OVERLAND EXPRESS FUNDS INC, 497, 1996-05-14

OVERLAND EXPRESS FUNDS INC
497, 1996-05-14

Previous: PEOPLES TELEPHONE COMPANY INC, 10-Q, 1996-05-14

Next: SPECTRAVISION INC, 10-Q, 1996-05-14

<PAGE> 1
OVERLAND EXPRESS FUNDS, INC.

Telephone: 1-800-552-9612

STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996

ASSET ALLOCATION FUND
U.S. GOVERNMENT INCOME FUND
CALIFORNIA TAX-FREE BOND FUND

-----------------------------

Overland Express Funds, Inc. is an open-end series investment
company. This Statement of Additional Information ("SAI") contains information
about three of the Company's investment portfolios -- the ASSET ALLOCATION
FUND, the U.S. GOVERNMENT INCOME FUND and the CALIFORNIA TAX-FREE BOND FUND
(each, a "Fund" and collectively, the "Funds"). Each Fund offers two classes of
shares -- Class A Shares and Class D Shares. This SAI relates to both such
classes of shares of each Fund. The investment objective of each Fund is
described in each Fund's Prospectus under "Investment Objectives and Policies."

This SAI is not a prospectus and should be read in conjunction
with each Fund's Prospectus, dated May 1, 1996, as supplemented from time to
time. All terms used in this SAI that are defined in a Fund's Prospectus will
have the meanings assigned in such Prospectus. A copy of the Prospectus for
each Fund may be obtained without charge by writing Stephens Inc., the
Company's sponsor, administrator and distributor, at 111 Center Street, Little
Rock, Arkansas 72201 or by calling the Transfer Agent at the telephone number
indicated above.

-----------------------------

1
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . . 5
Special Factors Affecting the California Tax-Free Bond Fund . . . . . . . . . . . . . 11
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . . 20
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 3
INVESTMENT RESTRICTIONS

The Funds are subject to the following investment restrictions,
all of which are fundamental policies:

None of the Funds may:

(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 any Fund's investments in that
industry would exceed 25% of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in (i)
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 on such bonds or notes is the ultimate responsibility of
non-governmental issuers), (ii) obligations of the United States Government,
its agencies or instrumentalities, (iii) in the case of the Asset Allocation
Fund, any industry in which the S&P Index becomes concentrated to the same
degree during the same period, (iv) securities that are exempt from personal
income taxes of the State of California, and (v) the obligations of domestic
banks;

(2) purchase or sell real estate (other than municipal
obligations or other securities secured by real estate or interests therein or
securities issued by companies that invest in real estate or interests
therein), commodities or commodity contracts; except that the U.S. Government
Income Fund may enter into interest rate futures contracts and may write call
options and purchase call and put options on interest rate futures contracts;

(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions and except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities;

(4) underwrite securities of other issuers, except to the
extent that the purchase of municipal securities or other permitted investments
directly from the issuer thereof or from an underwriter for an issuer and the
later disposition of such securities in accordance with the Fund's investment
program may be deemed to be an underwriting;

(5) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days, restricted
securities, which are securities that must be registered under the Securities
Act of 1933 before they may be offered or sold to the public, and illiquid
securities;

(6) make investments for the purpose of exercising control or
management;

(7) issue senior securities, except that each Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet

3
<PAGE> 4
redemptions, and these borrowings may be secured by the pledge of up to 10% of
the current value of its net assets (but investments may not be purchased while
any such borrowing exists); or

(8) invest more than 10% of the current value of its net assets
in fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days.

In addition, the Asset Allocation Fund may not write, purchase or
sell puts, calls, warrants or options or any combination thereof, except that
such Fund may purchase securities with put rights in order to maintain
liquidity.

None of the Funds may, as to 75% of its total assets, purchase
securities of any issuer (except securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities) if, as a result, more than 5%
of the value of its total assets would be invested in the securities of any one
issuer or, with respect to 100% of its assets, the Fund's ownership would be
more than 10% of the outstanding voting securities of such issuer.

The Funds are subject to the following non-fundamental policies:

(1) None of the Funds will purchase or retain securities of any
issuer if the officers or directors of the Fund or its Investment Adviser
owning beneficially more than one-half of one percent (0.5%) of the securities
of the issuer together owned beneficially more than 5% of such securities.

(2) The Funds may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.

(3) None of the Funds will invest in securities of issuers who,
with their predecessors, have been in existence less than three years, unless
the securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets.

(4) Each of the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of Section 12(d)(1)
of the 1940 Act, provided that any such purchases will be limited to temporary
investments in shares of unaffiliated investment companies and the Investment
Adviser will waive its advisory fees for that portion of the Fund's assets so
invested, except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition.

(5) The Asset Allocation Fund will not purchase securities of
unseasoned issuers, including their predecessors, which have been in operation
for less than three years, and equity securities of issuers which are not
readily marketable if by reason thereof the value of such Fund's aggregate
investment in such classes of securities will exceed 5% of its total assets.

4
<PAGE> 5
(6) The U.S. Government Income Fund will not purchase puts,
calls, straddles, spreads or any combination thereof.

(7) The U.S. Government Income Fund will not invest any part of
its total assets in commodities or commodity futures contracts, provided that
such Fund may enter into interest rate futures contracts and may write call
options and purchase call and put options on interest rate futures contracts
that are "covered" (i.e., the Fund maintains segregated liquid assets in an
amount at least equal to the value to the Fund's obligations and marks to
market daily such collateral).

(8) None of the Funds may purchase or sell real estate limited
partnership interests.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Unrated Investments. Each of the Asset Allocation Fund and the
California Tax-Free Bond Fund may purchase instruments that are not rated if,
in the opinion of Wells Fargo Bank, 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 an immediate 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 systems, each Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in such Fund's Prospectus and in this SAI. The
ratings of Moody's and S&P are more fully described in the Appendix to this
SAI.

Letters of Credit. The Asset Allocation Fund and the California
Tax-Free Bond Fund may purchase debt obligations, including municipal
securities, certificates of participation, commercial paper and other
short-term obligations, backed by an 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 investment quality comparable to other
permitted investments of such Fund may be used for letter of credit-backed
investments.

Pass-Through Obligations. The U.S. Government Income Fund and the
California Tax-Free Bond Fund may invest in pass-through obligations that
represent an ownership interest in a pool of mortgages and the resultant cash
flow from those mortgages. Payments by homeowners on the loans in the pool flow
through to certificate holders in amounts sufficient to repay principal and to
pay interest at the pass-through rate. The stated maturities of pass-through
obligations 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 pass-through obligation. Variations in the
maturities of pass-through obligations will affect the yield of the U.S.
Government Income Fund and the California Tax- Free Bond Fund. Furthermore, as
with any debt obligation, fluctuations in interest rates will inversely affect
the market value of pass-through obligations. The U.S. Government Income Fund
and the California

5
<PAGE> 6
Tax-Free Bond Fund 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
Government National Mortgage Association) or those that are guaranteed by an
agency or instrumentality of the U.S. Government (such as the Federal National
Mortgage Association or the Federal Home Loan Mortgage Corporation) or bonds
collateralized by any of the foregoing.

When-Issued Securities. Each Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. However, none of
the Funds intends to invest more than 5% of its net assets in when-issued
securities during the coming year. The Funds only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation, and
no income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery.

Each Fund will establish a segregated account in which it will
maintain cash, U.S. Government obligations and 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 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.

Municipal Bonds. The California Tax-Free Bond Fund and the Asset
Allocation Fund may invest in municipal bonds. As discussed in the Prospectus,
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
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. Some or all of these bonds may be considered
"private activity bonds" for federal income tax purposes.

6
<PAGE> 7
Municipal Notes. The California Tax-Free Bond Fund and the Asset
Allocation Fund 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 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 will also
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) they would sell at a discount. If
interests rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) they would sell at a premium. 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.

The Funds indicated below may engage in the following investment
activities although none has a present intention to do so:

Interest Rate Futures Contracts and Options Thereon. The U.S.
Government Income Fund may use interest rate futures contracts ("futures
contracts") principally as a hedge against the effects of interest rate
changes. A futures contract is an agreement to purchase or sell a specified
amount of designated debt securities for a set price at a specified future
time. At the time it enters into a futures transaction, the U.S. Government
Income Fund is required to make a performance deposit (initial margin) of cash
or liquid securities with its custodian in a segregated account in the name of
the futures broker. Subsequent payments of "variation margin" are then

7
<PAGE> 8
made on a daily basis, depending on the value of the futures position which is
continually "marked to market."

The U.S. Government Income Fund may engage only in interest rate
futures contract transactions involving (i) the sale of the designated debt
securities underlying the futures contract (i.e., short positions) to hedge the
value of securities held by the U.S. Government Income Fund; (ii) the purchase
of the designated debt securities underlying the futures contract when the U.S.
Government Income Funds holds a short position having the same delivery month
(i.e., a long position offsetting a short position); or (iii) activities that
are incidental to the U.S. Government Income Fund's activities in the cash
market in which the U.S. Government Income Fund has determined to invest. If
the market moves favorably after the U.S. Government Income Fund enters into an
interest rate futures contract as a hedge against anticipated adverse market
movements, the benefits from such favorable market movements on the value of
the securities so hedged will be offset in whole or in part, by a loss on the
futures contract.

The U.S. Government Income Fund may engage in a futures contract
sale 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, the U.S. Government Income Fund would realize
a loss in closing out its futures contract sales that would offset any
increases in prices of the long-term securities it holds.

An option on a futures contract gives the purchaser the right, but
not the obligation, in return for the premium paid, to assume (in the case of a
call) or sell (in the case of a put) a position in a specified underlying
futures contract (which position may be a long or short position) at a
specified exercise price at any time during the option exercise period. Sellers
of options on future contracts, like buyers and sellers of futures contracts,
make an initial performance deposit and are subject to calls for variation
margin.

Transactions by the U.S. Government Income Fund in futures
contracts and options thereon involve certain risks. One 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 the U.S. Government Income
Fund's portfolio (the portfolio securities will not be identical to the debt
instruments underlying the futures contracts). In addition, commodity exchanges
generally limit the amount of fluctuation permitted in futures contract and
option prices during a single trading day, and the existence of such limits may
prevent the prompt liquidation of futures and option positions in certain
cases. Inability to liquidate positions in a timely manner could result in the
U.S. Government Income Fund incurring larger losses than would otherwise be the
case.

The U.S. Government Income Fund will not enter into interest rate
futures contracts and options thereon for which the aggregate initial margin
and premiums exceed 5% of the fair market value of its assets, after taking
into account unrealized profits and unrealized losses on any such contracts it
has entered into; provided, however, that the "in-the-money" amount of an
option that was in-the-money at the time of purchase will be excluded in
computing such 5%.

8
<PAGE> 9
The U.S. Government Income Fund may enter into futures contracts
and may purchase call and put options on futures contracts that are traded on
U.S. commodity exchanges and write call options on such futures contracts.

Investment in Bond Options by the U.S. Government Income Fund. The
U.S. Government Income Fund may purchase put and call options and write covered
put and call options on securities in which such Fund may invest directly and
that are traded on registered domestic securities exchanges or that result from
separate, privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Board of Governors of the Federal Reserve
System (i.e., over-the-counter ("OTC") options). The writer of a call option,
who receives a premium, has the obligation, upon exercise, to deliver the
underlying security against payment of the exercise price during the option
period. The writer of a put, who receives a premium, has the obligation to buy
the underlying security, upon exercise, at the exercise price during the option
period.

The U.S. Government Income Fund may write put and call options on
bonds only if they are "covered," and such options must remain "covered" as
long as the Fund is obligated as a writer. A call option is covered if the U.S.
Government Income Fund owns the underlying security covered by the call or has
an absolute and immediate right to acquire that security without additional
cash consideration (or for additional cash consideration if the underlying
security is held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A put option is covered if
the U.S. Government Income Fund maintains cash, U.S. Treasury bills or other
high grade short-term obligations with a value equal to the exercise price in a
segregated account with its custodian.

The principal reason for writing put and call options is to
attempt to realize, through the receipt of premiums, a greater current return
than would be realized on the underlying securities alone. In return for the
premium received for a call option, the U.S. Government Income Fund foregoes
the opportunity for profit from a price increase in the underlying security
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security decline. In return for the
premium received for a put option, the U.S. Government Income Fund assumes the
risk that the price of the underlying security will decline below the exercise
price, in which case the put would be exercised and the Fund would suffer a
loss. The U.S. Government Income Fund may purchase put options in an effort to
protect the value of a security it owns against a possible decline in market
value.

Writing of options involves the risk that there will be no market
in which to effect a closing transaction. An exchange-traded option may be
closed out only on an exchange that provides a secondary market for an option
of the same series. OTC options are not generally terminable at the option of
the writer and may be closed out only by negotiation with the holder. There is
also no assurance that a liquid secondary market on an exchange will exist. In
addition, because OTC options are issued in privately negotiated transactions
exempt from registration under the Securities Act of 1933, there is no
assurance that the U.S. Government Income Fund will succeed in negotiating a
closing out of a particular OTC option at any particular time. If the

9
<PAGE> 10
U.S. Government Income Fund as covered call option writer is unable to effect a
closing purchase transaction in the secondary market or otherwise, it will not
be able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise.

The staff of the Commission has taken the position that purchased
options not traded on registered domestic securities exchanges and the assets
used as cover for written options not traded on such exchanges are generally
illiquid securities. However, the staff has also opined that, to the extent a
mutual fund sells an OTC option to a primary dealer that it considers
creditworthy and contracts with such primary dealer to establish a formula
price at which the fund would have the absolute right to repurchase the option,
the fund would only be required to treat as illiquid the portion of the assets
used to cover such option equal to the formula price minus the amount by which
the option is "in-the-money." Pending resolution of the issue, the U.S.
Government Income Fund will treat such options and, except to the extent
permitted through the procedure described in the preceding sentence, assets as
subject to such Fund's limitation on investments in securities that are not
readily marketable.

Additional Limitations on Interest Rate Futures and Related
Options. In order to comply with undertakings made by the U.S. Government
Income Fund pursuant to Commodity Futures Trading Commission ("CFTC")
Regulation 4.5, the U.S. Government Income Fund will use interest rate futures
and option contracts solely for bona fide hedging purposes within the meaning
and intent of CFTC Reg. 1.3(z)(1); provided, however, that with respect to each
long position in an interest rate futures or option contract that will be used
as part of a portfolio management strategy and that is incidental to the U.S.
Government Income Fund's activities in the underlying cash market but would not
come within the meaning and intent of Reg. 1.3(z)(1), the "underlying commodity
value" (the size of the contract multiplied by its current settlement price) of
each such long position will not at any time exceed the sum of:

(1) The value of short-term United States debt obligations or
other United States dollar-denominated high quality
short-term money market instruments and cash set aside in
an identifiable manner, plus any funds deposited as margin
on such contract;

(2) Unrealized appreciation on the contract held at the broker;
and

(3) Cash proceeds from existing investments due in not more
than 30 days.

Investment in Warrants. The U.S. Government Income Fund and the
California Tax-Free Bond Fund each may invest no more than 5% of its net assets
at the time of purchase in warrants (other than those that have been acquired
in units or attached to other securities), and not more than 2% of its net
assets in warrants which are not listed on the New York or American Stock
Exchange. Warrants represent rights to purchase securities at a specific price
valid for a specific period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The U.S. Government
Income Fund and the California Tax-Free Bond Fund each may only purchase
warrants on securities in which the Fund may invest directly.

