of the State generally will not also affect adversely the market
value or marketability of such other obligations, or the ability of the obligors
to pay the principal of or interest on such obligations.
25
<PAGE>
SPECIAL CONSIDERATIONS
AFFECTING OREGON MUNICIPAL OBLIGATIONS
The concentration of the Oregon Tax-Free Fund in securities issued by
governmental units of only one state exposes the Fund to risks greater than
those of a more diversified portfolio holding securities issued by governmental
units of different states and different regions of the country.
State Bonds and Revenues. As of March 1, 1999, $2.46 billion (rounded) in
------------------------
general obligation bonds issued by the State of Oregon and its agencies were
outstanding, including $134.1 million (rounded) in general obligation bonds
supported by the budget for the State's general fund and $2.33 billion (rounded)
of revenue supported general obligation bonds. The State's revenue supported
general obligation bonds include $1.57 billion (rounded) of State veteran's
bonds, which, in the event of poor economic conditions resulting in an increased
number of mortgage defaults, could cease to be self-supporting. All of the
existing and outstanding general obligation bonds of the State have been issued
under specific State constitutional provisions that authorize the issuance of
such bonds and provide authority for ad valorem taxation to pay the principal of
and interest on such bonds. With the exception of the veteran's bonds, for which
no more than two mills on each dollar valuation may be levied to pay principal
and interest, the authority of the State to tax property for the payment of its
general obligation bonds is unlimited. Since at least 1950, the State has not
imposed ad valorem tax for the payment of any of its obligations because other
revenues, including those generated by the self-supporting bonds, have been
sufficient.
In addition to general obligation bonds, various State statutes authorize
the issuance of State revenue bonds and certificates of participation. These
limited obligations of the State or its agencies or instrumentalities may be
payable from a specific project or source, including lease rentals. The State is
not authorized to impose ad valorem taxes on property for the payment of
principal and interest on these bonds, so they are more sensitive to changes in
the economy. There can be no assurance that future economic problems will not
adversely affect the market value of Oregon obligations held by the Fund or the
ability of the respective obligors (both private and governmental) to make
required payments on such obligations.
Oregon does not have a sales tax. As a result, State tax revenues are
particularly sensitive to economic recessions. The principal sources of State
tax revenues are personal income and corporate income taxes. Since 1983 State
revenues have improved substantially, and in recent years the State has granted
tax refunds because of budget surpluses, as required by statute.
Oregon Economic and Revenue Forecast. A quarterly Economic and Revenue
------------------------------------
Forecast is prepared by the State Department of Administrative Services. A
complete copy of the State's most recent quarterly Economic and Revenue Forecast
is posted at the Oregon Department of Administrative Services' web site:
www.oea.das.state.or.us when publicly released. While the Economic and Revenue
Forecast is normally issued in March, June, September and December; during years
in which the legislature is in session the June forecast is released on May 15.
Such forecast is used by the legislature in making final budget decisions for
the next biennium, which starts July 1. The following is a summary of certain
portion of the materials contained in the Oregon Economic and Revenue Forecast
released on May 15. The full text of the May 1999
26
<PAGE>
Oregon Economic and Revenue Forecast is available at the website identified
above, or by writing to the Office of Economic Analysis, Oregon Department of
Administrative Services, 155 Cottage Street, NE, Salem, Oregon 97310.
Economic Forecast. Oregon's economy grew briskly in the first quarter of
-----------------
1999. The pattern for growth was once again similar to the rest of the U.S.,
with consumer spending leading the way. The mild recovery in the Asian crisis
alleviated some of the pain experienced by the manufacturing sector throughout
the second half of 1998.
The preliminary estimate of first quarter 1999 Oregon job growth is 3.9
percent. This is the fastest quarterly growth since the fourth quarter of 1996.
It compares with 2.3 percent for the U.S. as a whole. The first quarter was a
marked improvement over the fourth quarter of 1998, when jobs grew only 2.4
percent.
Over the past year, Oregon's economy slowed relative to its Western
neighbors. Oregon ranks 32/nd/ among states for job growth between February 1998
and February 1999. California and Washington had much faster job growth during
the period, ranking 7/th/ and 12/th/, respectively.
The Office of Economic Analysis (which prepares the Economic and Revenue
Forecast for the Oregon Department of Administrative Services) forecasts
Oregon's economy to grow faster than the U.S. economy over the next two years.
The growth will be mild, however, and well below the fast pace of 1995 through
1997. No overall decline in employment is expected unless the U.S. economy falls
into recession. Job losses to manufacturing should lessen in 1999 with slight
gains in 2000, following the recovery of Asian economies.
Oregon's economy has grown relatively faster than the nation throughout the
1990s. The Office of Economic Analysis expects Oregon to remain a high growth
state through 2005.
Risk Factor. The major risk to the forecast is a change in consumer
-----------
spending patterns. A stock market correction that adversely impacts wealth and
shakes consumer confidence will slow down spending. The risk to businesses is
further turmoil in world economic markets. Both consumers and businesses would
be directly impacted if oil prices keep spiraling higher. (In June 1999 Oregon
has the highest gas prices in the nation.) If all these risks come into play,
the reduction in growth would be widespread across all industries and consumer
groups.
Demographic Forecast. The state's population is forecast to increase from
--------------------
3.268 million in 1998 to 3.569 million in 2005, a 9.2 percent increase. During
this time period, the fastest growth will occur in the 18-24 year old, the 45-64
year old, and the 85 and older age groups. The 5-17 and 25-44 age groups will
increase slightly. The youngest of the elderly, those ages 65-74, are currently
declining. They will begin to expand in 2002. The 75-84 age group will start to
decline late in the forecast period.
Revenue Forecast.
----------------
27
<PAGE>
1999-2001 General Fund Revenue. General Fund revenue is forecast to total
$9,827.4 million for the 1999-2001 biennium, a 19 percent increase from the
1997-1999 biennium. The beginning balance is forecast to be $329.6 million.
Combined, these amounts would provide total General Fund resources of $10,157.0
million for the 1999-2001 biennium. This is an increase in resources of $43.8
million from the March 1999 Economic and Revenue Forecast.
The personal income tax forecast of $8,426.9 million is $170.8 million
higher than the March 1999 Economic and Revenue Forecast. This is due to an
improved economic outlook and a higher capital gains revenue forecast. As a
result, collections are estimated to increase 18 percent relative to the prior
biennium. This growth rate is inflated, however, due to the large federal
pension and budget surplus refunds the State was required to pay during the
1997-99 biennium. Revenues increase only 10 percent if the effect of the refunds
is removed. The effect of the federal pension tax refunds drops off sharply
after the 1999-2001 biennium, when almost all of these refunds will have been
paid.
Corporate income tax revenues are forecast to total $801.8 million in 1999-
2001. This is a $30.4 million decrease compared with March 1999 Economic and
Revenue Forecast. The lower forecast is due to changes in the national corporate
profit forecast and a lower starting point. Even with the lower forecast,
revenues are still estimated to be 49 percent higher than the prior biennium.
This growth rate, however, is highly exaggerated due to the large budget surplus
credits taken during 1997-99. If the budget surplus credits effect is removed,
collections increase only 10 percent.
On a combined basis, personal income taxes and corporate income taxes are
projected to provide over 99 percent of General Fund revenues during the 1999-
2001 biennium.
All other General Fund revenue is forecast to increase only slightly during
the biennium. The main reason is lower insurance and inheritance taxes
forecasts. The insurance tax forecast is slowly being eliminated. Insurers are
transitioning from paying insurance taxes to paying corporate excise taxes. This
forecast reflects actual experience during the first year of this transition.
Inheritance taxes have been lowered to reflect the effect of the increasing
personal estate exemption.
Extended Revenue Outlook. The Office of Economic Analysis projected General
Fund revenues to increase 13 percent in the 2001-03 biennium to $11,1135.2
million in the May 1999 Economic and Revenue Forecast. This is an increase of
$140.2 million from the March 1999 Economic and Revenue Forecast. The main
reason is a higher personal income tax forecast.
The Office of Economic Analysis also projects General Fund revenues to
increase 11 percent in 2003-05 biennium to $12,411.8 million. This is a decrease
of $56.6 million compared to March 1999 Economic and Revenue Forecast. The lower
forecast is due to lower levels for all general fund revenues during the
biennium.
28
<PAGE>
Recent Developments Affecting Government Revenues Not Discussed in the
----------------------------------------------------------------------
Economic and Revenue Forecast.
- -----------------------------
Ballot Measure 5. Article XI, section 11b of the Oregon Constitution,
adopted by Oregon's voters in November 1990 ("Ballot Measure 5"), imposes an
aggregate limit on the rate of property taxes, including ad valorem taxes, that
may be levied against any real or personal property. The limit is subject to
certain exceptions and is being phased in over a five-year period. Beginning
with the tax year that starts on July 1, 1996, the final year of the phase-in
period, not more than $15 per $1,000 of real market value can be levied against
any piece of property. Of this amount, $5 may be used for public education, and
the remaining $10 may be used for general governmental purposes.
The limitations of Ballot Measure 5 do not apply to taxes imposed to pay
the principal of and interest on bonded indebtedness authorized by a specific
provision of the State Constitution. Therefore, the ability of the State to levy
taxes to service its constitutionally authorized general obligation bonds is not
subject to the limit. In addition, because the State currently receives its
revenues from sources other than property taxes, Ballot Measure 5 has not
directly affected State revenues.
The tax limitations of Ballot Measure 5 do not apply to user fees,
licenses, excise or income taxes and incurred charges for local improvements.
Since 1990 local governments have begun to rely more heavily on such fees and
taxes to finance certain services and improvements.
Ballot Measure 5 has controlled the growth of local property tax revenues
since its adoption. Although the growth in local property valuations during the
period 1991 to 1997 has somewhat mitigated the potential impacts of Ballot
Measure 5, revenues of local government units in Oregon have generally been
adversely affected by the adoption of Ballot Measure 5. This appears to be
particularly true with respect to school district operating revenues.
Ballot Measure 5 required the State to replace a substantial portion of the
lost revenues of local school districts through the end of fiscal year 1995-96.
Although this obligation has now expired, the extent of revenue loss perceived
to have been incurred by local school districts indicates that the State may
continue to provide significant revenue relief to these governmental units. In
addition, the provisions of the initiative known as Ballot Measure 50, as
defined and discussed below, is expected to also result in the State making
further financial assistance available to certain units of local government as a
result of further restrictions and limitations placed upon the ability of units
of local government to generate revenues through Oregon's system of ad valorem
property taxation.
Ballot Measure 50. The 1997 Legislative Assembly referred to Oregon voters,
and the voters approved at the May 20, 1997, special election, a constitutional
amendment ("Measure 50") that replaced the property tax limitations imposed by a
voter initiative approved at the November 5, 1996, general election ("Measure
47"). Measure 50 repealed Measure 47 and replaced it with new ad valorem
property tax limitations similar to those which would have been required to be
enacted under Measure 47. Measure 50 limits the assessed value for the tax year
1997-98 to its 1995-96 "real market value," less ten percent. In implementing
Measure 50, the
29
<PAGE>
Oregon Legislature also ordered a 17% reduction in 1997-98 in operating tax
levies (which amounts vary by government entity). Thereafter, Measure 50 limits
the valuation growth of property assessments on each unit of property to three
percent per year for future tax years. Measure 50 preserves the general
limitations on property tax rates of $5 per $1,000 for public education and $10
per $1,000 for all other governmental services. Measure 50 also requires that
any new property taxes be approved by a majority of the voters in an election
where at least 50% of eligible voters participate, except in the instance of a
general election in even numbered years. In addition, Measure 50 requires voter
approval of the use of fees, taxes, assessments or other charges as alternative
funding sources to make up for revenue reductions caused by the amended property
tax limits.