10
<PAGE> 11
SPECIAL FACTORS AFFECTING THE
CALIFORNIA TAX-FREE BOND FUND

Certain debt obligations held by the California Tax-Free Bond Fund
may be obligations of issuers which rely in whole or in substantial part on
California state revenues for the continuance of their operations and the
payment of their obligations. The extent to which the California Legislature
will continue to appropriate a portion of the state's general funds to
counties, cities and their various entities, is not entirely certain. To the
extent local entities do not receive money from the state to pay for their
operations and services, their ability to pay debt service on obligations held
by the Fund may be impaired.

Certain of the municipal securities in which the California
Tax-Free Bond Fund may invest may be obligations of California issuers that
rely in whole or in part, directly or indirectly, on ad valorem real property
taxes as a source of revenue. The California Constitution limits the powers of
municipalities to impose and collect ad valorem taxes on real property, which,
in turn, restricts the ability of municipalities to service their debt
obligations from such taxes.

For example, Article XIIIA of the California Constitution, as
amended, limits ad valorem real property taxes to 1% of the full cash value of
the property, defined as the county tax assessor's valuation as of March 1,
1975, plus adjustments not to exceed 2% per year, adjustments upon purchase,
change of ownership or new construction after that date, and certain other
adjustments. Article XIIIB provides that state and local government
appropriations from certain revenue sources each year may not exceed the
"appropriations limit" related to such revenue sources set forth for the fiscal
year 1978-79, with certain adjustments made for changes in the cost of living
and population and certain limited exemptions. Because of the complex nature of
Articles XIIIA and XIIIB, ambiguities and possible inconsistencies in their
terms, the existence of litigation challenging these provisions and the
impossibility of predicting future appropriations and changes in population and
cost of living, it is not possible to determine the impact of Article XIIIA or
Article XIIIB or any implementing or related legislation on the municipal
obligations in the California Tax-Free Bond Fund or the ability of state or
local government to pay the interest on, or repay the principal of, such
municipal obligations.

Certain debt obligations held by the Fund 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 the Fund would not be paid
in a timely manner.

Certain debt obligations held by the California Tax-Free Bond Fund
may be obligations which are 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

11
<PAGE> 12
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 will not
adversely affect the market value of California municipal securities or the
ability of obligors to continue to make payments on such securities.

* * *

The taxable securities market is a broader and more liquid market
with a greater number of investors, issuers and market makers than the market
for municipal securities. The more limited marketability of municipal
securities may make it difficult in certain circumstances to dispose of large
investments advantageously.

MANAGEMENT

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company for
purposes of the 1940 Act are indicated by an asterisk.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
</TABLE>

12
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- ---------------------
<S> <C> <C>
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy: Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.
*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>

13
<PAGE> 14
COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1995

<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- ----------------- ----------------- ------------------
<S> <C> <C>
Jack S. Euphrat $10,188 $39,750
Director

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director

*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes 9,438 37,000
Director

Robert M. Joses 9,938 39,000
Director

*J. Tucker Morse 8,313 33,250
Director
</TABLE>

Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the Company
serves in the identical capacity as Officers and Directors of Stagecoach Funds,
Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and as Trustees
and/or Officers of Stagecoach Trust, Master Investment Portfolio, Life &
Annuity Trust, Master Investment Trust and Managed Series Investment Trust,
each of which is a registered open-end management investment company and each
of which is considered to be in the same "fund complex," as such term is
defined in Form N-1A under the 1940 Act, as the Company. The Directors are
compensated by other Companies and Trusts within the fund complex for their
services as Directors/Trustees to such Companies and Trusts. Currently the
Directors do not receive any retirement benefits or deferred compensation from
the Company or any other member of the fund complex.

As of the date of this SAI, Directors and officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.

14
<PAGE> 15
Investment Adviser. Each of the Funds is advised by Wells Fargo
Bank. The Amended Advisory Contract of the Asset Allocation Fund and the
Advisory Contracts of the other Funds (collectively, the "Advisory Contracts")
provide that Wells Fargo Bank shall furnish to the Funds investment guidance
and policy direction in connection with the daily portfolio management of each
Fund. Pursuant to the Advisory Contracts, Wells Fargo Bank furnishes to the
Board of Directors periodic reports on the investment strategy and performance
of each Fund.

Wells Fargo Bank has agreed to provide to the Funds, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and, in the
case of the U.S. Government Income Fund and the California Tax-Free Bond Fund,
average maturities of the portfolios of each of those Funds.

Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the Act) of any such party. Each Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.

For the years ended December 31, 1993, 1994 and 1995, the Funds
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated AMOUNTS:

<TABLE>
<CAPTION>
1993 1994 1995
PAID WAIVED PAID WAIVED PAID WAIVED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation
Fund $350,046 $305 $424,899 $0 $424,416 $0

U.S. Government
Income Fund $39,319 $201,104 $230,619 $28,872 $175,052 $13,667

California Tax-Free
Bond Fund $1,475,001 $423,693 $896,680 $748,655 $1,165,976 $248,047
</TABLE>

Sub-Investment Adviser. BZW Barclays Global Fund Advisors ("BGFA")
serves as Sub-Investment Adviser to the Asset Allocation Fund pursuant to a
Sub-Advisory Contract (the "Sub-Advisory Contract") between the Fund, Wells
Fargo Bank and BGFA. Subject to the direction of the Company's Board of
Directors and the overall supervision and control of Wells Fargo Bank and the
Company, BGFA makes recommendations regarding the investment and reinvestment
of the Fund's assets. BGFA is responsible for implementing and monitoring the
performance of the asset allocation model employed with respect to the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Fund's Prospectus. BGFA will

15
<PAGE> 16
furnish to Wells Fargo Bank periodic reports on the investment activity and
performance of the Fund and will also furnish such additional reports and
information as Wells Fargo Bank and the Company's Board of Directors and
officers may reasonably request. BGFA was created by the reorganization of
Wells Fargo Nikko Investment Advisors ("WFNIA"), a former affiliate of Wells
Fargo Bank, with and into an affiliate of Wells Fargo Institutional Trust
Company, N.A. ("WFITC"). Prior to January 1, 1996, WFNIA provided sub-advisory
services directly to the Asset Allocation Fund. For the years ended December
31, 1993, 1994 and 1995, Wells Fargo Bank paid to WFNIA the sub-advisory fees
indicated below:

<TABLE>
<CAPTION>
1993 1994 1995
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation Fund $350,046 $305 $424,899 $-0- $177,707 $-0-
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of each of its Funds. Stephens, in
connection with the Administration Agreements with the Company, furnishes the
Company with office facilities and ordinary clerical and bookkeeping services
that are not being furnished by Wells Fargo Bank. Stephens also has entered
into Distribution Agreements with the Company pursuant to which it has the
responsibility of distributing Class A Shares and Class D Shares of the Funds.

For the years ended December 31, 1993, 1994 and 1995, the Funds
paid administrative fees to Stephens as follows:

<TABLE>
<CAPTION>
FUND 1993 1994 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund $49,481 $66,524 $60,627

U.S. Government Income Fund $48,438 $51,898 $37,744

California Tax-Free Bond Fund $483,479 $431,734 $384,015
</TABLE>

Shareholder Servicing Agent. As discussed in each Fund's
Prospectus under the heading "Shareholder Servicing Agent," the Funds have
entered into shareholder servicing agreements with Wells Fargo Bank. For the
dollar amount of shareholder servicing fees paid by the Class D Shares of the
Funds, see "Servicing Plan" below.

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as Transfer and Dividend Disbursing Agent for the
Funds and as Custodian for the U.S. Government Income Fund and the California
Tax- Free Bond Fund. BZW Barclays Global Investors, N.A. ("BGI" formerly,
WFITC) acts as Custodian for the Asset Allocation Fund. The

16
<PAGE> 17
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 to the U.S. Government Income and
California Tax-Free Bond Funds, Wells Fargo Bank receives an asset-based fee
and transaction charges. However, BGI is not entitled to receive compensation
for its services as Custodian to the Asset Allocation Fund so long as its
subsidiary, BGFA, is entitled to receive fees for providing investment advisory
services to such Fund. For the year ended December 31, 1995, none of the Funds
paid any custody fees.

For its services as transfer and dividend disbursing agent to the
Funds, Wells Fargo Bank receives a base fee and per-account fees. As of
December 31, 1995, the Funds paid transfer and dividend disbursing agency fees
to Wells Fargo Bank, as follows:

<TABLE>
<CAPTION>
FUND 1995
- -------------------------------------------------------
<S> <C>
Asset Allocation $17,563
California Tax-Free Bond $-0-
U.S. Government Income $-0-
</TABLE>

Underwriting Commissions. For the year ended December 31, 1993,
the aggregate dollar amount of underwriting commissions paid to Stephens was
$3,604,377 and Stephens retained $3,457,989 of such commissions. Wells Fargo
Securities Inc. ("WFSI"), an affiliated broker-dealer of the Company, and its
registered representatives received $146,388 of such commissions.

For the year ended December 31, 1994, the aggregate dollar amount
of underwriting commissions paid to Stephens was $1,408,759 and Stephens
retained $1,351,388 of such commissions. WFSI and its registered
representatives received $57,371 of such commissions.

For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens was $1,478,541 and Stephens
retained $1,447,175 of such commissions. WFSI and its registered
representatives received $31,366 of such commissions.

DISTRIBUTION PLANS

As indicated in the Prospectus, each of the Funds, on behalf of
each of its classes of shares, has adopted a Plan under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plans for the classes of
shares of the Asset Allocation Fund, the U.S. Government Income Fund and the
California Tax-Free Bond Fund were adopted by the Board of Directors; a
majority of the directors who were not "interested persons" (as defined in the
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 "Qualified
Directors") adopted the Plans.

17
<PAGE> 18
Under the Plans for the U.S. Government Income Fund and the
California Tax-Free Bond Fund, each of the classes of shares of these Funds may
defray all or part of the cost of preparing and printing prospectuses and other
promotional materials and of delivering prospectuses and those materials to
prospective shareholders of the Fund by paying on an annual basis up to the
greater of $100,000 or 0.05% of the Fund's average daily net assets. These
Plans provide only for the reimbursement of actual expenses.

Under the Plan for the Asset Allocation Fund, this Fund may pay
the Distributor, as compensation for distribution-related services, a monthly
fee at an annual rate of up 0.75% of the Fund's average daily net assets
attributable to the Class A Shares and up to 0.50% of the Fund's average daily
net assets attributable to the Class D Shares. The actual fee payable to the
Distributor shall, within such limits, be determined from time to time by
mutual agreement between the Company 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 NASD Rules
of Fair Practice. The Distributor may enter into selling agreements with one
or more selling agents 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 Asset Allocation Fund shares attributable to them. The Distributor
may retain any portion of the total distribution fee payable under the Plan to
compensate it for the distribution-related services provided by it or to
reimburse it for other distribution-related expenses.

Each Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Qualified Directors. Such
agreements 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 proper Fund. No Plan may be amended to
increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the proper Fund, and no
material amendment to a Plan may be made except by a majority of both the
directors of the Company and the Qualified Directors.

Each Plan requires that the Treasurer of the Fund shall provide to
the directors, and the directors 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 directors who are not
"interested persons" of the Company be made by such disinterested directors.

For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.

18
<PAGE> 19
<TABLE>
<CAPTION>
PRINTING & MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation
Class A $120,417 N/A N/A $120,417
Class D $93,450 N/A N/A $93,450

U.S. Government Income
Class A $10,720 $10,720 $-0- N/A
Class D $16,582 N/A N/A $16,582

California T-F Bond
Class A $8,543 $8,348 $195 N/A
Class D $36,643 N/A N/A $36,643
</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under each Fund's Plans.

SERVICING PLAN

As indicated in the Prospectus of each Fund, each of the Funds has
adopted a Servicing Plan (each, a "Servicing Plan" and collectively, the
"Servicing Plans") with respect to its Class D Shares. The Board of Directors
adopted the Servicing Plans on April 29, 1993. The Board of Directors included
a majority of the Directors who were not "interested persons" (as defined in
the 1940 Act) of any of the Funds and who had no direct or indirect financial
interest in the operation of the Servicing Plan or in any agreement related to
the Servicing Plan (the "Servicing Plan Qualified Directors").

Under each Servicing Plan and pursuant to the Servicing
Agreements, the Fund may pay one or more servicing agents, as compensation for
performing certain services, a fee at an annual rate of up to 0.25% of the
average daily net assets of the Fund attributable to its Class D Shares. The
actual fee payable to servicing agents is determined, within such limit, from
time to time by mutual agreement between the Company and each servicing agent
and will not exceed the maximum service fees payable by mutual funds sold by
members of the NASD under the NASD Rules of Fair Practice.

The Servicing Plans will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Qualified Directors. Any form of Servicing
Agreement related to the Servicing Plans also must be approved by such vote of
the Directors and the Servicing Plan Qualified Directors. Servicing Agreements
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
Class D Shares of each of the Funds. The Servicing Plans may not be amended to
increase materially the amount payable

19
<PAGE> 20
thereunder without the approval of a majority of the outstanding Class D Shares
of each Fund, and no material amendment to the Servicing Plans may be made
except by a majority of both the Directors of the Company and the Qualified
Directors.

The Servicing Plans require that the Treasurer of the Company
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under each of the Servicing Plans.

For the years ended December 31, 1993, 1994 and 1995 the Funds
paid the following amounts in servicing fees pursuant to the Servicing Plans
for the Class D Shares of the Funds:

<TABLE>
<CAPTION>
1993* 1994 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation Fund $6,483 $28,377 $31,150

U.S. Government Income Fund $4,801 $17,454 $8,291

California Tax-Free Bond Fund $5,691 $20,828 $18,322
</TABLE>

___________________
*The Class D Shares commenced operations on July 3, 1993.

CALCULATION OF YIELD AND TOTAL RETURN

As indicated in the Prospectus, the Funds may advertise certain
total return information for a class of shares computed in the manner described
in the Prospectus. As and to the extent required by the Commission, an average
annual compound rate of return ("T") will be computed by using the value at the
end of a specified period ("ERV") of a hypothetical initial investment in a
class of shares ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Funds
may also, at times, calculate total return for a class of shares based on net
asset value per share (rather than the public offering price), in which case
the figures would not reflect the effect of any sales charges that would have
been paid by an investor, or based on the assumption that a sales charge other
than the maximum sales charge (reflecting a Volume Discount) was assessed,
provided that total return data derived pursuant to the calculation described
above also are presented.

In addition to the above performance information, the Funds
may also advertise the cumulative total return of a Fund for one-month,
three-month, six-month, and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a 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.

20
<PAGE> 21
The average annual total return on the Class A Shares of the Asset
Allocation Fund for the period since inception (April 7, 1988) to December 31,
1995, assuming the maximum 4.50% sales load and no sales load, was 11.36% and
12.02%, respectively. The average annual total return for the five-year period
ended December 31, 1995, assuming a 4.50% sales load and no sales load, was
13.27% and 14.32%, respectively. The average annual total return for the year
ended December 31, 1995, assuming a 4.50% sales load and no sales load, was
28.68% and 34.71%, respectively.

The average annual total return on the Class D Shares of the Asset
Allocation Fund for the period since inception (July 1, 1993) to December 31,
1995, was 13.71%. The average annual total return on the Class D Shares for the
year ended December 31, 1995, assuming payment of the 1% CDSC was 32.80% and no
CDSC, was 33.72%.

The average annual total return on the Class A Shares of the U.S.
Government Income Fund for the period since inception of the predecessor fund
(April 7, 1988) to December 31, 1995, assuming a 4.50% sales load, was 9.12%
and no sales load, was 9.77%. The average annual total return for the five-year
period ended December 31, 1995, assuming a 4.50% sales load, was 8.53%, and no
sales load, was 9.54%. The average annual total return for the one year ended
December 31, 1995, assuming a 4.50% sales load, was 13.89%, and no sales load,
was 19.32%.

The average annual total return on the Class D Shares of the U.S.
Government Income Fund since inception (July 1, 1993) to December 31, 1995, was
5.60%. The average annual total return on the Class D Shares for the year ended
December 31, 1995, was 17.54%, assuming payment of the 1% CDSC, and 18.54%,
assuming no CDSC.

The average annual total return on the Class A Shares of the
California Tax-Free Bond Fund for the period since inception (October 6, 1988)
to December 31, 1995, assuming a 4.50% sales load, was 8.16%, and no sales
load, was 8.85%. The average annual total return for the five-year period ended
December 31, 1995, assuming a 4.50% sales load, was 7.90%, and no sales load,
was 8.89%. The average annual total return for the one year ended December 31,
1995, assuming a 4.50% sales load, was 11.15%, and no sales load, was 16.38%.

The average annual total return on Class D Shares of the
California Tax-Free Bond Fund since inception (July 1, 1993) to December 31,
1995, assuming no CDSC, was 5.42%. The average annual total return on the Class
D Shares for the one year ended December 31, 1995, was 14.60%, assuming payment
of the 1% CDSC, and 15.58%, assuming no CDSC.

The Funds may advertise the cumulative total return on their
respective shares. Cumulative total return of shares is computed on a per share
basis and assumes the reinvestment of dividends and distributions. Cumulative
total return of shares generally is expressed as a percentage rate which is
calculated by combining the income and principal charges for a specified period
and dividing by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the

21
<PAGE> 22
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.

The cumulative total return on the Class A Shares of the Asset
Allocation Fund for the period from inception (April 7, 1988) to December 31,
1995, assuming the maximum 4.50% sales load and no sales load, was 130.21% and
141.03%, respectively. The cumulative total return on such shares for the
five-year period ended December 31, 1995, assuming the maximum 4.50% sales load
and no sales load, was 86.47% and 95.22%, respectively. The cumulative total
return on the Class D Shares of the Asset Allocation Fund for the period from
inception (July 1, 1993) to December 31, 1995 was 37.89%.

The cumulative total return on the Class A Shares of the U.S.
Government Income Fund for the period from inception of the predecessor Fund
(April 7, 1988) to December 31, 1995, assuming the maximum 4.50% sales load was
96.73%, and no sales load, was 105.98%. The cumulative total return on such
shares for the five-year period ended December 31, 1995, assuming the maximum
4.50% sales load was 50.55%, and no sales load, was 57.71%. The cumulative
total return on the Class D Shares of the U.S. Government Income Fund for the
period from inception (July 1, 1993) to December 31, 1995, was 14.59%.

The cumulative total return on the Class A Shares of the
California Tax-Free Bond Fund for the period from inception (October 8, 1988)
to December 31, 1995, assuming the maximum 4.50% sales load was 76.57%, and no
sales load, was 84.87%. The cumulative total return on such shares for the
five-year period ended December 31, 1995, assuming the maximum 4.50% sales load
was 46.24%, and no sales load, was 53.08%. The cumulative total return on the
Class D Shares of the California Tax-Free Bond Fund for the period from
inception (July 1, 1993) to December 31, 1995, was 14.10%.

As indicated in the Prospectus, the U.S. Government Income Fund
and the California Tax-Free Bond Fund may advertise certain yield information
for a class of shares. As and to the extent required by the Commission, yield
for a class of shares will be calculated based on a 30-day (or one month)
period, computed by dividing the net investment income per share of a class of
shares earned during the period by the maximum offering price per share of a
class of shares on the last day of the period, according to the following
formula: YIELD = 2[((a-b:-cd)+1)6-1], 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 a class of shares outstanding during
the period that were entitled to receive dividends; and d = the maximum
offering price per share of a class of shares on the last day of the period.
The net investment income of a class of shares of either Fund includes actual
interest income, plus or minus amortized purchase discount (which may include
original issue discount) or premium, less accrued expenses. Realized and
unrealized gains and losses on portfolio securities are not included in net
investment income. For purposes of sales literature, yield also may be
calculated on the basis of the net asset value per share rather than the public
offering price, provided that the yield data derived pursuant to the
calculation described above also are presented.

22
<PAGE> 23
The yields on the Class A Shares of the U.S. Government Income
Fund and the California Tax-Free Bond Fund for the 30-day period ended December
31, 1995, assuming a 4.50% sales load, were 5.19% and 4.60%, respectively. The
yields for the same period, assuming no sales load, were 5.44% and 4.82%,
respectively. The yields on the Class D Shares of the U.S. Government Income
Fund and the California Tax-Free Bond Fund for the 30-day period ended December
31, 1995, assuming payment of the 1.0% CDSC, were 4.69% and 4.04%,
respectively.

The tax-equivalent yield for a class of shares of the California
Tax-Free Bond Fund also will be computed by dividing that portion of the yield
for a class of shares which is tax-exempt by one minus a stated income tax rate
and adding the product to that portion, if any, of the yield of such class that
is not tax-exempt. The tax equivalent yield on the Class A Shares of the
California Tax-Free Bond Fund for the 30-day period ended December 31, 1995
(assuming a 4.50% sales load and a 42.40% assumed federal and state tax rate)
was 7.99%. Assuming no sales load (and a 42.40% assumed federal and state tax
rate), the tax-equivalent yield of the Class A Shares for the 30-day period
ended December 31, 1995 was 8.37%. The tax-equivalent yield on the Class D
Shares for the 30-day period ended December 31, 1995 (assuming a 42.40% assumed
federal and state tax rate and the maximum 1.0% CDSC) was 7.01%.

The yields for the classes of shares of the U.S. Government Income
Fund and the California Tax-Free Bond Fund 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 particular class of shares.

In addition, investors should recognize that changes in the net
asset values of shares of the U.S. Government Income Fund and the California
Tax-Free Bond 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 a class of shares may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The yield of a 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.

The Company may disclose in sales literature, information and
statements, the distribution rate of the California Tax-Free Bond Fund shares.
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.

23
<PAGE> 24
dollar weighted average basis based on ratings assigned each issue or issuer,
as the case may be, by S&P and/or Moody's. In the event one rating agency does
not rate the issue or issuer, as the case may be, in the same tier as the other
agency, the highest rating is used in the calculation.

From time to time and only to the extent the comparison is
appropriate for a class of shares of a Fund, the Company may quote the
performance or price-earning ratio of a class of shares of a Fund in
advertising and other types of literature as compared to the performance of the
1-Year Treasury Bill Rate, 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), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, 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 class of shares of a Fund
also may be compared to those 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 performance of a class of shares of a Fund
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. Any
such comparisons may be useful to investors who wish to compare the class' past
performance with that of its competitors. Of course, past performance cannot be
a guarantee of future results. The Company 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.

In addition, the Company 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
Company 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."

From time to time the Company may reprint, reference or otherwise
use material from magazines, newsletters, newspapers and books including, but
not limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, the New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.

24
<PAGE> 25
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a 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
a 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 a 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 a 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 a class of shares of 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 the historical performance or current or potential value of a class
of shares of a Fund with respect to the particular industry or sector.

In addition, performance information for a class of shares of the
Asset Allocation Fund may be compared, in reports and promotional literature,
to the S&P 500 Index, the Wilshire 5000 Equity Index, the Lehman Brothers 20+
Treasury Index, Donoghue's Money Fund Averages, the Lehman Brothers 5-7 Year
Treasury Index, or other appropriate managed or unmanaged indices of the
performance of various types of investments, so that investors may compare the
results of a class of shares of the Fund with those of indices widely regarded
by investors as representative of the security markets in general. Unmanaged
indices may assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses. Managed
indices generally do reflect such deductions.

From time to time, the Company also may include in advertisements
or other marketing materials a discussion of certain of the objectives of the
Asset Allocation Fund's investment strategy and a comparison of this strategy
with other investment strategies. In particular, the responsiveness of the Fund
to changing market conditions may be discussed. For example, the Company may
describe the benefits derived by having Wells Fargo Bank, as Investment
Adviser, monitor and reallocate investments among the three asset categories
described above and in the Prospectus. The Company's advertising or other
marketing materials also might set forth illustrations depicting examples of
recommended allocations in different market conditions. It may state, for
example, that when the model indicates that stocks represent a better value
than bonds or money market instruments, the Asset Allocation Fund might consist
of 70% stocks, 25% bonds and 5% money market instruments and that when the
model indicates that bonds represent a better value than stocks or money market
instruments, the balance of assets might shift to 60% bonds, 20% stocks and 20%
money market instruments.

The Company 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.

The Company also may discuss in advertising and other types of
literature that one of the Funds has been assigned a rating by a nationally
recognized statistical rating organization

25
<PAGE> 26
("NRSRO"), such as Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Corporation ("S&P"). 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
Company may compare the performance of a class of shares of a Fund with other
investments which are assigned ratings by NRSROs. Any such comparisons may be
useful to investors who wish to compare a class' past performance with other
rated investments.

The Company also may disclose in advertising and other types of
literature, information and statements that the Company's investment adviser,
Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the 1994 edition of "America's Best Money
Managers." The Nelson survey ranks the performance of money managers in over 30
asset/style categories and is based on analysis of performance composites and
surveys of institutional money managers. The Company may also disclose in
advertising and other types of sales literature the assets and other categories
of assets under management by the Company's investment adviser and the total
amount of assets under management by Wells Fargo Investment Management Group
("IMG"). As of December 31, 1995, IMG had $30.1 billion in assets under
management.

The Company may also disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank. As of April 1, 1996 Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $56 billion of assets of
individuals, trusts, estates and institutions and $17 billion of mutual fund
assets.

DETERMINATION OF NET ASSET VALUE

Net asset value per share for each class of a Fund is determined
by Wells Fargo Bank on each day the Exchange is open for trading.

Securities of the Funds for which market quotations are available
are valued at latest prices. Securities of the Asset Allocation Fund for which
the primary market is a national securities exchange or the National
Association of Securities Dealers Automated Quotations National Market System
are valued at last sale prices. In the absence of any sale of such securities
on the valuation date and 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 maturing in 60 days or less are valued at amortized cost.
The assets of the U.S. Government Income Fund and the California Tax-Free Bond
Fund, other than debt securities maturing in 60 days or less, are valued at
latest quoted bid prices. Futures contracts and options listed on a national
exchange are valued at the last sale price on the exchange on which they are
traded at the close of the Exchange, or, in the absence of any sale on the
valuation date, at latest quoted bid prices. Options not listed on a

26
<PAGE> 27
national exchange are valued at latest quoted bid prices. Debt securities
maturing in 60 days or less are valued at amortized cost. In all cases, bid
prices will be furnished by a reputable independent pricing service approved by
the Board of Directors. 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 the Funds for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Directors and in accordance with procedures adopted by the Directors.

PORTFOLIO TRANSACTIONS

The Company 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 Company's Board of Directors, 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 Company 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.

Except in the case of equity securities purchased by the Asset
Allocation Fund, purchases and sales of 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 Act, persons affiliated with the Company
are prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the Commission 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 Act and in compliance with procedures
adopted by the Board of Directors.

Wells Fargo Bank, as the Investment Adviser 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

27
<PAGE> 28
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.

Asset Allocation Fund. 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 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.
The Asset Allocation Fund will not deal with Stephens, Wells Fargo Bank or
their affiliates in any transaction in which any of them acts as principal
without an exemptive order from the Commission.

In placing orders for portfolio securities of the Asset Allocation
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. While Wells Fargo Bank will generally seek reasonably
competitive spreads or commissions, the Asset Allocation Fund will not
necessarily be paying the lowest spread or commission available. 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 Directors.

Brokerage Commissions. For the year ended December 31, 1995, the
Asset Allocation Fund paid brokerage commissions in the amount of $ 5,919. The
other Funds did not pay brokerage commissions for the year ended December 31,
1995.

Securities of Regular Broker Dealers. On December 31, 1995, the
U.S. Government Income Fund owned securities of its "regular brokers or
dealers," as defined in the 1940 Act, or their parents as follows: $ 303,000 of
pooled repurchase agreements of Goldman Sachs & Co. The other Funds did not own
securities of their "regular brokers or dealers" on December 31, 1995.

Portfolio Turnover. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate.

FEDERAL INCOME TAXES

The Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the SAI includes additional
information concerning federal income taxes.

28
<PAGE> 29
Qualification as a "regulated investment company" under the
Internal Revenue Code requires, among other things, that (a) at least 90% of
each Fund's annual gross income be derived from interest, payments with respect
to securities loans, dividends and gains from the sale or other disposition of
securities or options thereon; (b) each Fund derives less than 30% of its gross
income from gains from the sale or other disposition of securities or options
thereon held for less than three months; and (c) each Fund diversifies 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 securities and the securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. As a regulated investment company, each Fund will not be
subject to federal income tax on its net investment income and net capital
gains distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income and net tax-exempt
income earned in each year.

A 4% nondeductible excise tax will be imposed on the Fund (other
than to the extent of the Fund's tax- exempt income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar
year. Each Fund will either 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.

Income and dividends received by a Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates from 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because not more than 50% of the value of the total assets of any Fund is
expected to consist of securities of foreign issuers, no Fund will be eligible
to elect to "pass through" foreign tax credits to shareholders.

Gains or losses on sales of portfolio securities by a Fund
generally will be long-term capital gains or losses if the securities have been
held by it for more than one year, except in certain cases including where a
Fund acquires a put or grants a call thereon. Other gains or losses on the sale
of securities will be short-term capital gains or losses. To the extent that a
Fund recognizes long-term capital gains, such gains will be distributed at
least annually. Such distributions will be taxable to shareholders as long-term
capital gains, 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 shareholders not later than 60 days after the
close of the Fund's taxable year.

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

29
<PAGE> 30
that Fund share will be treated as a long-term capital loss to the extent of
the designated capital gain distribution. In addition, any loss realized by a
shareholder upon the sale or redemption of Fund shares held less than six
months is disallowed to the extent of any tax-exempt interest dividends
received by the shareholder thereon. These rules shall not apply, however, to
losses incurred under a periodic redemption plan.

As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60%; (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28.00% and
the maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35.00% (however, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income in excess of to $11,750 and corporations which have taxable income tax
of up to $15,000,000 for a taxable year will be required to pay an additional
amount of tax of up to $100,000).

If a shareholder exchanges or otherwise disposes of shares of a
Fund 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 for shares of the Fund, or of a different fund, the sales charge
previously incurred 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) for the purpose of determining the amount of gain or loss on the
exchange, 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 a
Fund will be disallowed to the extent that substantially identical shares are
reacquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of.

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 that is part of a tax "straddle," discussed below.

If securities are sold by a Fund pursuant to the exercise of a
call option granted by it, such 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 the Fund pursuant to the exercise of a
put option granted by it, such Fund will subtract the premium received from its
cost basis in the securities purchased. The requirement that each Fund derive
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit a Fund's ability to grant options.