Units of local government that levy and collect property taxes are most
directly affected by Measure 50. The State does not levy or collect property
taxes, but relies instead on state income taxes as the main source of revenue
for the State's general fund. Therefore, Measure 50's main impact on the State
will likely be to increase pressure on the Legislative Assembly to use State
funds to replace revenues lost by local governments. Measure 50 required the
Legislative Assembly to replace the estimated $428 million in revenues that the
public school system, including community colleges, was expected to lose in the
1997-99 biennium because of the property tax limitation. In this manner, Measure
50 influenced the State budgeting process. Such influence continues to be felt
in legislative debates concerning the level at which the State will provide
funding for public schools in Oregon after the adoption of Measure 50.
The Referendum and Initiative Process. The Oregon Constitution reserves to
-------------------------------------
the people of the State initiative and referendum power pursuant to which
measures designed to amend the State Constitution or enact legislation, can be
placed on the statewide general election ballot for consideration by the voters.
"Referendum" generally means measures referred to the electors by a legislative
body such as the State Legislative Assembly or the governing body of a city,
county or other political subdivision, while "initiative" generally means a
measure placed before the voters as a result of a petition circulated by one or
more private citizens.
In the 1999 Legislative session, the State Legislative Assembly voted to
refer 21 measures to the electorate in the 1999 special elections, or the 2000
primary or general elections. These measures range from enshrining the present
statutory surplus kicker provision into the Oregon Constitution (with
modifications) to dedicating the use of tobacco settlement money by the
Legislature. It is difficult to predict the likelihood that any of the
referendum measures will be approved by the voters.
Any person may file a proposed initiative with the Oregon Secretary of
State's office. The Oregon Attorney General is required by law to draft a
proposed ballot title for the initiative, and interested parties may submit
comments on the legal sufficiency of the proposed ballot title and on whether
the proposed initiative complies with a "one subject only" rule for an
initiative measure. After considering any public comments, the Attorney General
must either certify or revise the draft ballot title. In general, any elector
who timely submitted written comments on the draft ballot title may petition the
Oregon Supreme Court seeking a revision of the certified ballot title.
30
<PAGE>
To have an initiative placed on a general election ballot, the proponents
of the proposed initiative must submit to the Secretary of State initiative
petitions signed by the number of qualified voters equal to a specified
percentage of the total number of votes cast for all candidates for governor in
the most recent gubernatorial election. The initiative petition must be filed
with the Secretary of State not less than four months prior to the general
election at which the proposed measure is to be voted upon. As a practical
matter, proponents of an initiative have approximately two years in which to
gather the necessary number of signatures. State law permits persons circulating
initiative petition to pay money to persons obtaining signatures for the
petition.
Over the past decade, Oregon has witnessed increasing activity in the
number of initiative petitions that have qualified for the statewide general
election. According to the Elections Division of the Oregon Secretary of State,
the number of initiative petitions that have qualified for the ballot and the
number that have passed in the general elections during the 1990s are as
follows:
Year of General Election Initiatives That Qualified Initiatives That Passed
- ------------------------ -------------------------- -----------------------
1990 8 3
1992 7 0
1994 16 8
1996 16 4
1998 10 6
It is difficult to predict with certainty either the likelihood of a
proposed initiative measure obtaining the required number of valid initiative
petition signatures or the likelihood of an initiative that has acquired the
necessary number of valid signatures being approved by the voters. There can be
no assurance that additional initiatives that will have a material adverse
impact on the financial condition of the State or units of local government or
the State's or units of local government's ability to collect the revenues
required to repay their general obligation bonds, revenue bonds or other
obligations will not be proposed, placed on the ballot, or be approved by the
voters.
The Oregon Bond Market. There is a relatively small active market for
----------------------
municipal bonds of Oregon issuers other than the general obligations of the
State itself, and the market price of such other bonds may therefore be
volatile. If the Oregon Tax-Free Fund were forced to sell a large volume of
Oregon Obligations owned by it or for any reason, such as to meet redemption
requests for a large number of its shares, there is a risk that the large sale
itself would adversely affect the value of the Oregon Tax-Free Fund's portfolio.
MANAGEMENT
The following information supplements, and should be read in conjunction
with, the section in the Prospectus entitled "Organization and Management of the
Funds." The principal occupations during the past five years of the Trustees and
principal executive Officer[s] of the Trust are listed below. The address of
each, unless otherwise indicated, is 111 Center Street,
31
<PAGE>
Little Rock, Arkansas 72201. Trustees deemed to be "interested persons" of the
Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
*Robert C. Brown, 65 Trustee, Director, Federal Farm Credit Banks Funding
1431 Landings Place Secretary and Corporation and Farm Credit System Financial
Sarasota, FL 34231 Treasurer Assistance Corporation since February 1993.
Donald H. Burkhardt, 70 Trustee Principal of the Burkhardt Law Firm.
777 South Steele Street
Denver, CO 80209
Jack S. Euphrat, 77 Trustee Private Investor.
415 Walsh Road
Atherton, CA 94027
Thomas S. Goho, 56 Trustee Business Associate Professor, Wake Forest
321 Beechcliff Court University, Calloway School of Business and
Winston-Salem, NC 27104 Accountancy since 1994; previously Associate
Professor of Finance.
Peter G. Gordon, 56 Trustee Chairman and Co-Founder of Crystal Geyser
Crystal Geyser Water Co. Water Company and President of Crystal Geyser
55 Francisco Street, Suite 410 Roxane Water Company since 1977.
San Francisco, CA 94133
*W. Rodney Hughes, 72 Trustee and Private Investor.
31 Dellwood Court President
San Rafael, CA 94901
Richard M. Leach, 63 Trustee President of Richard M. Leach Associates (a
P.O. Box 1888 financial consulting firm) since 1992.
New London, NH 03257
*J. Tucker Morse, 54 Trustee Private Investor/Real Estate Developer;
Four Beaufain Street Chairman of Vault Holdings, LLC.
Charleston, SC 29401
Timothy J. Penny, 45 Trustee Senior Counselor to the public relations firm
500 North State Street of Himle-Horner since January 1995 and Senior
Waseca, MN 56095 Fellow at the Humphrey Institute, Minneapolis,
Minnesota (a public policy organization) since
January 1995.
Donald C. Willeke, 58 Trustee Principal of the law firm of Willeke & Daniels.
201 Ridgewood Avenue
Minneapolis, MN 55403
</TABLE>
Each of the Trustees and Officers listed above act in the identical
capacities for Wells Fargo Variable Trust and Wells Fargo Core Trust
(collectively the "Fund Complex"). Each
32
<PAGE>
Trustee receives an annual retainer (payable quarterly) of $40,000 from the Fund
Complex, and also receives a combined fee of $1,000 for attendance at Fund
Complex Board meetings, and a combined fee of $250 for attendance at committee
meetings. If a committee meeting is held absent a full Board meeting, each
attending Trustee will receive a $1,000 combined fee. These fees apply equally
for in-person or telephonic meetings, and Trustees are reimbursed for all
out-of-pocket expenses related to attending meetings. For 1999, the Trustees
will receive a pro rata share of the annual retainer, calculated from the
closing date of the Reorganization. The Trustees do not receive any retirement
benefits or deferred compensation from the Trust or an other member of the Fund
Complex.
As of the date of this SAI, Trustees and Officers of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust.
Investment Advisor. Wells Fargo Bank provides investment advisory services
------------------
to the Funds. As investment advisor, Wells Fargo Bank furnishes investment
guidance and policy direction in connection with the daily portfolio management
of the Funds. Wells Fargo Bank furnishes to the Trust's Board of Trustees
periodic reports on the investment strategy and performance of each Fund. Wells
Fargo Bank provides the Funds with, among other things, money market and fixed-
income research, analysis and statistical and economic data and information
concerning interest rate and securities markets trends, portfolio composition,
and credit conditions.
As compensation for its advisory services, Well Fargo Bank is entitled to
receive a monthly fee at the annual rates indicated below of each Fund's average
daily net assets:
Annual Rate
Fund (as percentage of net assets)
- ---- -----------------------------
Arizona Tax-Free Fund 0.40%
California Limited Term Tax-Free Fund 0.40%
California Tax-Free Fund 0.40%
Colorado Tax-Free Fund 0.40%
Minnesota Intermediate Tax-Free Fund 0.40%
Minnesota Tax-Free Fund 0.40%
National Limited Term Tax-Free Fund 0.40%
National Tax-Free Fund 0.40%
Oregon Tax-Free Fund 0.40%
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amount of advisory
(and other) fees paid shows the dollar amount of fees paid to either Wells Fargo
Bank or NIM by the predecessor portfolio that is considered the surviving entity
for accounting purposes.
For the periods indicated below, the predecessor portfolios to the Funds
listed below paid Wells Fargo Bank the following advisory fees and Wells Fargo
Bank waived the indicated amounts.
33
<PAGE>
<TABLE>
<CAPTION>
Three-Month
Year-Ended Period Ended
6/30/99 6/30/98
---------- ---------
Fees Fees Fees Fees
Former Stagecoach Fund Paid Waived Paid Waived
- ---------------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Arizona Tax-Free $ 26,674 $ 60,197 $ 6,959 $ 15,744
California Tax-Free $1,473,040 $2,020,699 $716,047* $979,592*
California Limited $ 84,334 $ 189,929 $ 23,651 $ 54,709
Term Tax-Free
Oregon Tax-Free $ 63,262 $ 144,862 $ 14,994 $ 34,127
_______________
* These amounts reflect the six-month period ended June 30, 1998.
<CAPTION>
Six-Month
Year-Ended Period Ended
3/31/98 3/31/97
---------- ---------
Fees Fees Fees Fees
Former Stagecoach Fund Paid Waived Paid Waived
- ---------------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Arizona Tax-Free $ 29,358 $ 69,926 $ 0 $ 52,838
California Tax-Free $ 1,259,094** $ 0** N/A N/A
California Limited Term Tax $ 106,906 $ 241,280 $ 67,449 $144,315
Oregon Tax-Free $ 57,037 $ 130,517 $ 0 $102,775
</TABLE>
____________________
** These amounts reflect the year ended December 31, 1997. Prior to December 12,
1997, these amounts reflect fees paid by the Overland predecessor portfolios.
For the periods indicated below, the predecessor portfolios to the Funds
listed below paid the following advisory fees to NIM and NIM waived the
indicated amounts.
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
---------- ---------- --------
Fees Fees Fees Fees Fees Fees
Former Norwest Fund Paid Waived Paid Waived Paid Waived
- ------------------- ---------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Colorado Tax-Free Fund $ 372,202 $70,194 $ 195,005 $137,295 $ 60,892 $ 238,690
Minnesota Intermediate $ 540,960 $ 0 $ 348,564 $ 0 N/A N/A
Tax-Free Fund
Minnesota Tax-Free Fund $ 312,365 $81,990 $ 134,553 $163,748 $ 21,914 $ 190,702
National Limited Term $ 315,346 $29,395 $ 152,654 $ 89,967 $ 25,596 $ 63,145
Tax-Free Fund
National Tax-Free Fund $1,789,384 $19,399 $1,078,075 $488,601 $301,427 $1,236,539
</TABLE>
General. Each Fund's Advisory Contract will continue in effect for more
-------
than two years from the effective date provided the continuance is approved
annually (i) by the holders of a majority of the respective Fund's outstanding
voting securities or by the Trust's Board of Trustees and (ii) by a majority of
the Trustees of the Trust who are not parties to the Advisory Contract or
34
<PAGE>
"interested persons" (as defined in the 1940 Act) of any such party. A Fund's
Advisory Contract may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.