The amount of any gain or loss realized by a Fund on closing out a
futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax

30
<PAGE> 31
purposes. In this regard, they will be deemed to have been sold at market
value, pursuant to Section 1256 of the Code. 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 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.

Offsetting positions held by a regulated investment company
involving certain financial forward, futures or option 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,
discussed above. If a regulated investment company were treated as entering
into straddles by reason of its 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 regulated investment company 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 regulated investment
company may differ. Generally, to the extent the straddle rules apply to
positions established by the regulated investment company, losses realized by
the regulated investment company may be deferred to the extent of unrealized
gain in any offsetting positions. Moreover, as a result of the straddle 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, in the opinion of a Fund, ownership of its shares has or may
become concentrated to an extent that could cause the Fund to be deemed a
personal holding company within the meaning of the Code, the Fund may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.

Dividends will be declared daily with respect to the U.S.
Government Income Fund and the California Tax Free Bond Fund based on these
Funds' respective daily earnings. However, for federal income tax purposes,
each Fund's respective 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 dividends. Thus, if during a taxable year each Fund's respective
declared dividends (as declared daily throughout the year) exceed the Fund's
net income (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 dividend. It is expected that each Fund's net
income, on an annual basis, will equal the dividends declared during the year.

Foreign Shareholders. Under the Code, distributions of net
investment income by a Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which

31
<PAGE> 32
case the reporting and withholding requirements applicable to U.S. citizens,
U.S. residents or domestic corporations will apply. Distributions of net
long-term capital gains are not subject to tax withholding, but in the case of
a foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. withholding tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.

Other Matters. Investors should be aware that the investments to
be made by the Funds may involve sophisticated tax rules such as the original
issue discount, marked to market and real estate mortgage investment conduit
("REMIC") rules that would 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 a Fund may distribute cash derived from other sources
in order to meet the minimum distribution requirements described above.

Special Tax Considerations for the California Tax-Free Bond Fund.

Federal -- The portion of total dividends paid by the California
Tax-Free Bond Fund with respect to any taxable year that qualifies for
exclusion from gross income ("exempt-interest dividends") will be the same for
all shareholders receiving dividends during such year. In order for the
California Tax-Free Bond Fund to pay exempt-interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the aggregate
value of the California Tax-Free Bond Fund assets must consist of tax-exempt
securities. Not later than 60 days after the close of its taxable year, the
California Tax-Free Bond Fund will notify each shareholder 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 such Fund during the taxable year
over any amounts disallowed as deductions under Sections 265 and 171(a)(2) of
the Code. Finally, interest on indebtedness incurred by a shareholder to
purchase or carry California Tax-Free Bond Fund shares is not deductible for
federal income tax purposes to the extent the shareholder receives
exempt-interest dividends during his or her taxable year. Exempt-interest
dividends will be tax exempt for purposes of federal income tax.

32
<PAGE> 33
permitted to deduct any of their share of Fund expenses in computing
alternative minimum taxable income. With respect to corporate shareholders of
such Funds, exempt-interest dividends paid by a Fund are 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 28.00% and corporations at a maximum rate of 20.00% Shareholders with
questions or concerns about AMT should consult their tax advisors.

California -- Moreover, if at the close of each quarter of the
California Tax-Free Bond Fund's taxable year, at least 50% of the value of its
total assets consists of obligations the interest on which, if such obligations
were held by an individual, would be exempt from California personal income tax
(under either the laws of California or of the United States), the Fund will be
entitled to pay dividends to its shareholders which will be exempt from
California personal income tax (hereinafter referred to as "California
exempt-interest dividends"). Under normal market conditions, the California
Tax-Free Bond Fund will invest primarily in municipal securities of the State
of California, its cities, municipalities and other political authorities. The
California Tax-Free Bond Fund intends to qualify under the above requirements
so that it can pay California exempt-interest dividends.

Not later than 60 days after the close of its taxable year, the
California Tax-Free Bond Fund will notify each shareholder of the portion of
the dividends paid which constitutes California exempt-interest dividends with
respect to such taxable year. The total amount of California exempt-interest
dividends paid by the California Tax-Free Bond Fund to all of its shareholders
with respect to any taxable year cannot exceed the amount of interest received
by the Fund during such year on California municipal securities and other
obligations the interest on which is tax exempt, less any expenses allocable to
such tax exempt income. Dividends paid by the California Tax-Free Bond Fund in
excess of this limitation will be treated as ordinary dividends subject to
California personal income tax at ordinary rates.

Long-term and/or short-term capital gain distributions will not
constitute California exempt-interest dividends and will be taxed as capital
gain distributions or ordinary income dividends, respectively, for California
personal income tax purposes. Moreover, interest on indebtedness incurred by a
shareholder to purchase or carry California Tax-Free Bond Fund shares is not
deductible for California personal income tax purposes to the extent the
shareholder receives California exempt-interest dividends during his or her
taxable year. California exempt-interest dividends will be tax exempt for
purposes of the California personal income tax. For corporate shareholders,
dividends will be subject to the corporate franchise taxes in California.

Other Matters. Shares of the California Tax-Free Bond Fund 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 would be ultimately taxable to the beneficiaries when distributed to
them.

33
<PAGE> 34
CAPITAL STOCK

Each of the Funds is comprised of two classes of shares, Class A
Shares and Class D Shares. With respect to matters that affect one class but
not another, the shareholders vote as a class; for example, the approval of a
Plan. Subject to the foregoing, on any matter submitted to a vote of
shareholders, all shares then entitled to vote will be voted separately by Fund
or portfolio unless otherwise required by the Act, in which case all shares
will be voted in the aggregate. For example, a change in a Fund's fundamental
investment policies would be voted upon only by shareholders of the Fund
involved. Additionally, approval of the advisory contract is a matter to be
determined separately by Fund or portfolio. Approval by the shareholders of one
Fund or portfolio is effective as to that Fund or portfolio whether or not
sufficient votes are received from the shareholders of the other Funds or
portfolios to approve the proposal as to those Funds or portfolios. 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 a class of shares
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class are present in person or by proxy, or (ii) more than 50%
of the outstanding class of shares. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. The Company may dispense with
annual meetings of shareholders in any year in which it is not required to
elect directors under the Act.

Each share of a class of a Fund or portfolio represents an equal
proportional interest in that Fund or portfolio 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 that Fund or portfolio as are declared
in the discretion of the Directors. In the event of the liquidation or
dissolution of the Company, shareholders of a Fund or portfolio are entitled to
receive the assets attributable to that Fund or portfolio 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 Directors in their sole discretion may
determine.

Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.

34
<PAGE> 35
As of February 29, 1996, the shareholders identified below were
known by the Company to own the percentage indicated below of outstanding
shares of the Funds in the following capacity:

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF CLASS CAPACITY
------------ ---------------- ---------- --------
<S> <C> <C> <C>
Asset Allocation Fund
Class A Shares Stephens Inc. 7.19% Record
For Exclusive Benefit
of Customers
P.O. Box 34127
Little Rock, AR 72203

Asset Allocation Fund
Class D Shares Merrill Lynch Pierce 26.71% Record
Fenner & Smith Inc.
Trade House Account
Attn: Book Entry
P. O. Box 30561
New Brunswick, NJ 08989

U.S. Gov't Income
Class A Shares Stephens Inc. 6.40% Record
For Exclusive Benefit
of Customers
P. O. Box 34127
Little Rock, AR 72203

U.S. Government
Income Fund
Class D Shares Merrill Lynch Pierce 19.56% Record
Fenner & Smith Inc.
Trade House Account
Attn: Book Entry
P. O. Box 30561
New Brunswick, NJ 08989

Sisters of St. Francis 9.14% Record
Attn: Sis. Virginia Spiegel
609 South Convert Road
Aston, PA 19014
</TABLE>

35
<PAGE> 36
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF CLASS CAPACITY
------------ ---------------- ---------- --------
<S> <C> <C> <C>

Rocky Mountain Lions Eye 10.29% Record
Institute Foundation, Inc.
c/o Harold Hein
7087 Parfet Street
Arvada, CO 80004

Southwest Securities Inc. FBO 5.74% Record
Attn: Vonnie Wade
Acct 83374422
1201 Elm Street - Suite 4300
Dallas, TX 75270

California Tax-Free
Bond Fund
Class D Shares Merrill Lynch Pierce 39.07% Record
Fenner & Smith Inc.
Trade House Account
Attn: Book Entry
P. O. Box 30561
New Brunswick, NJ 08989

Stephens Inc. 28.27% Record
For Exclusive Benefit
of Customers
P. O. Box 34127
Little Rock, AR 72203
</TABLE>

OTHER

The Registration Statement, including the Prospectus, the SAI and
the exhibits filed therewith, may be examined at the office of the 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.

36
<PAGE> 37
INDEPENDENT AUDITORS

KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain Securities and Exchange Commission filings. The address of KPMG Peat
Marwick LLP is Three Embarcadero Center, San Francisco, California 94111.

FINANCIAL INFORMATION

The audited portfolio of investments, financial statements and
independent auditors' reports for each Fund for the year ended December 31,
1995, are incorporated into this SAI by reference to Amendment No. 8 to the
Registration Statement on Form N-1A of Master Investment Trust (SEC File No.
811-6415) as filed with the SEC on March 21, 1996. The portfolio of
investments, audited financial statements and independent auditors' reports are
attached to all SAIs delivered to shareholders or prospective shareholders.

37
<PAGE> 38
APPENDIX

The following is a description of the ratings given by Moody's and
S&P to corporate and municipal bonds, corporate and municipal commercial paper
and municipal notes.

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.

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."

A-1
<PAGE> 39
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.

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.

A-2
<PAGE> 40
OVERLAND EXPRESS FUNDS, INC.
Telephone: (800) 552-9612

STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996

CALIFORNIA TAX-FREE MONEY MARKET FUND
MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND

-------------------------------

Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about three of the Company's series or investment portfolios -- the
California Tax-Free Money Market Fund, the Money Market Fund and the U.S.
Treasury Money Market Fund (each, a "Fund" and collectively, the "Funds"). The
Money Market Fund and the U.S. Treasury Money Market Fund offer two classes of
shares -- Class A Shares and Institutional Shares. This SAI relates to both
such classes of shares of each Fund. The California Tax-Free Money Market Fund
only offers a single class of shares. The investment objectives of the
respective Funds are described in the Prospectus under "Investment Objectives,
Policies and Activities."

This SAI is not a prospectus and should be read in conjunction
with the Funds' Prospectus dated May 1, 1996. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., the Company's sponsor, administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or calling the Transfer Agent at the
telephone number indicated above.

-------------------------------

1
<PAGE> 41
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . 5
Special Factors Affecting the California
Tax-Free Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Calculation of Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . 18
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 42
INVESTMENT RESTRICTIONS

The Funds are subject to the following investment restrictions,
all of which are fundamental policies:

(1) None of the Funds may 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 the Fund's
investments in that industry would exceed 25% of the current value of such
Fund's total assets, provided that there is no limitation with respect to
investments in (i) obligations of the United States Government, its agencies or
instrumentalities, (ii) the obligations of domestic banks (for purposes of this
restriction, domestic bank obligations do not include obligations of U.S.
branches of foreign banks or obligations of foreign branches of U.S. banks);
and (iii) with respect to the California Tax-Free Money Market Fund, municipal
securities (for the purpose of this restriction, private activity bonds shall
not be deemed municipal securities if the payments of principal and interest on
such bonds is the ultimate responsibility of non-governmental users) or
securities that are exempt from personal income taxes of the State of
California.

(2) None of the Funds may purchase or sell real estate (other
than municipal obligations, Money Market Instruments or other securities
secured by real estate or interests therein or securities issued by companies
that invest in real estate or interests therein), commodities or commodity
contracts.

(3) None of the Funds may purchase securities on margin (except
for short-term credits necessary for the clearance of transactions and, with
respect to the California Tax-Free Money Market Fund, except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities.

(4) None of the Funds may underwrite securities of other
issuers, except to the extent that the purchase of municipal securities or
other permitted investments directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such securities in
accordance with each Fund's investment program may be deemed to be an
underwriting.

(5) The California Tax-Free Money Market Fund may not invest
more than 10% of the current value of its net assets in repurchase agreements
maturing in more than seven days, restricted securities, which are securities
that must be registered under the Securities Act of 1933 before they may be
offered or sold to the public, and illiquid securities, and the Money Market
Fund may not invest more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days and illiquid securities.

(6) None of the Funds may make investments for the purpose of
exercising control or management.

(7) None of the Funds may issue senior securities, except that
each Fund may borrow from banks up to 10% of the current value of its net
assets for temporary purposes only in

3
<PAGE> 43
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased by the California Tax-Free Money Market Fund or the Money Market Fund
while any such outstanding borrowing exists and investments may not be
purchased by the U.S. Treasury Money Market Fund while any such outstanding
borrowing in excess of 5% of its net assets exists).

(8) None of the Funds may invest more than 10% of the current
value of its net assets in fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days.

(9) The California Tax-Free Money Market Fund may not lend its
portfolio securities having a value that exceeds 50% of the current value of
its total assets. The Money Market Fund and the U.S. Treasury Money Market Fund
may not make loans of portfolio securities or other assets. However, for
purposes of this restriction, loans will not include the purchase of fixed time
deposits, repurchase agreements, commercial paper and other types of debt
instruments commonly sold in a public or private offering.

With respect to fundamental investment restriction (9) above, the
California Tax-Free Money Market Fund does not intend to lend its portfolio
securities during the coming year.

In addition, none of the Funds may write, purchase or sell puts,
calls, warrants or options or any combination thereof, except that the Funds
may purchase securities with put rights in order to maintain liquidity.

The Funds are subject to the following non-fundamental policies:

(1) None of the Funds may purchase or retain securities of any
issuer if the officers or Directors of the Fund or its Investment Adviser
owning beneficially more than one-half of one percent (0.5%) of the securities
of the issuer together own beneficially more than 5% of such securities.

(2) None of the Funds may purchase interests, leases, or
limited partnership interests in oil, gas, or other mineral exploration or
development programs.

(3) None of the Funds may invest in securities of issuers who,
with their predecessors, have been in existence less than three years, unless
the securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets.

(4) None of the Funds may purchase or sell real estate limited
partnership interests.

(5) The California Tax-Free Money Market Fund may not purchase
securities of unseasoned issuers, including their predecessors, which have been
in operation for less than three

4
<PAGE> 44
years, and equity securities of issuers which are not readily marketable if by
reason thereof the value of the Fund's aggregate investment in such classes of
securities will exceed 5% of its total assets.

(6) The U.S. Treasury Money Market Fund may not invest more
than 10% of the current value of its net assets in repurchase securities
maturing in more than seven days, fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days and
illiquid securities although this Fund does not intend to invest in any of
these investments.

(7) As provided in Rule 2a-7 under the 1940 Act, the Money
Market Fund and the U.S. Treasury Money Market Fund each may only purchase
"Eligible Securities" (as defined in Rule 2a-7) and only if, immediately after
such purchase, the Fund would have no more than 5% of its total assets in
"First Tier Securities" (as defined in Rule 2a-7) of any one issuer, excluding
government securities and except as otherwise permitted for temporary purposes
and for certain guarantees and unconditional puts; the Fund would own no more
than 10% of the voting securities of any one issuer; the Fund would have no
more than 5% of its total assets in "Second Tier Securities" (as defined in
Rule 2a-7); and the Fund would have no more than the greater of $1 million or
1% of its total assets in Second Tier Securities of any one issuer.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Municipal Bonds. As discussed in the Prospectus, the two principal
classifications of municipal bonds in which the California Tax-Free Money
Market Fund may invest 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 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. Some or all of these bonds may be considered "private activity bonds"
for federal income tax purposes.