Investment Sub-Advisors. Wells Fargo Bank has engaged Wells Capital
-----------------------
Management Incorporated ("WCM") to serve as Investment Sub-Advisor to the Funds.
Subject to the direction of the Trust's Board of Trustees and the overall
supervision and control of Wells Fargo Bank and the Trust, WCM makes
recommendations regarding the investment and reinvestment of the Funds' assets.
WCM furnishes to Wells Fargo Bank periodic reports on the investment activity
and performance of the Funds. WCM also furnishes such additional reports and
information as Wells Fargo Bank and the Trust's Board of Trustees and officers
may reasonably request.
As compensation for its sub-advisory services, WCM is entitled to receive a
monthly fee equal to an annual rate of 0.15% of the first $400 million of the
Funds' average daily net assets, 0.125% of the next $400 million of the Funds'
net assets, and 0.10% of net assets over $800 million. WCM receives a minimum
annual sub-advisory fee of $120,000 from each Fund. This minimum annual fee
payable to WCM does not increase the advisory fee paid by each Fund to Wells
Fargo Bank. These fees may be paid by Wells Fargo Bank or directly by the Fund.
If the sub-advisory fee is paid directly by the Fund, the compensation paid to
Wells Fargo Bank for advisory fees will be reduced accordingly.
Administrator. The Trust has retained Wells Fargo Bank as Administrator on
-------------
behalf of each Fund. Under the Administration Agreement between Wells Fargo Bank
and the Trust, Wells Fargo Bank shall provide as administration services, among
other things: (i) general supervision of the Funds' operations, including
coordination of the services performed by each Fund's investment Advisor,
transfer agent, custodian, shareholder servicing agent(s), independent auditors
and legal counsel, regulatory compliance, including the compilation of
information for documents such as reports to, and filings with, the U.S.
Securities and Exchange Commission ("SEC") and state securities commissions; and
preparation of proxy statements and shareholder reports for each Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Trust's officers and Board of
Trustees. Wells Fargo Bank also furnishes office space and certain facilities
required for conducting the Funds' business together with ordinary clerical and
bookkeeping services. The Administrator is entitled to receive a fee of up to
0.15% of each Fund's average daily net assets on an annual basis.
As discussed in the "Historical Fund Information" section, the Funds were
created as part of the reorganization of the Stagecoach and Norwest Funds.
Therefore, the information shown below concerning the dollar amounts of
administration fees paid shows the dollar amount of fees paid to administrators
by the predecessor portfolio that is considered the surviving entity for
accounting purposes.
The predecessor Stagecoach Funds had retained Wells Fargo Bank as
Administrator from March 25, 1999 through the date of the Reorganization, on the
same terms as are currently in effect. Prior to March 25, 1999, the predecessor
Stagecoach Funds had retained Wells Fargo Bank as Administrator and Stephens as
Co-Administrator on behalf of each Fund. Wells Fargo Bank and Stephens were
entitled to receive monthly fees of 0.03% and 0.04%, respectively, of the
average daily net assets of each Fund. Prior to February 1, 1998, Wells Fargo
Bank and
35
<PAGE>
Stephens received a monthly fees of 0.04% and 0.02%, respectively, of the
average daily net assets of each Fund. In connection with the change in fees,
the responsibility for performing various administration services was shifted to
the Co-Administrator. Except as described below, prior to February 1, 1997,
Stephens served as the sole Administrator and performed substantially the same
services now provided by Stephens and Wells Fargo Bank.
For the periods indicated below, the predecessor portfolios to the Funds
listed below paid the following dollar amounts to Wells Fargo Bank and Stephens
for administration and co-administration fees.
<TABLE>
<CAPTION>
Three Month
Year-Ended Period ended
6/30/99 6/30/98
----------- ------------
Former Wells Wells
Stagecoach Fund Total Fargo Stephens Total Fargo Stephens
- --------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free $ 14,351 $ 7,235 $ 7,116 $ 3,251 $ 1,398 $ 1,853
California Limited
Term Tax-Free $ 45,036 $ 22,528 $ 22,508 $ 11,046 $ 4,750 $ 6,296
California Tax-Free $569,825 $288,660 $281,165 $232,768 $100,090 $132,678
Oregon Tax-Free $ 34,149 $ 17,277 $ 16,872 $ 6,989 $ 3,005 $ 3,984
</TABLE>
<TABLE>
<CAPTION>
Year-Ended Year Ended
3/31/98 3/31/97
----------- ------------
Former Wells Wells
Stagecoach Fund Total Fargo Stephens Total Fargo Stephens
- --------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Arizona Tax-Free $ 12,043 $ 8,069 $ 3,974 $ 5,750 $ 1,150 $ 4,600
California Limited
Term Tax-Free $ 43,808 $ 29,351 $ 14,457 $ 16,307 $ 3,261 $ 13,046
California Tax-Free $217,623 $ 43,525 $174,098 N/A N/A N/A
Oregon Tax-Free $ 23,433 $ 15,700 $ 7,733 $ 10,907 $ 2,181 $ 8,726
</TABLE>
With respect to the predecessor Norwest Funds, Forum Financial Services,
Inc. ("Forum") managed all aspects of the operation of the Funds, except those
which were the responsibility of Forum Administrative Services, LLC ("FAS") as
administrator or Norwest in its capacity as administrator.
For the periods indicated below, the following Funds paid the following
dollar amounts as administration fees:
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
------- ------- -------
Former Norwest Fund Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
- ------------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Colorado Tax-Free $ 17,604 $ 26,635 $ 46,405 $ 20,055 $ 12,446 $ 107,387
Minnesota Intermediate
Tax-Free $ 39,643 $ 68,549 $ 42,383 $ 97,043 N/A N/A
Minnesota Tax-Free $ 20,222 $ 19,213 $ 37,636 $ 22,024 $ 26,670 $ 58,377
National Limited Term
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Tax-Free $ 1,906 $ 32,568 $ 46,116 $ 2,408 $ 0 $ 17, 748
National Tax-Free $ 114,604 $ 66,274 $ 268,992 $ 44,292 $ 271,008 $ 344,178
</TABLE>
Distributor. Stephens (the "Distributor"), located at 111 Center Street,
-----------
Little Rock, Arkansas 72201, serves as the Distributor for the Funds. Each
Fund has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940
Act and Rule 12b-1 thereunder (the "Rule") for its Class B and Class C shares.
The Plan was adopted by the Trust's Board of Trustees, including a majority of
the Trustees who were not "interested persons" (as defined in the 1940 Act) of
the Funds and who had no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan (the "Non-Interested
Trustees").
Under the Plan and pursuant to the related Distribution Agreement, the
Funds may pay Stephens up to 0.75% of the average daily net assets attributable
to the Class B and Class C shares of the Funds as compensation for distribution-
related services or as reimbursement for distribution-related expenses.
Fund Fee
- ----- ----
Arizona Tax-Free
Class B 0.75%
California Tax-Free
Class B 0.75%
Class C 0.75%
Colorado Tax-Free
Class B 0.75%
Minnesota Tax-Free
Class B 0.75%
National Tax-Free
Class B 0.75%
Class C 0.75%
Oregon Tax-Free
Class B 0.75%
The actual fee payable to the Distributor is determined, within such
limits, from time to time by mutual agreement between the Trust and the
Distributor and will not exceed the maximum sales charges payable by mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD") under the Conduct Rules of the NASD. The Distributor may enter into
selling agreements with one or more selling agents (which may include Wells
Fargo Bank and its affiliates) under which such agents may receive compensation
for
37
<PAGE>
distribution-related services from the Distributor, including, but not limited
to, commissions or other payments to such agents based on the average daily net
assets of Fund shares attributable to their customers. The Distributor may
retain any portion of the total distribution fee payable thereunder to
compensate it for distribution-related services provided by it or to reimburse
it for other distribution-related expenses.
The predecessor Stagecoach Funds had retained Stephens as their
Distributor. For the year ended September 30, 1999, Stephens received the
following fees for distribution-related services, as set forth below, under each
Fund's Rule 12b-1 Plan.
Fund Total
---- -----
Arizona Tax-Free
Class B $ 12,198
California Tax-Free
Class B $870,044
Class C $133,047
Oregon Tax-Free
Class B $ 68,674
The predecessor Norwest Funds had retained Forum as their Distributor. For
the year ended May 31, 1999, Forum received the following fees for distribution-
related services, as set forth below, under each Fund's Rule 12b-1 Plan.
Fund Total
---- -----
Colorado Tax-Free
Class B $ 97,729
Minnesota Tax-Free
Class B $196,769
National Tax-Free
Class B $136, 247
Class C N/A
General. The Plan will continue in effect from year to year if such
-------
continuance is approved by a majority vote of both the Trustees of the Trust and
the Non-Interested Trustees. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Trustees and the Non-Interested
Trustees. Such Agreement will terminate automatically if assigned, and may be
terminated at any time, without payment of any penalty, by a vote of a majority
of the outstanding voting securities of the relevant class of the Fund or by
vote of a majority of the Non-Interested Trustees on not more than 60 days'
written notice. The Plan may not be amended to increase materially the amounts
payable thereunder without the approval of a majority of the outstanding
38
<PAGE>
voting securities of the Fund, and no material amendment to the Plan may be made
except by a majority of both the Trustees of the Trust and the Non-Interested
Trustees.
The Plan requires that the Treasurer of the Trust shall provide to the
Trustees, and the Trustees shall review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Plan. The Rule also
requires that the selection and nomination of Trustees who are not "interested
persons" of the Trust be made by such disinterested Trustees.
Wells Fargo Bank, an interested person (as that term is defined in Section
2(a)(19) of the 1940 Act) of the Trust, acts as a selling agent for the Funds'
shares pursuant to selling agreements with Stephens authorized under the Plan.
As a selling agent, Wells Fargo Bank has an indirect financial interest in the
operation of the Plans. The Board of Trustees has concluded that the Plan is
reasonably likely to benefit the Funds and their shareholders because the Plan
authorizes the relationships with selling agents, including Wells Fargo Bank,
that have previously developed distribution channels and relationships with the
retail customers that the Funds are designed to serve. These relationships and
distribution channels are believed by the Board to provide potential for
increased Fund assets and ultimately corresponding economic efficiencies (i.e.,
lower per-share transaction costs and fixed expenses) that are generated by
increased assets under management.
Shareholder Servicing Agent. The Funds have approved a Servicing Plan for
---------------------------
each Fund and have entered into related shareholder servicing agreements with
financial institutions, including Wells Fargo Bank. Under the agreements,
Shareholder Servicing Agents (including Wells Fargo Bank) agree to perform, as
agents for their customers, administrative services, with respect to Fund
shares, which include aggregating and transmitting shareholder orders for
purchases, exchanges and redemptions; maintaining shareholder accounts and
records; and providing such other related services as the Trust or a shareholder
may reasonably request. For providing shareholder services, a Servicing Agent is
entitled to a fee from the applicable Fund, on an annualized basis, of 0.25% of
the average daily net assets of the Class A, Class B and Class C shares owned of
record or beneficially by the customers of the Servicing Agent during the period
for which payment is being made. The Servicing Plan and related forms of
shareholder servicing agreements were approved by the Trust's Board of Trustees
and provide that a Fund shall not be obligated to make any payments under such
Plans or related Agreements that exceed the maximum amounts payable under the
Conduct Rules of the NASD. The amounts payable under the Shareholder Servicing
Plan and Agreements are shown below.