Municipal Notes. The California Tax-Free Money Market Fund 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

5
<PAGE> 45
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.

The values of outstanding municipal securities (as well as Money
Market Instruments) 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 market
interest rates, including the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities such as those held in a Fund's portfolio, will decline
and (if purchased at par value) they would sell at a discount. If such interest
rates fall, the values of outstanding securities will generally increase and
(if purchased at par value) they would sell at a premium. Since each Fund
values its assets at amortized cost and seeks to hold its portfolio securities
until their maturity, changes in the value of municipal or other securities
held in each Fund's portfolio arising from these or other factors are not
expected to cause changes in the net asset value per share of any of the Funds.

Unrated Investments. Each Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank as Investment Adviser, such
obligations are Eligible Securities of comparable quality to other rated
investments that are permitted by such Fund, if they are purchased in
accordance with the Fund's procedures adopted by the Company's Board of
Directors in accordance with Rule 2a-7 under the 1940 Act. With respect to the
Money Market Fund and the U.S. Treasury Money Market Fund, the Company's Board
of Directors are required by Rule 2a-7 under the 1940 Act to pre-approve or
ratify purchases of unrated securities.

After purchase by any of the Funds, 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
provided that, when a security ceases to be rated, the Company's Board of
Directors determines that such security presents minimal credit risk and,

6
<PAGE> 46
provided further that, when a security rating is downgraded below the eligible
quality for investment or no longer presents minimal credit risks, the Board
finds that the sale of such security would not be in the Fund's best interest.
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 systems, the Funds will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in the Prospectus and in this SAI. The ratings of
Moody's and S&P are more fully described in the Appendix to this SAI.

Letters of Credit. The California Tax-Free Money Market Fund and
the Money Market Fund may purchase debt obligations, including municipal
securities (in the case of the California Tax-Free Money Market Fund),
certificates of participation, commercial paper and other short-term
obligations, that are backed by an 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 as Investment Adviser, are of investment quality
comparable to other permitted investments of such Funds may be used for letter
of credit-backed investments.

The California Tax-Free Money Market Fund may engage in the
following investment activity although it has no present intention to do so:

When-Issued Securities. The California Tax-Free Money Market Fund
may purchase securities on a when-issued basis, in which case delivery and
payment normally take place within 45 days after the date of the commitment to
purchase. However, this Fund does not intend to invest more than 5% of its net
assets in when-issued securities. This Fund only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation, and
no income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed upon purchase price, in which
case there could be an unrealized loss at the time of delivery.

The California Tax-Free Money Market Fund will establish a
segregated account in which it will maintain cash, U.S. Government obligations
or other high-quality debt instruments in an amount at least equal in value to
its commitments to purchase when-issued securities. If the value of these
assets declines, the 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.

7
<PAGE> 47
SPECIAL FACTORS AFFECTING THE CALIFORNIA
TAX-FREE MONEY MARKET FUND

Certain of the municipal securities in which the California
Tax-Free Money Market Fund may invest may be bonds or other types of
obligations of California issuers that rely in whole or in part, directly or
indirectly, on ad valorem real property taxes as a source of revenue. The
California Constitution limits the powers of municipalities to impose and
collect ad valorem taxes on real property, which, in turn, restricts the
ability of municipalities to service their debt or lease obligations from such
taxes.

For example, Article XIIIA of the California Constitution, as
amended, limits ad valorem real property taxes to 1% of the full cash value of
the property, defined as the county tax assessor's valuation as of March 1,
1975, plus adjustments not to exceed 2% per year, adjustments upon purchase,
change of ownership or new construction after that date, and certain other
adjustments. Article XIIIB provides that state and local government
appropriations from certain revenue sources each year may not exceed the
"appropriations limit" related to such revenue sources set forth for the fiscal
year 1978-79, with certain adjustments made for changes in the cost of living
and population and certain limited exemptions. Because of the complex nature of
Articles XIIIA and XIIIB, the ambiguities and possible inconsistencies in their
respective terms, the existence of litigation challenging these provisions and
the impossibility of predicting future appropriations and changes in population
and cost of living, it is not possible to determine the impact of Article XIIIA
or Article XIIIB or any implementing or related legislation on the municipal
obligations in the California Tax-Free Money Market Fund or the ability of
state or local governments to pay the interest on, or repay the principal of,
such municipal obligations.

* * *

MANAGEMENT

8
<PAGE> 48
Little Rock, Arkansas 72201. Directors deemed to be "interested persons" of the
Company for purposes of the 1940 Act are indicated by an asterisk.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- ---------------------- -------- --------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.

Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.

*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
</TABLE>

9
<PAGE> 49
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- ---------------------- -------- --------------------
<S> <C> <C>
*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>

COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1995

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director
</TABLE>

10
<PAGE> 50
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM REGISTRANT
NAME AND POSITION FROM REGISTRANT AND FUND COMPLEX
- ----------------- ----------------- ------------------
<S> <C> <C>
*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes 9,438 37,000
Director

Robert M. Joses 9,938 39,000
Director

*J. Tucker Morse 8,313 33,250
Director
</TABLE>

Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the Company
serves in the identical capacity as Officers and Directors of Stagecoach Funds,
Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and as Trustees
and/or Officer of Stagecoach Trust, Master Investment Portfolio, Life & Annuity
Trust, Master Investment Trust and Managed Series Investment Trust, each of
which is a registered open-end management investment company and each of which
is considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of the fund complex.

As of the date of this SAI, Directors and officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.

Investment Adviser. Each of the Funds is advised by Wells Fargo
Bank. The Advisory Contracts provide that Wells Fargo Bank shall furnish to the
Funds investment guidance and policy direction in connection with the daily
portfolio management of the Funds. Pursuant to the Advisory Contracts, Wells
Fargo Bank furnishes to the Board of Directors periodic reports on the
investment strategy and performance of each Fund.

Wells Fargo Bank has agreed to provide to the Funds, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the portfolios of the Funds.

11
<PAGE> 51
Each of the Advisory Contracts will continue in effect for more
than two years from their 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 Company's Board of Directors and (ii) by a majority
of the Directors of the Company who are not parties to the Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. Each of
the Advisory Contracts may be terminated on 60 days' written notice by either
party and will terminate automatically if assigned.

The chart below illustrates the amounts paid by the California
Tax-Free Money Market Fund, Money Market Fund and U.S. Treasury Money Market
Fund, respectively, to Wells Fargo Bank in investment advisory fees and the
amount Wells Fargo Bank waived of such fees.

<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
PAID WAIVED PAID WAIVED PAID WAIVED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Tax-Free
Money Market Fund $1,330,839 $0 $1,493,881 $0 $1,718,530 $0

Money Market Fund $1,230,778 $0 $777,719 $0 $646,313 $1,936

U.S. Treasury Money
Market Fund $562,253 $13,004 $258,021 $92,959 $99,317 $207,008
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Funds. Under the
Administration Agreements with the Company, Stephens, in connection therewith,
furnishes the Company with office facilities, together with those ordinary
clerical and bookkeeping services that are not being furnished by Wells Fargo
Bank. Stephens also has entered into a Distribution Agreement with the Company
pursuant to which it has the responsibility of distributing Class A Shares and
Institutional Shares of the Money Market Fund and U.S. Treasury Money Market
Fund, and the single class of the California Tax-Free Money Market Fund.

The chart below lists the administrative fees paid by the
California Tax-Free Money Market Fund, the Money Market Fund and the U.S.
Treasury Money Market Fund for the years ended December 31, 1995, 1994, and
1993.

12
<PAGE> 52
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California Tax-Free Money
Market Fund $297,191 $334,128 $383,605

Money Market Fund $492,311 $311,088 $259,628

U.S. Treasury Money Market $230,103 $141,170 $122,781
Fund
</TABLE>

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as Custodian and Transfer and Dividend Disbursing
Agent 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,
Wells Fargo Bank receives an asset-based fee and transaction charges from each
Fund; and for its services as transfer and dividend disbursing agent, it
receives a base fee and per-account fees from each Fund. For the year ended
December 31, 1995, the California Tax-Free Money Market Fund paid $33,127 in
custody fees to Wells Fargo Bank, and the other Funds did not pay any custody
fees.

For the years ended December 31, 1995, the Funds paid transfer and
dividend disbursing agency fees to Wells Fargo Bank as follows:

<TABLE>
<CAPTION>
FUND 1995
- ---- ----
<S> <C>
California Tax-Free Money Market $41,752
Money Market $48,139
U.S. Treasury Money Market $-0-
</TABLE>

For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares

13
<PAGE> 53
was $1,478,541 and Stephens retained $1,447,175 of such commissions. WFSI and
its registered representatives received $31,366 of such commissions.

DISTRIBUTION PLANS

As indicated in the Prospectus, the Funds have adopted
Distribution Plans ("Plans") under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder. The Plans for the shares of the California Tax-Free Money Market
Fund, and the Class A Shares of the Money Market Fund and the U.S. Treasury
Money Market Fund were adopted on March 31, 1988, July 27, 1989 and April 23,
1992, respectively, by the Board of Directors, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of any
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 Plans (the "Qualified
Directors"). Under the California Tax-Free Money Market Fund's Plan, the Fund
may defray all or part of the cost of preparing and printing prospectuses and
other promotional materials and of delivering prospectuses and those materials
to prospective shareholders of such Fund by paying on an annual basis up to the
greater of $100,000 or 0.05% of the Fund's average daily net assets. The Plan
provides only for the reimbursement of actual expenses.

Under their Plans and pursuant to the Distribution Agreement, the
Class A Shares of the Money Market Fund and the U.S. Treasury Money Market Fund
may pay the Distributor, as compensation for distribution-related services, a
monthly fee at an annual rate of up to 0.25% of the Fund's average daily net
assets attributable to such class of the Funds. The actual fee payable to the
Distributor is determined, within such limit, from time to time by mutual
agreement between the Company 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 NASD Rules of Fair
Practice. The Distributor may enter into selling agreements with one or more
selling agents 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 Money Market Fund and/or U.S. Treasury Money Market Fund shares
attributable to them. 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.

Each of the Plans will continue in effect from year to year
thereafter if such continuance is approved by a majority vote of both the
Directors of the Company and the Qualified Directors. Any Distribution
Agreement related to the Plans also must be approved by such vote of the
Directors and the Qualified Directors. Distribution Agreements 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 involved. 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 Fund involved, and no material amendment
to any of the Plans may be made except by a majority of both the Directors of
the Company and the Qualified Directors.

14
<PAGE> 54
Each of the Plans requires that the Treasurer of the Company shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under each of
the Plans. Rule 12b-1 also requires that the selection and nomination of
Directors who are not "interested persons" of the Company be made by such
disinterested Directors.

For the year ended December 31, 1995, the Funds' distributor received the
following amounts of 12b-1 fees for the specified purposes set forth below
under each Fund's Plan.

PRINTING & MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Tax-Free Money
Market $1,870 $1,870 -0- -0-

Money Market
Class A $866,432 -0- -0- $866,432
Inst. Class -0- -0- -0- -0-

U.S. Treasury Money Market
Class A $492,571 -0- -0- $492,571
Inst. Class -0- -0- -0- -0-
</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under each Fund's Plans.

CALCULATION OF YIELD

As indicated in the Prospectuses, the Funds may advertise certain
yield information for a class of shares. Current yield for a class of shares
of the Funds will be calculated based on the net changes, exclusive of capital
changes, over a seven-day period, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to at least the nearest hundredth of one percent. Current
tax-equivalent yield for each class of shares of the California Tax-Free Money
Market Fund will be computed by dividing that portion of the yield of the class
of shares of the Fund which is tax- exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the class
of shares of the Fund that is not tax-exempt.

15
<PAGE> 55
The current yield and current tax-equivalent yield on the shares
of the California Tax-Free Money Market Fund for the seven-day period ended
December 31, 1995, were 5.04%, and (based on a 42.4% assumed federal and state
tax rate) 8.75%, respectively. The current yield on the Class A Shares of the
Money Market Fund for the seven-day period ended December 31, 1995, was 5.06%.
The current yield on the Class A Shares of the U.S. Treasury Money Market Fund
for the seven-day period ended December 31, 1995, was 4.77%. The current yield
on the Institutional Shares of the Money Market Fund and the U.S. Treasury
Money Market Fund for the seven-day period ended December 31, 1995, was 5.31%
and 5.02%, respectively.

Effective yield for the classes of shares of the Funds and
effective tax-equivalent yield for classes of shares of the California Tax-Free
Money Market Fund will be calculated by determining the net change, or
tax-equivalent assumed net change, exclusive of capital changes, in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding one, raising the
sum to a power equal to 365 divided by seven, and subtracting one from the
result.

The effective yield and effective tax-equivalent yield on shares
of the California Tax-Free Money Market Fund for the seven-day period ended
December 31, 1995, were 5.16%, and (based on a 42.4% assumed federal and state
tax rate) 8.96%, respectively. The effective yield on the Class A Shares of the
Money Market Fund for the seven-day period ended December 31, 1995, was 5.19%.
The effective yield on the Class A Shares of the U.S. Treasury Money Market
Fund for the seven-day period ended December 31, 1995, was 4.89%. The effective
yield on the Institutional Shares of the Money Market Fund and the U.S.
Treasury Money Market Fund for the seven-day period ended December 31, 1995,
was 5.45% and 5.15%, respectively.

The yield of each class of a Fund 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 particular class of shares.

In addition to the above performance information, the Funds may
advertise average annual total return information. Average annual total return
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods (or the life of Fund, which periods are stated in the
advertisement), and is measured by comparing the value of an investment in a
Fund at the beginning of the relevant period to the redemption value at the end
of the period and annualizing the result, assuming that Fund dividends and
capital gain distributions are reinvested.

Yield information for each class of the Funds may be useful in
reviewing the performance of the Funds and for providing a basis for comparison
with investment alternatives.

16
<PAGE> 56
The yields of each class of the Funds, 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, the Company may quote the performance or price-earning
ratio of a class of shares of a Fund in advertising and other types of
literature as compared to the performance of the Lehman Brothers Municipal Bond
Index, 1-Year Treasury Bill Rate, 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), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, 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 class of shares of a Fund
also may be compared to those 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 performance of a class of shares of a Fund
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. Any
such comparisons may be useful to investors who wish to compare the past
performance of a class of a Fund with that of its competitors. Of course, past
performance cannot be a guarantee of future results. The Company 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.

17
<PAGE> 57
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a 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
a 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 a class of shares of a Fund or the general economic,
business, investment, or financial environment in which Fund operates; (iii)
the effect of tax-deferred compounding on the investment returns of a 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 a class of shares of 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.

The Company also may discuss in advertising and other types of
literature that one or more of the Funds has been assigned a rating by a
nationally recognized statistical rating organization ("NRSRO"), such as S&P or
Moody's. Such rating would assess the creditworthiness of the investments held
by such 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 Company may compare
the performance of a class of shares of a Fund with other investments which are
assigned ratings by NRSROs. Any such comparisons may be useful to investors who
wish to compare a class' past performance with other rated investments.

The Company also may disclose in advertising and other types of
literature, information and statements that the Company's investment adviser,
Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the 1994 edition of "America's Best Money
Managers." The Nelson survey ranks the performance of money managers in over 30
asset/style categories and is based on analysis of performance composites and
surveys of institutional money managers. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser.

The Company may disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank. As of April 1, 1996, Wells Fargo Bank and its affiliates and its provided
investment advisory services for approximately $56 billion of assets of
individuals, trusts, estates and institutions and $17 billion of mutual fund
assets.

18
<PAGE> 58
DETERMINATION OF NET ASSET VALUE

Net asset value per share for each class of a Fund is determined
by the custodian of the Funds on each day the Exchange is open for trading.

As indicated under "Determination of Net Asset Value" in the
Prospectus, the Funds use the amortized cost method to determine the value of
their 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 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 a Fund's portfolio on a
particular day, a prospective investor in the Fund 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, each 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 Eligible Securities determined by the Board of Directors 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 the Rule, the Board is required to establish
procedures designed to stabilize, to the extent reasonably possible, each
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. Such procedures include review of the Funds' portfolio holdings by the
Board of Directors, at such intervals as it may deem appropriate, to determine
whether the Funds' net asset values 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 Directors. 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.

19
<PAGE> 59
PORTFOLIO TRANSACTIONS

The Company 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 Company's Board of Directors, Wells Fargo Bank is
responsible for the Funds' portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company 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
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.

Purchases and sales of securities will usually 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. The
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, U.S. Government
Obligations, municipal obligations and taxable money market securities are
traded on a net basis and do not involve brokerage commissions. The cost of
executing the Funds' portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions. Under the 1940 Act, persons
affiliated with the Company are prohibited from dealing with the Company 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 municipal or other obligations 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
Directors.

Wells Fargo Bank, as the Investment Adviser of each Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for any of the Funds, 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 the Funds 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.

Brokerage Commissions. For the year ended December 31, 1995, the
Funds did not pay any Brokerage Commissions.

Securities of Regular Broker Dealers. On December 31, 1995, the
Money Market Fund held debt securities of its "regular brokers or dealers," as
defined in the 1940 Act, or their parents, as follows: $23,731,000 of Goldman
Sachs & Co., $29,643,000 of J.P. Morgan and $10,005,000 of First Chicago.

20
<PAGE> 60
On December 31, 1995, the U.S. Treasury Money Market Fund and the
California Tax-Free Money Market Fund did not hold any debt securities of their
"regular brokers or dealers," as defined in the 1940 Act, or their parents.

Portfolio Turnover. Because the portfolios of the Funds consists
of securities with relatively short-term maturities, the Funds can expect to
experience high portfolio turnover rates. A high portfolio turnover rate should
not adversely affect any of the Funds, however, because portfolio transactions
ordinarily will be made directly with principals on a net basis and,
consequently, the Funds usually will not incur brokerage expenses.

FEDERAL INCOME TAXES

The Prospectus describes generally the tax treatment of
distributions by the Funds. This section of the SAI includes additional
information concerning federal income taxes.

Qualification as a "regulated investment company" under the Code
requires, among other things, that (a) at least 90% of each Fund's annual gross
income be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) each Fund derives less than 30% of its gross income from gains
from the sale or other disposition of securities or options thereon held for
less than three months; and (c) each Fund diversifies 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 securities and
the securities of other regulated investment companies), or of two or more
issuers which the Fund controls and which are determined to be engaged in the
same or similar trades or businesses or related trades or businesses. As a
regulated investment company, none of the Funds will be subject to federal
income tax on its net investment income and net capital gains distributed to
its shareholders, provided that it distributes to its shareholders at least 90%
of its net investment income (and net tax-exempt income ) earned in each year.

In addition, the California Tax-Free Money Market Fund intends
that at least 50% of the value of its total assets at the close of each quarter
of its taxable year will consist of obligations the interest on which is exempt
from federal income tax, so that it will qualify under the Code to pay
"exempt-interest dividends." The portion of total dividends paid by the Fund
with respect to any taxable year that constitutes exempt-interest dividends
will be the same for all shareholders receiving dividends during such year. 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. However, see "California"
below. Not later than 60 days after the close of its taxable year, the 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

21
<PAGE> 61
so designated cannot exceed the excess of the amount of interest excludable
from gross income under Section 103 of the Code received by such Fund during
the taxable year over any amounts disallowed as deductions under Sections 265
and 171(a)(2) of the Code. Finally, interest on indebtedness incurred to
purchase or carry shares of the California Tax-Free Money Market Fund will not
be deductible to the extent that the Fund's distributions are exempt from
federal and California income tax.

A 4% nondeductible excise tax will be imposed on each Fund (other
than to the extent of a Fund's tax-exempt income) to the extent it does not
meet certain minimum distribution requirements by the end of each calendar
year. Each Fund will either actually or be deemed to distribute 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.

Gains or losses on sales of portfolio securities by each Fund
generally will be long-term capital gains or losses if the securities have been
held by it for more than one year, except in certain cases including where one
of the Funds acquires a put or grants a call thereon. Other gains or losses on
the sale of securities will be short- term capital gains or losses. To the
extent that a Fund recognizes long-term capital gains, such gains will be
distributed at least annually. Such distributions will be taxable to
shareholders as long-term capital gains, 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 shareholders not later
than 60 days after the close of the Fund's taxable year.

If a shareholder receives such 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, any loss realized by a
shareholder upon the sale or redemption of Fund shares held less than six
months is disallowed to the extent of any tax-exempt interest dividends
received by the shareholder thereon. These rules shall not apply, however, to
losses incurred under a periodic redemption plan.

22
<PAGE> 62
marginal corporate income tax rates, corporations which have taxable income in
excess of $100,000 for a taxable year will be required to pay an additional
amount of income tax of up to $11,750 and corporations which have taxable
income in excess of $15,000,000 for a taxable year will be required to pay an
additional amount of tax of up to $100,000).

In addition, the IRS has devised federal alternative minimum tax
("AMT") rules to 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" issued after August 7, 1986. To the extent that the
California Tax-Free Money Market Fund invests in private activity bonds,
shareholders of the Fund 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
distributions made by the 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
the California Tax-Free Money Market Fund. In this connection, the rules
regarding the possible unavailability of exempt dividend treatment to
substantial users are similar for federal and California income tax purposes.
Furthermore, shareholders will not be permitted to deduct any of their share of
Fund expenses in computing their AMT. With respect to corporate shareholders
of such Funds, exempt-interest dividends paid by a Fund are 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 28.00% and corporations at a maximum rate of 20.00%. Shareholders with
questions or concerns about AMT should consult their tax advisors.

Any loss realized on a redemption or exchange of shares of a Fund
will be disallowed to the extent that substantially identical shares are
reacquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of. If a shareholder exchanges or otherwise
disposes of shares of any of the Funds 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 for shares of the Fund, or of a
different fund, the sales charge previously incurred 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) for the purpose of
determining the amount of gain or loss on the exchange, but will be treated as
having been incurred in the acquisition of such other shares.

23
<PAGE> 63
Although dividends will be declared daily based on each 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 dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (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 dividend. It
is expected that each Fund's net income, on an annual basis, will equal the
dividends declared during the year.

California -- If, at the close of each fiscal quarter, at least
50% of the value of the total assets of the California Tax-Free Money Market
Fund consists of securities the interest on which would be exempt from
California personal income tax if received directly by an individual (primarily
"California municipal securities"), the California Tax-Free Money Market Fund
may pay dividends exempt from California personal income tax to its
shareholders (hereinafter referred to as "California exempt-interest
dividends"). The California Tax-Free Money Market Fund intends to qualify under
the above requirements so that it can pay California exempt-interest dividends.

Not later than 60 days after the close of its taxable year, the
California Tax-Free Money Market Fund will notify each shareholder of the
portion of the dividends paid which constitutes California exempt-interest
dividends with respect to such taxable year. The total amount of California
exempt-interest dividends paid by the California Tax-Free Money Market Fund to
all of its shareholders with respect to any taxable year cannot exceed the
amount of interest received by the Fund during such year, less any expenses
allocable to such tax-exempt income, which would be exempt from California
personal income tax if it were received directly by an individual. Dividends
paid by the California Tax-Free Money Market Fund in excess of this limitation
will be treated as ordinary dividends subject to California personal income tax
at ordinary rates.

Long-term and/or short-term capital gain distributions will not
constitute California exempt-interest dividends and will be taxed as capital
gain or ordinary income dividends, respectively. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry California Tax-Free
Money Market Fund shares is not deductible for California corporate or personal
income tax purposes to the extent the shareholder receives California
exempt-interest dividends during his or her taxable year. Exempt-interest
dividends will be tax-exempt for purposes of the California personal income
tax. For corporate shareholders, dividends will be subject to the corporate
franchise taxes in California.

Foreign Shareholders. Under the Code, distributions of net
investment income by any of the Funds to a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate). Withholding will
not apply if a dividend paid by one of the Funds to a foreign shareholder is
"effectively connected" with a U.S. trade or business, in which case the
reporting and withholding requirements applicable to U.S. citizens,

24
<PAGE> 64
U.S. residents or domestic corporations will apply. Distributions of net
long-term capital gains are not subject to tax withholding, but in the case of
a foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. withholding tax at a rate of 30% if the
individual is physically present in the U.S. for more than 182 days during the
taxable year.

Other Matters. Shares of the California Tax-Free Money Market Fund
may 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 institutions, plans and accounts are generally tax-exempt and,
therefore, would not benefit from the exempt status of dividends from such
Fund. Such dividends would be ultimately taxable to the beneficiaries when
distributed to them.

CAPITAL STOCK

The Money Market Fund and the U.S. Treasury Money Market Fund are
comprised of two classes of shares, Class A Shares and Institutional Shares.
With respect to matters that affect one class, but not another, the
shareholders vote as a class; for example, the approval of a Plan with respect
to Class A Shares. Subject to the foregoing, on any matter submitted to a vote
of shareholders, all shares then entitled to vote will be voted by each Fund
unless otherwise required by the 1940 Act, in which case all shares will be
voted in the aggregate. For example, a change in one of the Funds' fundamental
investment policies would be voted upon only by shareholders of such Fund.
Additionally, approval of each advisory contract is a matter to be determined
separately by each Fund. Approval by the shareholders of one of the Funds is
effective whether or not sufficient votes are received from the shareholders of
any of the other Funds or other investment portfolios of the Company to approve
the proposal as to those Funds or investment portfolios. 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 a class of shares represented at a
meeting if the holders of more than 50% of the outstanding shares of such class
are present in person or by proxy, or (ii) more than 50% of the outstanding
class of shares. The term "majority," when referring to the approvals to be
obtained from shareholders of the Company as a whole means the vote of the
lesser of (i) 67% of the Company's shares represented at a meeting if the
holders of more than 50% of the Company's outstanding shares are present in
person or by proxy, or (ii) more than 50% of the Company's outstanding shares.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held. The Company may dispense with annual
meetings 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 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 Directors. In the event of the
liquidation or dissolution of the Company, shareholders of a Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general

25
<PAGE> 65
assets not attributable to a particular Fund or investment portfolio that are
available for distribution in such manner and on such basis as the Directors in
their sole discretion may determine.

Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.

As of February, 29, 1996, the shareholders identified below were
known by the Company to own the indicated percentage of the respective Fund's
outstanding shares in the following capacities:

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF FUND CAPACITY
- ------------ ---------------- --------- --------
<S> <C> <C> <C>
California
Tax-Free Money Omnibus Account #2 21.73% Record
Market Fund Stephens Inc.
Center Street
Little Rock, AR 72201

Money Market Fund
Class A Shares Omnibus Account #2 31.45% Record
Stephens Inc.
111 Center Street
Little Rock, AR 72201

Omnibus Account # 3 12.18% Record
c/o Stephens Inc.
P.O. Box 3507
Little Rock, AR 72203

Money Market Fund Wells Fargo Bank Agent 5.92% Record
Institutional Class for Advanced Medical
201 Third Street
11th Floor
San Francisco, CA 94163

Learning Tree Int'l Inc. 6.60% Record
</TABLE>

26
<PAGE> 66
<TABLE>
<S> <C> <C> <C>
6053 W. Contury Boulevard
Suite 200
Los Angeles, CA 90045

U.S. Treasury Omnibus Account 38.10% Record
Money Market Fund Stephens Inc.
Class A Shares 111 Center Street
Little Rock, AR 72201

Wells Fargo Bank FBO 6.14% Record
Hanna Boys Center
201 3rd Street, 11th Floor
San Francisco, CA 94163
</TABLE>

27
<PAGE> 67
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF FUND CAPACITY
- ------------ ---------------- --------- --------
<S> <C> <C> <C>
U.S. Treasury Wells Fargo Bank Agent 10.89% Record
Money Market Fund for Brittingahm
Institutional Class 201 Third Street
11th Floor
San Francisco, CA 94163

Development Specialists, Inc. 6.39% Record
as Consummation Agent for
Columbia Western Inc.
333 So. Grand Avenue
Suite 2010
Los Angeles, CA 90071-1524

Wells Fargo Bank Agent for 7.85% Record
Lavezzi
201 Third Street
11th Floor
San Francisco, CA 94163
</TABLE>

OTHER

The Registration Statement, including the Prospectus, the SAI and
the exhibits filed therewith, may be examined at the office of the SEC 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. The Annual Reports will be sent free of charge to any
shareholder who requests the SAI.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.

28
<PAGE> 68
FINANCIAL INFORMATION

The audited financial statements and portfolio of investments
contained in the Company's Annual Report for the year ended December 31, 1995,
as filed with the SEC on March 8, 1996, are hereby incorporated by reference in
this SAI. The portfolio of investments, audited financial statements and
independent auditors' report for the Funds are attached to all SAIs delivered
to shareholders or prospective shareholders.

29
<PAGE> 69
APPENDIX

The following is a description of the ratings given by Moody's and
S&P to corporate and municipal bonds, notes and commercial paper.

Bonds

Moody's: The two highest ratings for corporate, state and
municipal bonds are "Aaa" and "Aa." 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.
Moody's applies numerical modifiers: 1, 2 and 3 in the "AA" category 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 two highest ratings for corporate, state and municipal
bonds are "AAA" and "AA." 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." The ratings in the "AA" category may be modified by the addition of a
plus or minus sign to show relative standing within the category.

Notes

Moody's: The two highest ratings for state and municipal
short-term obligations are "MIG 1" and "MIG 2" (or "VMIG 1" and "VMIG 2" 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."

S&P: The two highest ratings for corporate, state and municipal
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.

Commercial Paper

Moody's: The highest rating for corporate, state and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations."

30
<PAGE> 70
S&P: The "A-1" rating for corporate, state 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+."

31
<PAGE> 71
OVERLAND EXPRESS FUNDS, INC.

Telephone: (800) 552-9612
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996
MUNICIPAL INCOME FUND

---------------------

Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's investment portfolios -- the Municipal
Income Fund (the "Fund"). The Fund offers two classes of shares -- Class A
Shares and Class D Shares. This SAI relates to both such classes of shares. The
investment objective of the Fund is described in the Prospectus under
"Investment Objective and Policies."

This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated May 1, 1996. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., the Company's sponsor, administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201 or calling the Transfer Agent at the
telephone number indicated above.