Fund Fee
---- ---
Arizona Tax-Free
Class A 0.25%
Class B 0.25%
California Limited Term Tax-Free
Class A 0.25%
39
<PAGE>
Fund Fee
---- ---
California Tax-Free
Class A 0.25%
Class B 0.25%
Class C 0.25%
Colorado Tax-Free
Class A 0.25%
Class B 0.25%
Minnesota Tax-Free
Class A 0.25%
Class B 0.25%
National Tax-Free
Class A 0.25%
Class B 0.25%
Class C 0.25%
Oregon Tax-Free
Class A 0.25%
Class B 0.25%
Custodian. Norwest Bank Minnesota, N.A. ("Norwest Bank"), located at
---------
Norwest Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as
Custodian for each Fund. The Custodian, among other things, maintains a custody
account or accounts in the name of each Fund, receives and delivers all assets
for each Fund upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of each
Fund, and pays all expenses of each Fund. For its services as Custodian,
Norwest Bank is entitled to receive a fee of 0.02% of the average daily net
assets of each Fund.
Fund Accountant. Forum Accounting Services, LLC ("Forum Accounting"),
---------------
located at Two Portland Square, Portland, Maine 04101, serves as Fund Accountant
for the Funds except for the Arizona Tax-Free, California Limited Term,
California Tax-Free and Oregon Tax-Free Funds (predecessor Stagecoach Funds) for
which Wells Fargo Bank serves as Fund Accountant. Forum Accounting served as
Fund Accountant for the predecessor Norwest Funds whereas Wells Fargo served as
Fund Accountant for the predecessor Stagecoach Funds. In order to ensure an
orderly fund accounting transition to Forum Accounting for all the Funds, Wells
Fargo will continue to serve as Fund Accountant for the predecessor Stagecoach
Funds during a transition period. It is anticipated that the transition period
will last until February 1, 2000, by which time Forum Accounting will be serving
as Fund Accountant for all of the Funds.
If the conversion to Forum Accounting does not occur on or before February
1, 2000, Wells Fargo Bank will continue to serve as Fund Accountant until the
conversion occurs, but not
40
<PAGE>
longer than one year from November 8, 1999, at which time it is anticipated that
Forum Accounting will serve as Fund Accountant for the Funds. Wells Fargo Bank
is entitled to receive the same fees as Norwest Bank.
For their services as Fund Accountant, Forum Accounting and Wells Fargo
Bank each are entitled to receive a monthly base fee per Fund ranging from
$2,000 for gateway Funds up to $5,833 for Funds with significant holdings of
asset-backed securities. In addition, each Fund pays a monthly fee of $1,000
per class. Forum Accounting and Wells Fargo Bank are also each entitled to
receive a fee equal to 0.0025% of the average annual daily net assets of each
Fund (excluding the net assets invested in core portfolios of Core Trust which
pays Forum Accounting a similar fee).
Transfer and Dividend Disbursing Agent. Boston Financial Data Services,
--------------------------------------
Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts
as Transfer and Dividend Disbursing Agent for the Funds. For providing such
services, BFDS is entitled to receive a per-account fee plus transaction fees
and certain out-of-pocket costs. BFDS is also entitled to receive a complex base
fee from all the Funds of the Trust, Wells Fargo Core Trust and Wells Fargo
Variable Trust.
Underwriting Commissions. Stephens serves as the principal underwriter
------------------------
distributing securities of the Funds on a continuous basis. Stephens served as
principal underwriter of the Stagecoach predecessor portfolios whereas Forum
served as underwriter of the predecessor Norwest portfolios. The information
shown below regarding underwriting commissions paid for the last three fiscal
years reflects the amounts paid by the predecessor Stagecoach fund family and
Norwest fund family.
For the year-ended September 30, 1999, the aggregate dollar amount of
underwriting commissions paid to Stephens as sales/redemptions of the Stagecoach
fund family shares was $6,214,051. Stephens retained $2,289,826 of such
commissions. For the year-ended September 30, 1999, Wells Fargo Securities, Inc.
("WFSI"), an affiliated broker-dealer of the Trust, retained $2,324,394.93.
For the three-month period ended June 30, 1998, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Stagecoach fund family shares was $1,546,670. Stephens retained $485,869 of
such commissions and WFSI retained $1,068,673 of such commissions.
For the year ended March 31, 1998, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the Stagecoach
fund family shares was $7,671,295. Stephens retained $939,892 of such
commissions. WFSI retained $5,348,626 of such commissions.
For the six-month period ended March 31, 1997, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Stagecoach fund family shares was $2,296,243. Stephens retained $241,806 of such
commissions. WFSI and its registered representatives retained $1,719,000 and
$335,437, respectively, of such commissions.
For the nine-month period ended September 30, 1996, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the Stagecoach
fund family
41
<PAGE>
shares was $2,917,738. Stephens retained $198,664 of such commissions. WFSI and
its registered representatives retained $2,583,027 and $136,047, respectively,
of such commissions.
For the periods indicated below, the aggregate dollar amount of
underwriting commissions paid to Forum by the predecessor Norwest Fund family
and the amounts retained by Forum are as follows:
<TABLE>
<CAPTION>
Year-Ended Year-Ended Year-Ended
5/31/99 5/31/98 5/31/97
------- ------- -------
Paid Retained Paid Retained Paid Paid
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Colorado Tax-Free
Class A $ 128,000 $ 2,000 $ 127,000 $ 4,000 $ 38,085 $ 3,321
Minnesota Tax-Free
Class A $ 141,000 $ 3,000 $ 139,000 $ 6,000 $ 53,290 $ 4,744
National Tax-Free
Class A $ 204,000 $ 0 $ 132,000 $ 2,000 $ 74,101 $ 6,646
</TABLE>
For the year ended May 31, 1999, Norwest Investment Services Inc. received
$4,049,102.
PERFORMANCE CALCULATIONS
The Funds may advertise certain yield and total return information.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating its performance to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Performance information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The performance
of a Fund and the performance of a Class of shares in a Fund, however, may not
be comparable to the performance from investment alternatives because of
differences in the foregoing variables and differences in the methods used to
value portfolio securities, compute expenses and calculate performance.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year for the Funds. Annual
and Semi-Annual Reports for the Funds may contain additional performance
information, and are available free of charge upon request.
Average Annual Total Return: The Funds may advertise certain total return
---------------------------
information. As and to the extent required by the SEC, an average annual
compound rate of return ("T") is computed by using the redeemable value at the
end of a specified period ("ERV")
42
<PAGE>
of a hypothetical initial investment ("P") over a period of years ("n")
according to the following formula: P(1+T)/n/=ERV.
Former Stagecoach Funds
Average Annual Total Return for the Period Ended September 30, 1999/1/
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
---- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Arizona Tax-Free
Class A 4.66 N/A 3.89 -8.79
Class B 4.26 N/A 3.48 -9.64
Institutional Class N/A N/A N/A N/A
California Limited Term Tax-Free
Class A 3.70 N/A 3.64 -3.80
Institutional Class N/A N/A N/A N/A
California Tax-Free
Class A 6.95 6.68 5.28 -6.20
Class B 6.65 6.43 5.13 -7.21
Class C 6.66 6.44 5.48 -3.38
Institutional Class N/A N/A N/A N/A
Oregon Tax-Free
Class A 5.89 5.68 4.57 -7.24
Class B 5.52 5.35 4.30 -8.29
Institutional Class N/A N/A N/A N/A
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Arizona Tax-Free - March 1, 1992; California Limited
Term Tax-Free - November 18, 1992; California Tax- Free - October 6, 1988;
Oregon Tax-Free - June 1, 1988. The actual inception date of each Class may
differ from the inception date of the corresponding Fund.
Former Norwest Funds
Average Annual Total Return for the Year Ended May 31, 1999/1/
-----------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
---- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Colorado Tax-Free
Class A 5.42% N/A 6.11% -0.88%
Class B 5.33% N/A 6.13% -1.02%
Institutional Class 6.23% N/A 7.09% 3.79%
Minnesota Intermediate 6.20% 6.40% 5.91% 3.95%
Tax-Free
Institutional Class
Minnesota Tax-Free 6.33% 6.19% 5.83% -0.72%
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year One Year
---- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Class A 5.95% 5.86% 5.85% -0.79%
Class B 6.76% 6.68% 6.79% 3.96%
Institutional Class
National Limited Term Tax-Free 6.64% N/A N/A 3.97%
Institutional Class
National Tax-Free
Class A 6.24% N/A 6.30% -0.64%
Class B 5.96% N/A 6.32% -0.70%
Class C 6.74% N/A 7.28% 4.04%
Institutional Class
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Colorado Tax-Free - June 1, 1993; Minnesota
Intermediate Tax-Free - September 30, 1976; Minnesota Tax-Free - January
12, 1998; National Limited Term Tax-Free - October 1, 1996; National Tax-
Free -August 1, 1989. The actual inception date of each Class may differ
from the inception date of the corresponding Fund.
Cumulative Total Return. In addition to the above performance information,
-----------------------
each Fund may also advertise the cumulative total return of the Fund.
Cumulative total return is based on the overall percentage change in value of a
hypothetical investment in the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.
Former Stagecoach Funds
Cumulative Total Return for the Period Ended September 30, 1999/1/
---------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Five Year Three Year
---- --------- --------- ----------
<S> <C> <C> <C>
Arizona Tax-Free
Class A 41.28 21.00 7.01
Class B 37.20 18.66 6.00
Institutional Class N/A N/A N/A
California
Limited Term Tax-Free 28.40 19.59 7.99
Class A N/A N/A N/A
Institutional Class
California Tax-Free
Class A 109.18 29.34 11.36
Class B 102.89 28.44 11.01
Class C 103.06 30.55 14.10
Institutional Class N/A N/A N/A
Oregon Tax-Free
Class A 91.32 25.01 8.14
</TABLE>
44
<PAGE>
<TABLE>
Fund Inception/2/ Five Year Three Year
---- --------- --------- ----------
<S> <C> <C> <C>
Class B 83.82 23.43 7.21
Institutional Class N/A N/A N/A
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Arizona Tax-Free - March 1, 1992; California Limited
Term Tax-Free - November 18, 1992; California Tax- Free - October 6, 1988;
Oregon Tax-Free - June 1, 1988. The actual inception date of each Class may
differ from the inception date of the corresponding Fund.
Former Norwest Funds
Cumulative Total Return for the Period Ended September 30, 1999/1/
------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Inception/2/ Ten Year Five Year Three Year
---- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Colorado Tax-Free
Class A 32.06% N/A 5.36% 10.02%
Class B 32.17% N/A 5.24% 9.79%
Institutional Class 38.28% N/A 35.95% 15.21%
Minnesota Intermediate Tax-Free
Institutional Class 284.13% 79.42% 30.58% 14.37%
Minnesota Tax-Free 92.73% 73.16% 5.06% 8.90%
Class A 84.52% 69.93% 4.91% 8.54%
Class B 101.81% 81.31% 34.02% 14.04%
Institutional Class
National Limited Term
Tax-Free N/A N/A N/A N/A
Institutional Class
National Tax-Free
Class A 74.65% 77.37% 5.49% 10.87%
Class B 69.83% 72.67% 5.32% 10.52%
Class C 83.07% 85.92% 36.76% N/A
Institutional Class 16.10%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares.