---------------------

1
<PAGE> 72
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 73
INVESTMENT RESTRICTIONS

The Fund is subject to the following investment restrictions, all
of which are fundamental policies:

The Fund 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 the Fund's investments in that
industry would exceed 25% of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in (i)
municipal securities (for the purpose of this restriction, private activity
bonds and notes shall not be deemed municipal securities if the payment of
principal and interest on such bonds or notes is the ultimate responsibility of
non-governmental issuers), and (ii) securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;

(2) purchase or sell real estate limited partnership interests
or real estate (other than securities secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein), commodities or commodity contracts or interests, leases or
limited partnership interests in oil, gas, or other mineral exploration or
development programs;

(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;

(4) 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 the Fund's investment program may be deemed to be
an underwriting;

(5) make investments for the purpose of exercising control or
management;

(6) purchase puts, calls, straddles, spreads, or any
combination thereof if by reason thereof the value of the aggregate investment
of such classes of securities will exceed 5% of the Fund's total assets;

(7) issue senior securities, except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased while any such outstanding borrowing in excess
of 5% of the Fund's net assets exists);

(8) make loans of portfolio securities or other assets, except
that loans for purposes of this restriction will not include the purchase of
fixed time deposits, repurchase agreements, commercial paper and other
short-term obligations, and other types of debt instruments commonly sold in a
public or private offering; or

3
<PAGE> 74
(9) invest more than 25% of its assets in municipal securities
of any single state, possession, commonwealth or territory or in the District
of Columbia.

The Fund may not purchase securities of any issuer (except
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities) if, as a result, with respect to 75% of its total assets,
more than 5% of the value of its total assets would be invested in the
securities of any one issuer or, with respect to 100% of its total assets, the
Fund's ownership would be more than 10% of the outstanding voting securities of
such issuer. For purposes of this policy, each state, possession, commonwealth,
territory and the District of Columbia, and each political subdivision,
authority, agency and instrumentality and multi-state agency or authority
thereof is a separate issuer provided that the securities are backed only by
the assets and revenues of the particular issuer. In addition, for these
purposes, a guarantee of a security shall not deemed to be a security issued by
the guarantor, provided that the Fund shall not invest more than 10% of its
total assets in all securities issued or guaranteed by that guarantor.

The Fund is subject to the following non-fundamental policies:

(1) The Fund may not invest more than 5% of its net assets at
the time of purchase in warrants, and not more than 2% of its net assets in
warrants which are not listed on the New York or American Stock Exchange.

(2) The Fund will not purchase or retain securities of any
issuer if the officers or directors of the Fund or its investment adviser
owning beneficially more than one-half of one percent (0.5%) of the securities
of the issuer together own beneficially more than 5% of such securities.

(3) The Fund will not invest in securities of issuers who, with
their predecessors, have been in existence less than three years, unless the
securities are fully guaranteed, insured or issued by the U.S. Government, a
state, commonwealth, possession, territory, the District of Columbia, or their
political subdivisions, authorities, agencies or instrumentalities, or by an
entity in existence at least three years, or the securities are backed by the
assets and revenues of any of the foregoing, if by reason thereof, the value of
its aggregate investment in such securities will exceed 5% of its total assets.

(4) The Fund may not invest more than 10% of the current value
of its net assets in repurchase agreements maturing in more than seven days,
fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days, restricted securities which must be
registered under the Securities Act of 1933 before they may be offered or sold
to the public, and illiquid securities.

With respect to fixed time deposits, repurchase agreements, and
the investments described in fundamental restriction (7) and non-fundamental
restriction (1), the Fund does not currently intend to engage in these
activities.

4
<PAGE> 75
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

When-Issued Securities. The purchase price and the interest rate
that will be received on when-issued debt securities are fixed at the time the
purchaser enters into the commitment. Purchasing a security on a when-issued
basis can involve a risk that the market price at the time of delivery is lower
than the agreed-upon purchase price, in which case there could be an unrealized
loss at the time of delivery.

The Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to the Fund's
commitment to purchase when-issued securities. If the value of these assets
declines, the 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.

Municipal Bonds. As discussed in the Prospectus, 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 public 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 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. Subject to its investment objective and policies, the Fund is not
limited with respect to which category of municipal bond it may acquire. Some
or all of these bonds may be considered "private activity bonds" for federal
income tax purposes.

Municipal Notes. The Fund 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.

5
<PAGE> 76
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.

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 will also
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) they would sell at a discount. If
interest rates fall, the values of outstanding securities will generally
increase and (if purchased at par value) they would sell at a premium. 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.

MANAGEMENT

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- ---------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>

6
<PAGE> 77
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- ---------------------
<S> <C> <C>
*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.

Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and Accountancy; Associate
Professor of Finance of the School of
Business and Accounting at Wake
Forest University since 1983.

*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting;and

Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

7
<PAGE> 78
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- --------------------
<S> <C> <C>
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.

COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1995

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director

*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes 9,438 37,000
Director

Robert M. Joses 9,938 39,000
Director
</TABLE>

8
<PAGE> 79
<TABLE>
<S> <C> <C>
*J. Tucker Morse 8,313 33,250
Director
</TABLE>

9
<PAGE> 80
Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the Company
serves in the identical capacity as Officers and Directors of Stagecoach Funds,
Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and as Trustees
and/or Officer of Stagecoach Trust, Master Investment Portfolio, Life & Annuity
Trust, Master Investment Trust and Managed Series Investment Trust, each of
which is a registered open-end management investment company and each of which
is considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of the fund complex.

As of the date of this SAI, Directors and officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.

Investment Adviser. The Fund is advised by Wells Fargo Bank. The
Advisory Contract provides that Wells Fargo Bank shall furnish to the Fund
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. Pursuant to the Advisory Contract, Wells Fargo Bank
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of the Fund.

Wells Fargo Bank has agreed to provide to the Fund, among other
things, money market security and fixed- income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the Fund.

The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the Fund's outstanding voting securities or by the Company's Board
of Directors and (ii) by a majority of the directors of the Company who are not
parties to the Advisory Contract or "interested persons" (as defined in the
Act) of any such party. The Advisory Contract may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.

10
<PAGE> 81
For the years ended December 31, 1993, 1994 and 1995, the Fund
paid the advisory fees indicated below and Wells Fargo Bank waived the
indicated amounts:

<TABLE>
<CAPTION>
1993 1994 1995
PAID WAIVED PAID WAIVED PAID WAIVED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$427,743 $207,309 $334,766 $224,053 $184,199
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. Under the
Administration Agreement with the Company, Stephens, in connection therewith,
furnishes the Company with office facilities, together with those ordinary
clerical and bookkeeping services that are not being furnished by Wells Fargo
Bank. Stephens also has entered into a Distribution Agreement with the Company
pursuant to which it has the responsibility of distributing shares of the Fund.

The chart below lists the administrative fees paid by the Fund for the
years ended December 31, 1993, 1994, and 1995.

Shareholder Servicing Agent. As discussed in the Fund's Prospectus
under the heading "Shareholder Servicing Agent," the Fund has entered into a
shareholder servicing agreement with Wells Fargo Bank. For the dollar amount of
shareholder servicing fees paid by the Class D Shares of the Fund, see
"Servicing Plan" below.

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as Custodian and Transfer and Dividend Disbursing
Agent for the Fund. The Custodian, among other things, maintains a custody
account or accounts in the name of the Fund; receives and delivers all assets
for the Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Fund; and pays all expenses of the Fund. For its services as Custodian, Wells
Fargo Bank receives an asset-based fee and transaction charges; and for its
services as Transfer and Dividend Disbursing Agent, it receives a base fee and
per- account fees. For the year ended December 31, 1995, the Fund did not pay
any custody or transfer and dividend disbursing agency fees.

Underwriting Commission. For the year ended December 31, 1993, the
aggregate dollar amount of underwriting commissions paid to Stephens was
$3,604,377 and Stephens retained $3,457,989 of such commissions. Wells Fargo
Securities Inc. ("WFSI"),

11
<PAGE> 82
an affiliated broker-dealer of the Company, and its registered representatives
received $146,388 of such commissions.

For the year ended December 31, 1995, the aggregate dollar amount
of underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares was $1,478,541 and Stephens retained $1,447,175 of such
commissions. WFSI and its registered representatives received $31,366 of such
commissions.

DISTRIBUTION PLANS

As indicated in the Prospectus, the Fund, on behalf of each of its
classes of shares, has adopted a Plan under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule"). The Plan for the Class A Shares of the Fund
was adopted on January 23, 1991 and amended on April 29, 1993, and the Plan for
the Class D Shares of the Fund was adopted on April 29, 1993, by the Board of
Directors, including a majority of the directors who were not "interested
persons" (as defined in the 1940 Act) of the Fund and who had no direct or
indirect financial interest in the operation of the Plan or in any agreement
related to the Plan (the "Qualified Directors").

Under the Plan and pursuant to the Distribution Agreement, the
Fund may pay the Distributor, as compensation for distribution-related
services, a monthly fee at an annual rate of up to 0.25% of the average daily
net assets attributable to the Class A Shares of the Fund, and up to 0.50% of
the average daily net assets attributable to the Class D Shares of the Funds.
The actual fee payable to the Distributor is determined, within such limit,
from time to time by mutual agreement between the Company 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 NASD Rules of Fair Practice. In this regard, the Company and the
Distributor have agreed to limit the expenses payable under the Distribution
Agreement and relating to the Class A Shares to not more than 0.15% of the
Fund's average daily net assets attributable to Class A Shares. The Distributor
may enter into selling agreements with one or more selling agents 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 them. 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 Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the directors of the Company
and the Qualified Directors. Agreements related to the Plan must also be
approved by such vote of the directors and the Qualified

12
<PAGE> 83
Directors. Such agreements 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. The Plan may not be amended
to increase materially the maximum 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
directors of the Company and the Qualified Directors.

The Plan requires that the Treasurer of the Fund shall provide to
the directors, and the directors 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 directors who are not
"interested persons" of the Company be made by such disinterested directors.

For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.

PRINTING & MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Income
Class A $103,479 -0- -0- $103,479
Class D $67,939 N/A N/A $67,939
</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under each Fund's Plans.

SERVICING PLAN

As indicated in the Prospectus of the Fund, the Fund has adopted a
Servicing Plan ("Servicing Plan") with respect to its Class D Shares. The
Servicing Plan was adopted on April 29, 1993 by the Board of Directors,
including a majority of the Directors who were not "interested persons" (as
defined in the Act) of the Fund and who had no direct or indirect financial
interest in the operation of the Servicing Plan or in any agreement related to
the Servicing Plan (the "Servicing Plan Qualified Directors").

Under the Servicing Plan and pursuant to the Servicing Agreement,
the Fund may pay one or more servicing agents, as compensation for performing
certain services, a fee at an annual rate of up to 0.25% of the average daily
net assets of the Fund attributable to its Class D Shares. The actual fee
payable to servicing agents is determined, within such limit, from time to time
by mutual agreement between the Company and each servicing agent and will not
exceed the maximum service fees payable by mutual funds sold by members of the
NASD under the NASD Rules of Fair Practice.

13
<PAGE> 84
The Servicing Plan will continue in effect from year to year if
such continuance is approved by a majority vote of both Directors of the
Company and the Servicing Plan Qualified Directors. Any form of Servicing
Agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Qualified Directors. Servicing Agreements
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
Class D Shares of the Fund. The Servicing Plan may not be amended to increase
materially the amount payable thereunder without the approval of a majority of
the outstanding Class D Shares of the Fund, and no material amendment to the
Servicing Plan may be made except by a majority of both the Directors of the
Company and the Qualified Directors.

The Servicing Plan requires that the Treasurer of the Company
shall provide to the Directors, and the Directors shall review, at least
quarterly, a written report of the amounts expended (and purposes therefor)
under the Servicing Plan.

For the years ended December 31, 1993, 1994 and 1995, the Fund
paid the following amounts in servicing fees pursuant to the Servicing Plans
for its Class D Shares:

*The Class D Shares commenced operations on July 1, 1993.

CALCULATION OF YIELD AND TOTAL RETURN

As indicated in the Prospectus, the Fund may advertise certain
total return information for a class of shares computed in the manner described
in the Prospectus. As and to the extent required by the Commission, an average
annual compound rate of return ("T") will be computed by using the value at the
end of a specified period ("ERV") of a hypothetical initial investment in a
class of shares ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Fund
may also, at times, calculate total return for a class of shares based on net
asset value per share (rather than the public offering price), in which case
the figures would not reflect the effect of any sales charges that would have
been paid by an investor, or based on the assumption that a sales charge other
than the maximum sales charge (reflecting a Volume Discount) was assessed,
provided that total return data derived pursuant to the calculation described
above are also presented.

In addition to the above performance information, the Fund may
also advertise cumulative total return for one-month, three-month, six-month,
and year-to-date periods. The cumulative total return for such periods is based
on the overall percentage change in value of a hypothetical investment in the
Fund, assuming all Fund dividends and capital

14
<PAGE> 85
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.

The average annual total return on the Class A Shares of the Fund
from inception (July 17, 1991) to December 31, 1995, assuming a 3.00% sales
load and no sales load, was 7.58% and 8.32%, respectively. The total return on
the Class A Shares of the Fund for the year ended December 31, 1995, assuming a
3.00% sales load and no sales load, was 12.92% and 16.45%, respectively.

The average annual return on the Class D Shares of the Fund for
the period from inception (July 1, 1993) to December 31, 1995, was 4.53%. The
total return on the Class D Shares of the Fund for the year ended December 31,
1995, assuming the maximum CDSC, was 14.75% and no CDSC, was 15.75%.

The Fund may advertise the cumulative total return on its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal charges for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.

The cumulative total return on the Class A Shares of the Fund for
the period from inception (July 17, 1991) to December 31, 1995, assuming a
3.00% sales charge, was 38.49%. The cumulative total return for the same
period, assuming no sales charge, was 42.78%.

The cumulative total return on the Class D Shares of the Fund for
the period from inception (July 1, 1993) to December 31, 1995, assuming no
CDSC, was 11.70%.

As indicated in the Prospectus, the Fund may advertise certain
yield information for a class of shares. As and to the extent required by the
Commission, yield for a class of shares will be calculated based on a 30-day
(or one month) period, computed by dividing the net investment income per share
of a class of shares earned during the period by the maximum offering price per
share of a class of shares on the last day of the period, according to the
following formula: YIELD = 2[((a-b:-cd)+1)6-1], 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 a class of shares
outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share of a class of shares on the last day of
the period. The net investment income of a class of shares includes actual
interest income, plus or minus amortized purchase discount (which may include
original issue discount) or premium, less accrued expenses. Realized and
unrealized gains and losses on portfolio securities are not included in the net
investment income. For purposes of sales literature, yield may also be
calculated on the basis of the net asset value per share rather than the public
offering price, or based on the assumption

15
<PAGE> 86
that a sales charge other than the maximum sales charge (reflecting a Volume
Discount) was assessed, provided that the yield data derived pursuant to the
calculation described above are also presented.

The yield on the Class A Shares of the Fund for the thirty-day
period ended December 31, 1995, assuming a 3.00% sales load and no sales load
was 5.16% and 5.00%, respectively. The yield on the Class D Shares of the Fund
for the thirty-day period ended December 31, 1995, assuming the maximum CDSC,
was 4.10%, and no CDSC, was 4.56%.