/2/ For purposes of showing performance information, the inception date of each
Fund is as follows: Colorado Tax-Free - June 1, 1993; Minnesota
Intermediate Tax-Free - September 30, 1976; Minnesota Tax-Free - January
12, 1998; National Limited Term Tax-Free - October 1, 1996; National Tax-
Free -August 1, 1989. The actual inception date of each Class may differ
from the inception date of the corresponding Fund.
Yield Calculations: The Funds may, from time to time, include their yields
------------------
and effective yields in advertisements or reports to shareholders or prospective
investors. Quotations of yield for the Funds are based on the investment income
per share earned during a particular seven-day or
45
<PAGE>
thirty-day period, less expenses accrued during a period ("net investment
income") and are computed by dividing net investment income by the offering
price per share on the last date of the period, according to the following
formula:
YIELD = 2[(a - b + 1)/6/ - 1]
-----
cd
where a = dividends and interest earned during the period; b = expenses
accrued for the period (net of reimbursements); c = the average daily number of
shares of each class outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share each class of shares on
the last day of the period.
Effective Yield: Effective yields for the Funds are based on the change in
---------------
the value of a hypothetical investment (exclusive of capital changes) over a
particular thirty-day period, less a pro-rata share of each Fund's expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized multiplying by 365/30, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Funds assumes that all dividends received during the period have
been reinvested. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Thirty-Day Yield = [Base Period Return +1)365/30]-1
Former Stagecoach Funds
Yield for Period Ended September 30, 1999/1/
-----------------------------------------
<TABLE>
<CAPTION>
Thirty-Day
Thirty-Day Yield Tax-Equivalent Yield/2/
---------------- --------------------
After Before After Before
Fund Waiver Waiver Waiver Waiver
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Arizona Tax-Free
Class A 4.59% 3.93% 8.01% 6.86%
Class B 4.08% 3.12% 7.12% 5.45%
Institutional Class 4.90% 4.33% 8.55% 7.56%
California Limited Term
Tax-Free 3.54% 2.91% 6.46% 5.31%
Class A 3.79% 3.22% 6.92% 5.88%
Institutional Class
California Tax-Free
Class A 4.29% 3.95% 7.83% 7.21%
Class B 3.79% 3.43% 6.92% 6.26%
Class C 3.79% 3.45% 6.92% 6.30%
Institutional Class 4.59% 4.24% 8.38% 7.74%
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Thirty-Day
Thirty-Day Yield Tax-Equivalent Yield/2/
---------------- --------------------
After Before After Before
Fund Waiver Waiver Waiver Waiver
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Oregon Tax-Free
Class A 4.71% 4.17% 8.57% 7.59%
Class B 4.08% 3.54% 7.42% 6.44%
Institutional Class 4.99% 4.41% 9.08% 8.02%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares. "After Waiver" figures reflect any waived
fees or reimbursed expenses throughout the period.
/2/ Based on a combined federal and state income tax rate of 45.22% for each of
the California Limited Term Tax-Free and California Tax-Free Funds, and
45.04% and 42.72% for the Oregon Tax-Free Fund and the Arizona Tax-Free
Fund, respectively.
Former Norwest Funds
Yield for the Month Ended September 30, 1999/1/
--------------------------------------------
<TABLE>
<CAPTION>
Thirty-Day
Thirty-Day Yield Tax-Equivalent Yield/2/
----------------- --------------------
After After
Fund Waiver Waiver
---- ------ ------
<S> <C> <C>
Colorado Tax-Free
Class A 5.27% 9.18%
Class B 4.75% 8.28%
Institutional Class 5.52% 9.62%
Minnesota Intermediate Tax-Free
Institutional Class 4.52% 8.18%
Minnesota Tax-Free 4.92% 8.90%
Class A 4.39% 7.95%
Class B 5.15% 9.32%
Institutional Class
National Limited Term Tax-Free
Institutional Class 4.48% 7.41%
National Tax-Free
Class A 5.21% 8.62%
Class B 4.69% 7.77%
Class C N/A N/A
Institutional Class 5.45% 9.02%
</TABLE>
____________________
/1/ Return calculations reflect the inclusion of front-end sales charges for
Class A shares and the maximum applicable contingent deferred sales charge
for Class B and Class C shares. "After Waiver" figures reflect any waived
fees or reimbursed expenses throughout the period.
47
<PAGE>
/2/ Based on a combined federal and state income tax rate of 48.1% for each
of the Minnesota Intermediate Tax-Free and Minnesota Tax-Free Funds, and
44.6% for the Colorado Tax-Free Fund, and a federal income tax rate of
39.6% for each of the National Limited Term Tax-Free and National Tax-Free
Funds.
Quotations of yield and total return reflect only the performance of a
hypothetical investment in a Fund or class of shares during the particular time
period shown. Yield and total return vary based on changes in the market
conditions and the level of a Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future. In connection with communicating its yields or total return to
current or prospective shareholders, these figures may also be compared to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
The yields for each class of shares will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and do not provide a basis for determining future yields since
they are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
a Fund or to a particular class of a Fund.
In addition, investors should recognize that changes in the net asset
values of shares of each class of a Fund will affect the yield of the respective
class of shares for any specified period, and such changes should be considered
together with such class' yield in ascertaining such class' total return to
shareholders for the period. Yield information for each class of shares may be
useful in reviewing the performance of the class of shares and for providing a
basis for comparison with investment alternatives. The yield of each class of
shares, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.
From time to time and only to the extent the comparison is appropriate for
a Fund or a Class of shares, the Trust may quote the performance or price-
earning ratio of a Fund or a Class of in advertising and other types of
literature as compared with the performance of the S&P Index, the Dow Jones
Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers
5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate Investment
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by the World Gold Council), Bank
Averages (which is calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of a Fund or a class also may be compared to that of other mutual
funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc.,
48
<PAGE>
Bloomberg Financial Markets or Morningstar, Inc., independent services which
monitor the performance of mutual funds. The Funds' performance will be
calculated by relating net asset value per share of each class at the beginning
of a stated period to the net asset value of the investment, assuming
reinvestment of all gains distributions paid, at the end of the period. The
Funds' comparative performance will be based on a comparison of yields, as
described above, or total return, as reported by Lipper, Survey Publications,
Donoghue or Morningstar, Inc.
Any such comparisons may be useful to investors who wish to compare past
performance of the Funds or a class of shares with the performance of a Fund's
competitors. Of course, past performance cannot be a guarantee of future
results. The Trust also may include, from time to time, a reference to certain
marketing approaches of the Distributor, including, for example, a reference to
a potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
The Trust also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
each class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in each class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of
each class of shares of a Fund or the general economic, business, investment, or
financial environment in which a Fund operates; (iii) the effect of tax-deferred
compounding on the investment returns of each class of shares of a Fund or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in each class of shares of the Fund (or returns in general) on a tax-
deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv) the
sectors or industries in which the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance or current or potential value of each class of shares of
a Fund with respect to the particular industry or sector.
The Trust also may use, in advertisements and other types of literature,
information and statements: (1) showing that bank savings accounts offer a
guaranteed return of principal and a fixed rate of interest, but no opportunity
for capital growth; and (2) describing Wells Fargo Bank, and its affiliates and
predecessors, as one of the first investment managers to advise investment
accounts using asset allocation and index strategies. The Trust also may
include in advertising and other types of literature information and other data
from reports and studies prepared by the Tax Foundation, including information
regarding federal and state tax levels and the related "Tax Freedom Day."
The Trust also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRRO, such as Standard Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of a Fund's shares or the suitability of a Fund for a particular investor.
In addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to a Fund or its investments. The Trust may compare the performance of each
class of shares of a Fund with other investments which are assigned ratings by
49
<PAGE>
NRROs. Any such comparisons may be useful to investors who wish to compare each
class' past performance with other rated investments.
From time to time, a Fund may use the following statements, or variations
thereof, in advertisements and other promotional materials: "Wells Fargo Bank,
as a Shareholder Servicing Agent for the Wells Fargo Funds Trust, provides
various services to its customers that are also shareholders of the Funds. These
services may include access to Wells Fargo Funds Trust's account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability of
combined Wells Fargo Bank and Wells Fargo Funds Trust account statements."
The Trust also may disclose, in advertising and other types of literature,
information and statements that Wells Capital Management, Inc. (formerly, Wells
Fargo Investment Management) a subsidiary of Wells Fargo Bank, is listed in the
top 100 by Institutional Investor magazine in its July 1997 survey "America's
Top 300 Money Managers." This survey ranks money managers in several asset
categories. The Trust also may disclose in advertising and other types of sales
literature the assets and categories of assets under management by the Trust's
investment Advisor and the total amount of assets and mutual fund assets managed
by Wells Fargo Bank. As of June 30, 1999, Wells Fargo Bank and its affiliates
managed over $131 billion in assets.
The Trust may disclose in advertising and other types of literature that
investors can open and maintain Sweep Accounts over the Internet or through
other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Trust may also disclose the ranking of Wells Fargo
Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each class of the Funds is determined as of
the close of regular trading (currently 1:00 p.m. Pacific time, 3:00 p.m.
Central time, 4:00 p.m. Eastern time) on each day the New York Stock Exchange
("NYSE") is open for business. Expenses and fees, including advisory fees, are
accrued daily and are taken into account for the purpose of determining the net
asset value of the Funds' shares.
50
<PAGE>
Securities of a Fund for which market quotations are available are valued
at latest prices. Any security for which the primary market is an exchange is
valued at the last sale price on such exchange on the day of valuation or, if
there was no sale on such day, the latest bid price quoted on such day. In the
case of other Fund securities, including U.S. Government securities but
excluding money market instruments and debt securities maturing in 60 days or
less, the valuations are based on latest quoted bid prices. Money market
instruments and debt securities maturing in 60 days or less are valued at
amortized cost. Futures contracts will be marked to market daily at their
respective settlement prices determined by the relevant exchange. Prices may be
furnished by a reputable independent pricing service approved by the Trust's
Board of Trustees. Prices provided by an independent pricing service may be
determined without exclusive reliance on quoted prices and may take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. All other securities and other assets of
a Fund for which current market quotations are not readily available are valued
at fair value as determined in good faith by the Trust's Board of Trustees and
in accordance with procedures adopted by the Trustees.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day the Funds are open for
business. Each Fund is open for business each day the NYSE is open for trading
(a "Business Day"). Currently, the NYSE is closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day (each a "Holiday"). When any
Holiday falls on a weekend, the NYSE typically is closed on the weekday
immediately before or after such Holiday.
Payment for shares may, in the discretion of the advisor, be made in the
form of securities that are permissible investments for the Funds. For further
information about this form of payment please contact the Distributor. In
connection with an in-kind securities payment, the Funds will require, among
other things, that the securities be valued on the day of purchase in accordance
with the pricing methods used by a Fund and that such Fund receives satisfactory
assurances that (i) it will have good and marketable title to the securities
received by it; (ii) that the securities are in proper form for transfer to the
Fund; and (iii) adequate information will be provided concerning the basis and
other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such periods as the
SEC may permit. The Trust may also redeem shares involuntarily or make payment
for redemption in securities or other property if it appears appropriate to do
so in light of the Trust's responsibilities under the 1940 Act. In addition, the
Trust may redeem shares involuntarily to reimburse the Fund for any losses
sustained by reason of the failure of a shareholder to make full payment for
shares purchased or to collect any charge relating to a transaction effected for
the benefit of a shareholder which is applicable to shares of a Fund as provided
from time to time in the Prospectus.
51
<PAGE>
The dealer reallowance for Class A share purchases is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % ALLOWANCE
AMOUNT OF PUBLIC OF NET AMOUNT AS % OF PUBLIC
OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Less than $50,000 4.50% 4.71% 4.00%
- -----------------------------------------------------------------------------
$50,000 to $99,999 4.00% 4.17% 3.50%
- -----------------------------------------------------------------------------
$100,000 to $249,999 3.50% 3.63% 3.00%
- -----------------------------------------------------------------------------
$250,000 to $499,999 2.50% 2.56% 2.25%
- -----------------------------------------------------------------------------
$500,000 to $999,999 2.00% 2.04% 1.75%
- -----------------------------------------------------------------------------
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
- -----------------------------------------------------------------------------
</TABLE>
/1/ We will assess Class A shares purchases of $1,000,000 or more a 1.00% CDSC
if they are redeemed within one year from the date of purchase. Charges are
based on the lower of the NAV on the date of purchase or the date of
redemption.
Purchases and Redemptions Through Brokers and/or Their Affiliates
-----------------------------------------------------------------
A broker may charge transaction fees on the purchase and/or sale of Fund shares
in addition to those fees described in the Prospectus in the Summary of
Expenses. The Trust has authorized one or more brokers to receive on its behalf
purchase and redemption orders, and such brokers are authorized to designate
other intermediaries to receive purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
for Fund shares when an authorized broker or, if applicable, a broker's
authorized designee, receives the order.
Reduced Sales Charges for Former Norwest Advantage Fund Class B
---------------------------------------------------------------
Shareholders. No contingent deferred sales charge is imposed on redemptions of
- ------------
Class B shares of a former Norwest Advantage Fund purchased prior to October 1,
1999, to effect a distribution (other than a lump sum distribution) from an IRA,
Keogh plan or Section 403(b) custodial account or from a qualified retirement
plan.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo Bank is responsible
for each Fund's portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust to obtain the best results
taking into account the dealer's general execution and operational facilities,
the type of transaction involved and other factors such as the dealer's risk in
positioning the securities involved. While Wells Fargo Bank generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Fund's portfolio securities
transactions will consist primarily of dealer spreads and underwriting
commissions. Under the 1940 Act, persons affiliated with the Trust are
prohibited from dealing with the Trust as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC or an exemption is otherwise available. The Fund may purchase
securities from underwriting syndicates of which Stephens or Wells Fargo Bank is
a member under certain conditions in accordance with the provisions of a rule
adopted under the 1940 Act and in compliance with procedures adopted by the
Board of Trustees.
52
<PAGE>
Wells Fargo Bank, as Investment Advisor to the Funds, may, in circumstances
in which two or more dealers are in a position to offer comparable results for a
Fund portfolio transaction, give preference to a dealer that has provided
statistical or other research services to Wells Fargo Bank. By allocating
transactions in this manner, Wells Fargo Bank is able to supplement its research
and analysis with the views and information of securities firms. Information so
received will be in addition to, and not in lieu of, the services required to be
performed by Wells Fargo Bank under the Advisory Contracts, and the expenses of
Wells Fargo Bank will not necessarily be reduced as a result of the receipt of
this supplemental research information. Furthermore, research services furnished
by dealers through which Wells Fargo Bank places securities transactions for a
Fund may be used by Wells Fargo Bank in servicing its other accounts, and not
all of these services may be used by Wells Fargo Bank in connection with
advising the Funds.
Portfolio Turnover. The portfolio turnover rate is not a limiting factor
------------------
when Wells Fargo Bank deems portfolio changes appropriate. Changes may be made
in the portfolios consistent with the investment objectives and policies of the
Funds whenever such changes are believed to be in the best interests of the
Funds and their shareholders. The portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities by the average
monthly value of the Fund's portfolio securities. For purposes of this
calculation, portfolio securities exclude all securities having a maturity when
purchased of one year or less. Portfolio turnover generally involves some
expenses to the Funds, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.
FUND EXPENSES
From time to time, Wells Fargo Bank and Stephens may waive fees from the
Funds in whole or in part. Any such waiver will reduce expenses and,
accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Wells Fargo Bank and Stephens, the Trust
bears all costs of its operations, including the compensation of its Trustees
who are not affiliated with Stephens or Wells Fargo Bank or any of their
affiliates; advisory, shareholder servicing and administration fees; payments
pursuant to any Plan; interest charges; taxes; fees and expenses of its
independent auditors, legal counsel, transfer agent and dividend disbursing
agent; expenses of redeeming shares; expenses of preparing and printing
Prospectuses (except the expense of printing and mailing Prospectuses used for
promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of its
custodian, including those for keeping books and accounts and calculating the
net asset value per share of a Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of a Fund's
shares; pricing services, organizational expenses and any extraordinary
expenses. Expenses attributable to the Fund are charged against Fund assets.
General expenses of the Trust are allocated among all of the funds of the Trust,
53
<PAGE>
including the Funds, in a manner proportionate to the net assets of each Fund,
on a transactional basis, or on such other basis as the Trust's Board of
Trustees deems equitable.
INCOME TAXES
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Taxes." The Prospectus of each Fund
generally describes the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning federal income taxes and,
as applicable, certain Arizona, California Colorado, Minnesota and Oregon
taxes.
General. The Trust intends to continue to qualify each Fund as a regulated
-------
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), as long as such qualification is in the best interests of
the Fund's shareholders. Each Fund will be treated as a separate entity for
federal income tax purposes. Thus, the provisions of the Code applicable to
regulated investment companies generally will be applied separately to each
Fund, rather than to the Trust as a whole. In addition, capital gains, net
investment income, and operating expenses will be determined separately for each
Fund. As a regulated investment company, each Fund will not be taxed on its net
investment income and capital gain distributed to its shareholders.
Qualification as a regulated investment company under the Code requires,
among other things, that each Fund derive at least 90% of its annual gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to
the regulated investment company's principal business of investing in stock or
securities) and other income (including, but not limited to, gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government obligations and
the securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses.
The Funds must also distribute or be deemed to distribute to their
shareholders at least 90% of their net investment income (including, for this
purpose, net short-term capital gain) earned in each taxable year. In general,
these distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. Furthermore, distributions declared in
October, November or December of one taxable year and paid by January 31 of the
following taxable year will be treated as paid by December 31 of the first
taxable year. The Funds intend to pay out substantially all of their net
investment income and net realized capital gains (if any) for each year.
54
<PAGE>
Excise Tax. A 4% nondeductible excise tax will be imposed on each Fund
----------
(other than to the extent of its tax-exempt interest income) to the extent it
does not meet certain minimum distribution requirements by the end of each
calendar year. Each Fund intends to actually or be deemed to distribute
substantially all of its net investment income and net capital gains by the end
of each calendar year and, thus, expects not to be subject to the excise tax.
Taxation of Fund Investments. Except as provided herein, gains and losses
----------------------------
on the sale of portfolio securities by a Fund generally be capital gains and
losses. Such gains and losses will ordinarily be long-term capital gains and
losses if the securities have been held by the Fund for more than one year at
the time of disposition of the securities.
Gains recognized on the disposition of a debt obligation purchased by the
Fund at a market discount (generally at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of market
discount which accrued, but was not previously recognized pursuant to an
available election, during the term the Fund held the debt obligation.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
Capital Gain Distributions. Distributions which are designated by a Fund
--------------------------
as capital gain distributions will be taxed to shareholders as long-term term
capital gain (to the extent such dividends do not exceed the Fund's actual net
capital gain for the taxable year), regardless of how long a shareholder has
held Fund shares. Such distributions will be designated as capital gain
distributions in a written notice mailed by the Fund to its shareholders not
later than 60 days after the close of the Fund's taxable year.
Disposition of Fund Shares. A disposition of Fund shares pursuant to a
--------------------------
redemption (including a redemption in-kind) or an exchange will ordinarily
result in a taxable capital gain or loss, depending on the amount received for
the shares (or are deemed to receive in the case of an exchange) and the cost of
the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90
days of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a designated capital gain distribution (to be
treated by the shareholder as a long-term capital gain) with respect to any Fund
share and such Fund share is
55
<PAGE>
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. In addition, if a
shareholder holds Fund shares for six months or less, any loss on the sale or
exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the shares. The Treasury
Department is authorized to issue regulations reducing the six months holding
requirement to a period of not less than the greater of 31 days or the period
between regular dividend distributions where a Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. The loss disallowance rules described in this
paragraph do not apply to losses realized under a periodic redemption plan.
Federal Income Tax Rates. As of the printing of this SAI, the maximum
------------------------
individual tax rate applicable to ordinary income is 39.6% (marginal tax rates
may be higher for some individuals to reduce or eliminate the benefit of
exemptions and deductions); the maximum individual marginal tax rate applicable
to net capital gain is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gain is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
Backup Withholding. The Trust may be required to withhold, subject to
------------------
certain exemptions, at a rate of 31% ("backup withholding") on all distributions
and redemption proceeds (including proceeds from exchanges and redemptions in-
kind) paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Trust also could subject the investor to penalties imposed by
the IRS.
Foreign Shareholders. Under the Code, distributions attributable to income
--------------------
on taxable investments, net short-term capital gain and certain other items
realized by a Fund and paid to a nonresident alien individual, foreign trust
(i.e., trust which a U.S. court is able to exercise primary supervision over
administration of that trust and one or more U.S. persons have authority to
control substantial decisions of that trust), foreign estate (i.e., the income
of which is not subject to U.S. tax regardless of source), foreign corporation,
or foreign partnership (each, a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a distribution paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the foreign shareholder), in which case the reporting and withholding
requirements applicable to U.S. persons will apply. Capital gain distributions
generally are not subject to tax withholding.
56
<PAGE>
New Regulations. On October 6, 1997, the Treasury Department issued new
---------------
regulations (the "New Regulations") which make certain modifications to the
backup withholding, U.S. income tax withholding and information reporting rules
applicable to foreign shareholders. The New Regulations will generally be
effective for payments made after December 31, 2000, subject to certain
transition rules. Among other things, the New Regulations will permit the Funds
to estimate the portion of their distributions qualifying as capital gain
distributions for purposes of determining the portion of such distributions paid
to foreign shareholders that will be subject to federal income tax withholding.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
Tax-Exempt Investors and Tax-Deferred Plans. Shares of a Funds would not
-------------------------------------------
be suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since such
plans and accounts are generally tax-exempt and, therefore, would not benefit
from the exempt status of dividends from the Fund. Such dividends may ultimately
be taxable to the beneficiaries when distributed to them.
Additional Considerations for the Funds. If at least 50% of the value of a
---------------------------------------
regulated investment company's total assets at the close of each quarter of its
taxable years consists of obligations the interest on which is exempt from
federal income tax, it will qualify under the Code to pay "exempt-interest
dividends." The Funds intend to so qualify and are designed to provide investors
with a high level of income exempt from federal income tax.
The portion of total dividends paid by a Fund with respect to any taxable
year that constitutes exempt-interest dividends will be the same for all
shareholders receiving dividends during such year. Distributions of capital
gains or income not attributable to interest on the Fund's tax-exempt
obligations will not constitute exempt-interest dividends and will be taxable to
its shareholders. The exemption of interest income derived from investments in
tax-exempt obligations for federal income tax purposes may not result in a
similar exemption under the laws of a particular state or local taxing
authority.
Not later than 60 days after the close of its taxable year, each Fund will
notify its shareholders of the portion of the dividends paid with respect to
such taxable year which constitutes exempt-interest dividends. The aggregate
amount of dividends so designated cannot exceed the excess of the amount of
interest excludable from gross income under Section 103 of the Code received by
the Fund during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. Interest on indebtedness incurred to
purchase or carry shares of a Fund will not be deductible to the extent that the
Fund's distributions are exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure that
at least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions and
exemptions have been designated "tax preference items" which must be added back
to taxable income for purposes of calculating AMT. Among the tax preference
items is tax-exempt interest from "private activity bonds." To the extent that a
Fund invests in private activity bonds, its shareholders who pay AMT will be
required to report that portion of Fund dividends attributable to income from
the bonds as a tax preference item in determining their AMT. Shareholders will
be notified of the tax status of
57
<PAGE>
distributions made by a Fund. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in a
Fund. Furthermore, shareholders will not be permitted to deduct any of their
share of a Fund's expenses in computing their AMT. With respect to a corporate
shareholder of a Fund, exempt-interest dividends paid by the Fund is included in
the corporate shareholder's "adjusted current earnings" as part of its AMT
calculation, and may also affect its federal "environmental tax" liability. As
of the printing of this SAI, individuals are subject to an AMT at a maximum rate
of 28% and corporations at a maximum rate of 20%. Shareholders with questions or
concerns about the AMT should consult own their tax advisors.
Additional Considerations for the Arizona Tax-Free Fund. Individuals,
-------------------------------------------------------
trusts and estates who are subject to Arizona income tax will not be subject to
such tax on dividends paid by the Arizona Tax-Free Fund, to the extent that such
dividends qualify as exempt-interest dividends and are attributable to either
(i) obligations of the State of Arizona or its political subdivisions thereof or
(ii) obligations issued by the governments of Guam, Puerto Rico, or the Virgin
Islands. In addition, dividends paid by the Arizona Tax-Free Fund that are
attributable to interest payments on direct obligations of the U.S. government
will not be subject to Arizona income tax as long as the extent the Arizona Tax-
Free Fund qualifies as a regulated investment company under the Code. Other
distributions from the Arizona Tax-Free Fund, however, such as distributions of
short-term or long-term capital gains, will generally not be exempt from Arizona
income tax.
Because shares of the Arizona Tax-Free Fund are intangibles, they are not
subject to Arizona property tax. Shareholders of the Arizona Tax-Free Fund
should consult their tax advisors about other state and local tax consequences
of their investment in the Arizona Tax-Free Fund. The Trust makes no
representations as to Arizona state and local taxes that may be imposed on a
corporate investor in the Arizona Tax-Free Fund and encourages such investors to
consult with their own tax advisors.
Additional Considerations for the California Limited Term Tax-Free Fund and
---------------------------------------------------------------------------
California Tax-Free Fund. If, at the close of each quarter of its taxable year,
- ------------------------
at least 50% of the value of the total assets of a regulated investment company
consists of obligations the interest on which, if held by an individual, is
exempt from taxation by California ("California Exempt Securities"), then the
regulated investment company will be qualified to pay dividends exempt from
California state personal income tax to its non-corporate shareholders
(hereinafter referred to as "California exempt-interest dividends"). For this
purpose, California Exempt Securities generally are limited to California
municipal securities and certain U.S. government and U.S. possession
obligations. The California Limited Term Tax-Free Fund and California Tax-Free
Fund (the "California Funds") intends to qualify under the above requirements so
that they can pay California exempt-interest dividends. If the California Funds
do not so qualify, no part of their respective dividends to shareholders will be
exempt from the California state personal income tax.
Within sixty days after the close of its taxable year, the California Funds
will notify their respective shareholders of the portion of the dividends paid
by the respective Fund to each shareholder with respect to such taxable year
which is exempt from California state personal income tax. The total amount of
California exempt-interest dividends paid by the California Funds with respect
to any taxable year cannot exceed the excess of the amount of interest
58
<PAGE>
received by the California Funds for such year on California Exempt Securities
over any amounts that, if the California Funds were treated as individuals,
would be considered expenses related to tax exempt income or amortizable bond
premium and would thus not be deductible under federal income or California
state personal income tax law. The percentage of total dividends paid for any
taxable year which qualifies as California exempt-interest dividends will be the
same for all shareholders receiving dividends from the Fund for such year.
In cases where shareholders are "substantial users" or "related persons"
with respect to California Exempt Securities held by the California Funds, such
shareholders should consult their tax advisors to determine whether California
exempt-interest dividends paid by the Fund with respect to such obligations
retain California state personal income tax exclusion. In this connection rules
similar to those regarding the possible unavailability of federal exempt-
interest dividend treatment to "substantial users" are applicable for California
state tax purposes. Interest on indebtedness incurred by a shareholder to
purchase or carry the California Funds shares is not deductible for California
state personal income tax purposes if the California Funds distribute California
exempt-interest dividends during the shareholder's taxable year.
The foregoing is only a summary of some of the important California state
personal income tax considerations generally affecting the California Funds and
their shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the California Funds or their
shareholders, and this discussion is not intended as a substitute for careful
planning. Further, it should be noted that the portion of any California Fund
distributions constituting California exempt-interest dividends is excludable
from income for California state personal income tax purposes only. Any
distributions paid to shareholders subject to California state franchise tax or
California state corporate income tax may be taxable for such purposes.
Accordingly, potential investors in the California Funds, including, in
particular, corporate investors which may be subject to either California
franchise tax or California corporate income tax, should consult their own tax
advisors with respect to the application of such taxes to the receipt of the
California Funds dividends and as to their own California state tax situation,
in general.
Additional Considerations for the Colorado Tax-Free Fund. Individuals,
--------------------------------------------------------
trusts, estates and corporations subject to the Colorado income tax will not be
subject to such tax on dividends paid by the Colorado Tax-Free Fund, to the
extent that such dividends qualify as exempt-interest dividends and are
attributable to (i) interest earned on any obligation of Colorado or its
political subdivisions issued on or after May 1, 1980, (ii) interest earned on
any obligation of Colorado or its political subdivisions issued before May 1,
1980 to the extent that such interest is specifically exempt from income
taxation under the Colorado state laws authorizing the issuance of such
obligations, or (iii) interest on obligations of the United States or its
possessions included in federal adjusted gross income. All other distributions,
including distributions attributable to capital gains, generally will be subject
to the Colorado individual and corporate income taxes.
Shareholders of the Colorado Tax-Free Fund should consult their own tax
advisors about other state and local tax consequences of their investment in the
Colorado Tax-Free Fund.
Additional Considerations for the Minnesota Tax-Free and Minnesota
------------------------------------------------------------------
Intermediate Tax-Free Funds. Shareholders of the Funds, who are individuals,
- ---------------------------
estates, or trusts and who are
59
<PAGE>
subject to the regular Minnesota personal income tax will not be subject to such
regular Minnesota tax on Fund dividends to the extent that such distributions
qualify as exempt-interest dividends of a regulated investment company under
Section 852(b)(5) of the Internal Revenue Code which are derived from interest
income on tax-exempt obligations of the State of Minnesota, or its political or
governmental subdivisions, municipalities, governmental agencies, or
instrumentalities ("Minnesota Sources"). The foregoing will apply, however, only
if the portion of the exempt-interest dividends from such Minnesota Sources that
is paid to all shareholders represents 95% or more of the exempt-interest
dividends that are paid by the Fund. If the 95% test is not met, all exempt-
interest dividends that are paid by the Funds generally will be subject to the
regular Minnesota personal income tax. Even if the 95% test is met, to the
extent that exempt-interest dividends that are paid by the Funds are not derived
from the Minnesota Sources described in the first sentence of this paragraph,
such dividends generally will be subject to the regular Minnesota personal
income tax. Other distributions of the Funds, including distributions from net
short-term and long-term capital gains, are generally not exempt from the
regular Minnesota personal income tax.
State legislation enacted in 1995 provides that it is the intent of the
Minnesota legislature that interest income on obligations of Minnesota
governmental units, including obligations of the Minnesota Sources described
above, and exempt-interest dividends that are derived from interest income on
such obligations, be included in the net income of individuals, estates, and
trusts for Minnesota income tax purposes if it is judicially determined that the
exemption by Minnesota of such interest or such exempt-interest dividends
unlawfully discriminates against interstate commerce because interest income on
obligations, is so included. This provision applies to taxable years that begun
during or after the calendar year in which such judicial decision becomes final,
regardless of the date on which the obligations were issued, and other remedies
apply for previous taxable years. The United States Supreme Court in 1995
denied certiorari in a case in which an Ohio state court upheld an exemption for
interest income on obligations of Ohio governmental issuers, even though
interest income on obligations of non-Ohio governmental issuers was subject to
tax. In 1997, the United States Supreme Court denied certiorari in a subsequent
case from Ohio, involving the same taxpayer and the same issue, in which the
Ohio Supreme Court refused to reconsider the merits of the case on the ground
that the previous final state court judgment barred any claim arising out of the
transaction that was the subject of the previous action. It cannot be predicted
whether a similar case will be brought in Minnesota or elsewhere, or what the
outcome of such case would be.
Subject to certain limitations that are set forth in the Minnesota rules,
Fund dividends, if any, that are derived from interest on certain United States
obligations are not subject to the regular Minnesota personal income tax or the
Minnesota alternative minimum tax, in the case of shareholders of the Funds who
are individuals, estates, or trusts.
Fund distributions, including exempt-interest dividends, are not excluded
in determining the Minnesota franchise tax on corporations that is measured by
taxable income and alternative minimum taxable income. Fund distributions may
also be taken into account in certain cases in determining the minimum fee that
is imposed on corporations, S corporations, and partnerships.
Additional Considerations for the Oregon Tax-Free Fund. So long as the
------------------------------------------------------
Oregon Tax-Free Fund qualifies to be taxed as a separate "regulated investment
company" under the Code,
60
<PAGE>
individuals, trusts and estates will not be subject to Oregon personal income
tax on distributions from the Oregon Tax-Free Fund that represent exempt-
interest dividends paid on municipal obligations of the State of Oregon and its
political subdivisions, the U.S. Virgin Islands, Puerto Rico and Guam.
Individuals, trusts and estates will be subject to Oregon personal income tax on
other types of distributions received from the Oregon Tax-Free Fund, including
distributions of interest on obligations issued by other issuers and all long-
term and short-term capital gains. Shares of the Oregon Tax-Free Fund will not
be subject to the Oregon property tax.
Shareholders of the Oregon Tax-Free Fund should consult their own tax
advisors about other state and local tax consequences of their investments in
the Oregon Tax-Free Fund, which may differ from the federal income tax
consequences of such investments. The Trust makes no representations as to
Oregon state and local taxes that may be imposed on a corporate investor in the
Oregon Tax-Free Fund and encourages such investors to consult with their own tax
advisors.
Other Matters. Investors should be aware that the investments to be made
-------------
by the Funds may involve sophisticated tax rules that may result in income or
gain recognition by the Fund without corresponding current cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case the Funds may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion and the discussions in the Prospectus applicable
to each shareholder address only some of the federal income tax (and, where
applicable Arizona, California, Colorado Minnesota and Oregon taxes)
considerations generally affecting investments in the Funds. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
federal, state, local and foreign taxes.
CAPITAL STOCK
The Funds are nine of the funds in the Wells Fargo Funds Trust family of
funds. The Trust was organized as a Delaware business trust on March 10,
1999.
Most of the Trust's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, classes subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Trust's funds also are authorized to issue
other classes of shares, which are sold primarily to institutional investors.
Each class of shares in a fund represents an equal, proportionate interest in a
fund with other shares of the same class. Shareholders of each class bear their
pro rata portion of the fund's operating expenses, except for certain class-
specific expenses (e.g., any state securities registration fees, shareholder
servicing fees or distribution fees that may be paid under Rule 12b-1) that are
allocated to a particular class. Please contact Shareholder Services at 1-800-
222-8222 if you would like additional information about other funds or classes
of shares offered.
With respect to matters affecting one class but not another, shareholders
vote as a class; for example, the approval of a Plan. Subject to the foregoing,
all shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a
61
<PAGE>
change in a Fund's fundamental investment policy affects only one series and
would be voted upon only by shareholders of the Fund involved. Additionally,
approval of an advisory contract, since it affects only one Fund, is a matter to
be determined separately by Series. Approval by the shareholders of one Series
is effective as to that Series whether or not sufficient votes are received from
the shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Class of shares of
a Fund, means the vote of the lesser of (i) 67% of the shares of the Class
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Class are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Class of the Fund. The term "majority," when
referring to approvals to be obtained from shareholders of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be
obtained from shareholders of the Trust as a whole, means the vote of the lesser
of (i) 67% of the Trust's shares represented at a meeting if the holders of more
than 50% of the Trust's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Trust's outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares are
issued in uncertificated form only, and, when issued, will be fully paid and
non-assessable by the Trust. The Trust may dispense with an annual meeting of
shareholders in any year in which it is not required to elect Trustees under the
1940 Act.
Each share of a class of a Fund represents an equal proportional interest
in the Fund with each other share of the same class and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Trustees. In the event of the
liquidation or dissolution of the Trust, shareholders of a Fund are entitled to
receive the assets attributable to that Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio that are available for distribution in such manner
and on such basis as the Trustees in their sole discretion may determine.
Set forth below, as of October 25, 1999, is the name, address and share
ownership of each person known by the Trust to have beneficial or record
ownership of 5% or more of a class of a Fund or 5% or more of the voting
securities as a whole. The term "N/A" is used where a shareholder holds 5% or
more of a class, but less than 5% of a Fund as a whole.
62
<PAGE>
5% OWNERSHIP AS OF OCTOBER 25, 1999
-----------------------------------
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
- -------------------------- ---------------------------------- -------------
<S> <C> <C>
ARIZONA TAX-FREE
Class A HEP & CO 6.59%
c/o Wells Fargo Bank
P.O. Box 9800 MAC 91372-027
Calabasas, CA 91372-0800
DEAN WITTER FOR THE BENEFIT OF 6.45%
JUDITH A. HUTCHINGS TEE OF THE
P.O. Box 250 Church Street Station
New York, NY 1008-0250
DONNA MARIE BROWN 5.75%
P.O. Box 2450
Pine Top, AZ 85935-2450
Class B DEAN WITTER FOR THE BENEFIT OF 10.91%
ROBERT C. BUNDY
390 S Palo Verde Drive
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 7.99%
HANNA SCOTT TTEE OF THE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 6.61%
FRANK V. HORALEK &
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 5.37%
WAYNE J. HARRINGTON TTEE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
DEAN WITTER FOR THE BENEFIT OF 5.36%
WALTER J. MARSHALL TTEE OF THE
P.O. Box 250 Church Street Station
New York, NY 10008-0250
STEVEN W. WINTER 5.23%
3741 E Leland Street
Mesa, AZ 85215-2319
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
- -------------------------- ---------------------------------- -------------
<S> <C> <C>
Institutional Class VIRG & CO 82.20%
ATTN: MF DEPT A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
EMSEG & CO 8.49%
STAGECOACH AZ Tax Free FD CL I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 5.81%
STAGECOACH AZ Tax Free FD CL I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
CALIFORNIA LIMITED TERM
TAX-FREE
Class A INVESTOR SERVICES GROUP 40.03%
FBO Wells Fargo/Portfolio Advisor
Customer
211 South Gulph Road
King of Prussia, PA 19406-3101
VIRG & CO 7.42%
c/o Wells Fargo Bank
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
Institutional Class HEP & CO 47.01%
ATTN: MF DEPT A-88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
VIRG & CO 36.66%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
DIM & CO 10.97%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
- -------------------------- ----------------------------------- -------------
<S> <C> <C>
CALIFORNIA TAX-FREE
Class A N/A N/A
Class B N/A N/A
Class C MLPF&S FOR THE SOLE BENEFIT 6.34%
OF ITS CUSTOMERS
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
Institutional Class DIM & CO 72.99%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
VIRG & CO 9.97%
ATTN: MF DEPT A-88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & CO 6.54%
ATTN: MF DEPT A-88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
COLORADO TAX-FREE
Class A NORWEST INVESTMENT SERVICES INC. 16.26%
FBO 017337991
Northstar Building East - 8th Floor
608 Second Avenue South
Minneapolis, MN 55402-1916
Class B N/A N/A
Institutional Class DENTRU & CO 87.37%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO. 80274-0001
EMSEG & CO 10.60%
Colorado Tax Free I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
- -------------------------- ----------------------------------- -------------
<S> <C> <C>
MINNESOTA INTERMEDIATE
TAX-FREE
Institutional Class EMSEG & CO 73.65%
MINNESOTA INTERMEDIATE
TAX-FREE
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 20.74%
MINNESOTA INTERMEDIATE
TAX-FREE
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
MINNESOTA TAX-FREE
Class A N/A N/A
Class B N/A N/A
Institutional Class EMSEG & CO 59.98%
MINNESOTA INTERMEDIATE
TAX-FREE I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 20.15%
MINNESOTA INTERMEDIATE
TAX-FREE I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 16.77%
MINNESOTA INTERMEDIATE
TAX-FREE I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
NATIONAL LIMITED TERM
TAX-FREE
Institutional Class EMSEG & CO 31.50%
MINNESOTA INTERMEDIATE
TAX-FREE I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
- -------------------------- ----------------------------------- -------------
<S> <C> <C>
EMSEG & CO 31.17%
MINNESOTA INTERMEDIATE
TAX-FREE I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 24.28%
MINNESOTA INTERMEDIATE
TAX-FREE I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
VIRG & CO 11.08%
MUTUAL FUNDS MAC 2141`-028
P.O. Box 9800
Calabasas, CA 91372-0800
NATIONAL TAX-FREE
Class A N/A N/A
Class B N/A N/A
Class C MLPF&S FOR THE SOLE BENEFIT 28.30%
OF ITS CUSTOMERS
ATTN: Mutual Fund Administration
4800 Deer Lake Drive East 3rd Floor
Jacksonville, FL 32246-6484
NORWEST INVESTMENT SERVICES INC. 21.22%
FBO 0112609161
Northstar Building East - 9th Floor
608 Second Avenue South
Minneapolis, MN 55479-0162
Institutional Class EMSEG & CO 40.86%
TAX-FREE INCOME FUND I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
DENTRU & CO 25.19%
Non-Discretionary Cash
1740 Broadway Mail 8676
Denver, CO. 80274-0001
EMSEG & CO 19.69%
TAX-FREE INCOME FUND I
c/o Mutual Fund Processing
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
Percentage
Fund Name and Address of Class
- -------------------------- ----------------------------------- -------------
<S> <C> <C>
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
EMSEG & CO 6.74%
TAX-FREE INCOME FUND I
c/o Mutual Fund Processing
P.O. Box 1450 NW 8477
Minneapolis, MN 55485-1450
OREGON TAX-FREE
Class A N/A N/A
Class B N/A N/A
Institutional Class VIRG & CO 56.02%
MF DEPT A88-4
P.O. Box 9800
Calabasas, CA 91372-0800
HEP & CO 22.87%
ATTN: MF DEPT A-88-4
P.O. Box 9800 MAC 9139-027
Calabasas, CA 91372-0800
WELLS FARGO BANK CUSTODIAN 12.66%
FBO F.W. Temple & Gary Temple Tru
MF 2141-028 A/C #216074
P.O. Box 9800
Calabasas, CA 91372-0800
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a company
is presumed to "control" such company. Accordingly, to the extent that a
shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class (or Fund), or is identified as the holder of
record of more than 25% of a class (or Fund) and has voting and/or investment
powers, it may be presumed to control such class (or Fund).
OTHER
The Trust's Registration Statement, including the Prospectus and SAI for
the Funds and the exhibits filed therewith, may be examined at the office of the
U.S. Securities and Exchange Commission in Washington, D.C. Statements contained
in the Prospectus or the SAI as to the contents of any contract or other
document referred to herein or in the Prospectus are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
68
<PAGE>
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006, as counsel for the Trust, has rendered its opinion as to
certain legal matters regarding the due authorization and valid issuance of the
shares of beneficial interest being sold pursuant to the Funds' Prospectus.
INDEPENDENT AUDITORS
KPMG LLP has been selected as the independent auditors for the Trust. KPMG
LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of certain SEC filings. KPMG LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolios of investments and audited financial statements for the
predecessor Stagecoach and Norwest Funds for the years ended June 30, 1999 and
May 31, 1999, respectively, are hereby incorporated by reference to the Funds'
Annual Report.
69
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate Bonds
---------------
Moody's: The four highest ratings for corporate bonds are "Aaa," "Aa," "A"
-------
and "Baa." Bonds rated "Aaa" are judged to be of the "best quality" and carry
the smallest amount of investment risk. Bonds rated "Aa" are of "high quality by
all standards," but margins of protection or other elements make long-term risks
appear somewhat greater than "Aaa" rated bonds. Bonds rated "A" possess many
favorable investment attributes and are considered to be upper medium grade
obligations. Bonds rated "Baa" are considered to be medium grade obligations;
interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Moody's
also applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1 indicates
that the security ranks in the higher end of its category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
---
"AA," "A" and "BBB." Bonds rated "AAA" have the "highest rating" assigned by S&P
and have "an extremely strong capacity" to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity" to pay interest and repay
principal and "differ from the highest rated obligations only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having "adequate protection parameters" to pay
interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of a
plus or minus sign to show relative standing within the category.
Commercial Paper
----------------
Moody's: The highest rating for commercial paper is "P-1" (Prime-1).
-------
Issuers rated "P-1" have a "superior ability for repayment of senior short-term
debt obligations." Issuers rated "P-2" (Prime-2) "have a strong capacity for
repayment of senior short-term debt obligations," but earnings trends, while
sound, will be subject to more variation.
A-1
<PAGE>
S&P: The "A-1" rating for commercial paper is rated "in the highest
---
category" by S&P and "the obligor's capacity to meet its financial commitment on
the obligation is strong." The "A-1+" rating indicates that said capacity is
"extremely strong." The A-2 rating indicates that said capacity is
"satisfactory," but that corporate and municipal commercial paper rated "A-2" is
"more susceptible" to the adverse effects of changes in economic conditions or
other circumstances than commercial paper rated in higher rating categories.
A-2