The tax-equivalent yield for the Fund will be computed by dividing
that portion of the yield of a class of shares which is tax-exempt by one minus
a stated income tax rate and adding the product to that portion, if any, of the
yield of the Fund that is not tax-exempt. This yield figure may not reflect the
applicability of the alternative minimum tax. The yield for a 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 does not provide a
basis for determining future yields since it is based on historical data. Yield
is a function of portfolio quality, composition, maturity and market conditions
as well as the expenses allocated to the Fund.

The tax-equivalent yield for the thirty-day period ended December
31, 1995 on the Class A Shares of the Fund, assuming a 3.00% sales load and no
load, was 8.68% and 8.96%, respectively, based on a 42.40% assumed federal
income tax rate. The tax-equivalent yield for the thirty-day period ended
December 31, 1995 on the Class D Shares of the Fund, assuming the maximum CDSC,
was 7.92%, based on a 42.40% assumed federal income tax rate.

In addition, investors should recognize that changes in the net
asset values of a class of shares of the Fund will affect the yield of the
class of shares for any specified period, and such changes should be considered
together with such class's yield in ascertaining such class's total return to
shareholders for the period. Yield information for a class of shares may be
useful in reviewing the performance of the Fund and for providing a basis for
comparison with investment alternatives. The yield of a 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.

The Company may disclose in sales literature, information and
statements, the distribution rate of Fund shares. 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.

The Company also may disclose in advertising and other types of
literature, information and statements, the average credit quality of the Fund's
portfolio or categories of investments therein, as of a specified date or
period. Average credit quality is calculated on a dollar weighted average basis
based on ratings assigned each issue or issuer, as the case may be, by S&P
and/or Moody's. In the event one rating agency does not rate the issue or

16
<PAGE> 87
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.

From time to time and only to the extent the comparison is
applicable to a class of shares of the Fund, the Company may quote the
performance or price-earning ratio of a class of shares of the Fund in
advertising and other types of literature as compared to the performance of
unmanaged indices of municipal securities, or to performance of the Lehman
Brothers Municipal Bond Index, 1-Year Treasury Bill Rate, 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), Ten Year
U.S. Government Bond Average, S&P's Corporate Bond Yield Averages, Schabacter
Investment Management Indices, Salomon Brothers High Grade Bond Index, Lehman
Brothers Long-Term High Quality Government/Corporate Bond Index, other managed
or unmanaged indices or performance data of bonds, 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 class of shares of the Fund also may be compared to those 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
performance of a class of shares of the Fund 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. Any such comparisons may be useful to
investors who wish to compare the class' past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results. The Company 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.

17
<PAGE> 88
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a class of shares of the Fund: (i) the Consumer
Price Index may be used to assess the real rate of return from an investment in
a class of shares of the Fund; (ii) other government statistics, including, but
not limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the 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 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 a class of shares of the Fund with respect to the particular
industry or sector.

The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"). 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 Company may compare the
performance of a class of shares of the Fund with other investments which are
assigned ratings by NRSROs. Any such comparisons may be useful to investors who
wish to compare the class's past performance with other rated investments.

The Company also may disclose in advertising and other types of
literature, information and statements that the Company's investment adviser,
Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the 1994 edition of "America's Best Money
Managers." The Nelson survey ranks the performance of money managers in over 30
asset/style categories and is based on analysis of performance composites and
surveys of institutional money managers. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser.

The Company may disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank. As of April 1, 1996, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $56 billion of assets of
individuals, trusts, estates and institutions and $17 billion of mutual fund
assets.

18
<PAGE> 89
DETERMINATION OF NET ASSET VALUE

Net asset value per share for each class of the Fund is determined
by the custodian of the Fund on each day the Exchange is open for trading.

Securities of the Fund for which market quotations are available
are valued at latest prices. In the absence of any sale of such securities on
the valuation date and 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 maturing in 60 days or less are valued at amortized cost.
The assets of the Fund other than money market instruments maturing in 60 days
or less are valued at latest quoted bid prices. In all cases, bid prices will
be furnished by a reputable independent pricing service approved by the Board
of Directors. 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 the Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
directors and in accordance with procedures adopted by the directors.

PORTFOLIO TRANSACTIONS

The Company 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 Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company 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 Fund will
not necessarily be paying the lowest spread or commission available.

Purchases and sales of securities will usually 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. The Fund
will also purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. The cost of executing the Fund's
portfolio securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the Act, persons affiliated with the Company
are prohibited from dealing with the Company as a principal in the purchase and
sale of securities unless an exemptive order allowing such transactions is
obtained from the Commission 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 Act and in compliance with procedures
adopted by the Board of Directors.

19
<PAGE> 90
Wells Fargo Bank, as the Investment Adviser of the Fund, may, in
circumstances in which two or more brokers are in a position to offer
comparable results for a Fund portfolio transaction, give preference to a
broker 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 Contract, 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 the 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 Fund.

Brokerage Commissions. For the year ended December 31, 1995, the
Fund did not pay any brokerage commissions.

Securities of Regular Broker Dealers. On December 31, 1995, the
Fund did not own any securities of its "regular brokers or dealers," as defined
in the 1940 Act, or their parents.

Portfolio Turnover. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate.

FEDERAL INCOME TAXES

The Prospectus describes generally the tax treatment of
distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.

Qualification as a "regulated investment company" under the Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) the Fund derives less than 30% of its gross income from gains from
the sale or other disposition of securities or options thereon held for less
than three months; and (c) the Fund diversifies 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 securities and the
securities of other regulated investment companies), or of two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses. As a regulated
investment company, the Fund will not be subject to federal income tax on its
net investment income and net capital gains distributed to its shareholders,
provided that it distributes to its shareholders at least 90% of the sum of its
net investment income and net tax-exempt income earned in each year.

20
<PAGE> 91
A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. This excise tax will not apply to tax-exempt income of the
Fund. The Fund will either 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.

Gains or losses on sales of portfolio securities by the Fund will
generally be long-term capital gains or losses if the securities have been held
by it for more than one year, except in certain cases including where the Funds
acquires a put or grants a call thereon. Other gains or losses on the sale of
securities will be short-term capital gains or losses. To the extent that the
Fund recognizes long-term capital gains, such gains will be distributed at
least annually. Such distributions will be taxable to shareholders as long-term
capital gains, 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 shareholders not later than 60 days after the
close of the Fund's taxable year.

If a shareholder receives designated capital gain distributions
(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 distributions. In addition, any loss realized by a shareholder upon the
sale or redemption of Fund shares held less than six months is disallowed to
the extent of any tax-exempt interest dividends received by the shareholder
thereon. These rules shall not apply, however, to losses incurred under a
periodic redemption plan.

If an option granted by the 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 that is part of a tax "straddle." If securities are
sold by the Fund pursuant to the exercise of a call option granted 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 the Fund pursuant to the exercise of a put option granted by
it, the Fund will subtract the premium received from its cost basis in the
securities purchased. In addition, the amount of any gain or loss realized by
the Fund on closing out a futures contract will generally result in a realized
capital gain or loss for tax purposes. Futures contracts held at the end of
each calendar year will be required to be "marked-to-market" for federal income
tax purposes. In this regard, they will be deemed to have been sold at market
value pursuant to Section 1256 of the Code. 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 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.

21
<PAGE> 92
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60% (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28.00% and
the maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35.00% (however, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of tax of up to $100,000).

If a shareholder exchanges or otherwise disposes of shares of the
Fund 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 for shares of the Fund, or of a different fund, the sales charge
previously incurred 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) for the purpose of determining the amount of gain or loss on the
exchange, 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 reacquired within the 61-day period beginning 30 days
before and ending 30 days after the shares are disposed of.

If, in the opinion of the Fund, ownership of its shares has or may
become concentrated to an extent that could cause the Fund to be deemed a
personal holding company within the meaning of the Code, the Fund may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.

Although dividends will be declared daily based on the 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 dividends. Thus, if
during a taxable year the Fund's declared dividends (as declared daily
throughout the year) exceed the Fund's net income (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 dividend. It
is expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.

Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by the Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual,

22
<PAGE> 93
such distributions ordinarily will be subject to U.S. withholding tax at a rate
of 30% if the individual is physically present in the U.S. for more than 182
days during the taxable year.

Other Matters. Investors should be aware that the investments to
be made by the Fund may involve sophisticated tax rules such as the original
issue discount and mark to market rules that would result in income or gain
recognition by the Fund without corresponding current cash receipts. Although
the Fund will seek to avoid significant noncash income, such noncash income
could be recognized by the Fund, in which case the Fund may distribute cash
derived from other sources in order to meet the minimum distribution
requirements described above.

Special Tax-Exempt Income Considerations.

The Fund intends that at least 50% of the value of its total
assets at the close of each quarter of its taxable year will consist of
obligations the interest on which is exempt from federal income tax, so that it
will qualify under the Code to pay "exempt-interest dividends." The portion of
total dividends paid by the Fund with respect to any taxable year that
constitutes exempt-interest dividends will be the same for all shareholders
receiving dividends during such year. 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,
the Fund will notify each shareholder 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. Finally, interest on
indebtedness and other expenses incurred by a shareholder to purchase or carry
shares of the Fund will not be deductible for federal income tax purposes to
the extent the shareholder receives exempt-interest dividends during his or her
taxable year. Exempt-interest dividends will be tax- exempt for federal income
tax purposes.

23
<PAGE> 94
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 AMT should consult their tax advisors.

Other Matters. Shares of the Fund would generally not be
suitable for tax-exempt institutions or 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 such Fund. Such dividends would be ultimately taxable
to the beneficiaries when distributed to them.

CAPITAL STOCK

The Fund is comprised of two classes of shares, Class A Shares and
Class D Shares. 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, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by Fund or portfolio unless
otherwise required by the Act, in which case all shares will be voted in the
aggregate. For example, a change in the Fund's fundamental investment policies
would be voted upon only by shareholders of the Fund and not shareholders of
the Company's other investment portfolios. Additionally, approval of the
advisory contract is a matter to be determined separately by portfolio.
Approval by the shareholders of one portfolio is effective as to that portfolio
whether or not sufficient votes are received from the shareholders of the other
portfolios to approve the proposal as to those portfolios. As used in the
Prospectus and in this Statement of Additional Information, the term
"majority", when referring to approvals to be obtained from shareholders of a
class of shares of the Fund means the vote of the lesser of (i) 67% of the
shares of such class represented at a meeting if the holders of more than 50%
of the outstanding shares of such class are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of such class. The term
"majority", when referring to the approvals to be obtained from shareholders of
the Company as a whole means the vote of the lesser of (i) 67% of the Company's
shares represented at a meeting if the holders of more than 50% of the
Company's outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Company's outstanding shares. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
The Company may dispense with annual meetings of shareholders in any year in
which it is not required to elect directors under the Act.

Each share of a class of shares represents an equal proportional
interest in the Fund or portfolio 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
Directors. In the event of the liquidation or dissolution of the Company,
shareholders of the Fund are entitled to receive the assets attributable to the
Fund that are available

24
<PAGE> 95
for distribution, and a distribution of any general assets not attributable to
a particular portfolio that are available for distribution in such manner and
on such basis as the Directors in their sole discretion may determine.

Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.

As of February 29, 1996, the shareholders identified below were
known by the Company to own the indicated percentage of the outstanding Class A
Shares and Class D Shares of the Fund in the following capacity:

25
<PAGE> 96
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF SHAREHOLDER OF CLASS CAPACITY
---------------- ---------- --------
<S> <C> <C>
CLASS A SHARES

Merrill Lynch Pierce 11.79% Record
Fenner & Smith Inc.
Trade House Account
P.O. Box 30561
New Brunswick, NJ 08989

Stephens Inc. 8.26% Record
for the Exclusive
Benefit of Customers
P.O. Box 34127
Little Rock, AR 72203

CLASS D SHARES

Merrill Lynch Pierce 39.73% Record
Fenner & Smith Inc.
Trade House Account
Attn: Book Entry
P.O. Box 30561
New Brunswick, NJ 08989

Stephens Inc. 5.88% Record
for the Exclusive
Benefit of Customers
P.O. Box 34127
Little Rock, AR 72203

NFSC FBO 5.01% Record
Dr. Lawrence E. Sirna
Yolanda V. Sirna
2228 Jwedish Dr. Apt. 16
Clearwater, FL 34623
</TABLE>

26
<PAGE> 97

OTHER

KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain Commission filings. KPMG Peat Marwick LLP's address is Three
Embarcadero Center, San Francisco, California 94111.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and
independent auditors' report for the Fund for the year ended December 31, 1995
are hereby incorporated into this SAI by reference to Amendment No. 8 to the
Registration Statement of Master Investment Trust (SEC File No. 811-6415), as
filed on Form N-1A with the SEC on March 21, 1996. The portfolio of
investments, audited financial statements and independent auditors' report for
the Fund are attached to all SAIs delivered to shareholders or prospective
shareholders.

27
<PAGE> 98
APPENDIX

The following is a description of the ratings given by Moody's and
S&P to state and municipal bonds, notes and commercial paper.

Municipal Bonds

Moody's: The two highest ratings for state and municipal bonds are
"Aaa" and "Aa." 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. Moody's applies
numerical modifiers: 1, 2 and 3 in rating category "Aa" 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 two highest ratings for state and municipal bonds are
"AAA" and "AA." 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." The rating
"AA" 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 notes are
"MIG 1" and "MIG 2" (or "VMIG 1" and "VMIG 2" 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."

Municipal Commercial Paper

Moody's: The highest rating for state 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.

28
<PAGE> 99
S&P: The "A-1" rating for state 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."

29
<PAGE> 100
OVERLAND EXPRESS FUNDS, INC.

Telephone: 1-800-552-9612

STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996

OVERLAND SWEEP FUND

-------------------

Overland Express Funds, Inc. (the "Company") is an open-end,
series investment company. This Statement of Additional Information ("SAI")
contains information about one of the Company's investment portfolios -- the
Overland Sweep Fund (the "Fund"). The investment objective of the Fund is
described in the Prospectus. See "Investment Objective and Policies." The Fund
seeks to achieve its investment objective by investing all of its assets in the
Cash Investment Trust Master Portfolio (the "CIT Master Portfolio") a
professionally managed diversified portfolio offered by Master Investment Trust
(the "Trust"), which has the same investment objective as the Fund. The Fund
may withdraw its investment in the CIT Master Portfolio at any time, if the
Board of Directors of the Company determines that such action is in the best
interests of the Fund and its shareholders. Upon such withdrawal, the Company's
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 adviser to manage the Fund's assets in
accordance with the investment policies and restrictions described in the
Prospectus and below with respect to the Trust.

This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus, dated May 1, 1996. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., the Company's sponsor, administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201, or calling the Transfer Agent at
the telephone number indicated above.

-------------------

1
<PAGE> 101
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Calculation of Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 102

INVESTMENT RESTRICTIONS

The Fund and the CIT Master Portfolio are subject to the following
investment restrictions, all of which are fundamental policies; that is, they
may not be changed without approval by a vote of the holders of a majority of
the Fund's outstanding voting securities, as described under "Capital Stock."

Neither the Fund nor the CIT Master Portfolio may:

(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 the Fund's or the CIT Master
Portfolio's investments in that industry would exceed 25% of the current value
of its respective total assets, provided that there is no limitation with
respect to investments in (i) obligations of the United States Government, its
agencies or instrumentalities, and (ii) obligations of domestic banks (for the
purpose of this restriction, domestic bank obligations do not include
obligations of U.S. branches of foreign banks or obligations of foreign
branches of U.S. banks), and provided further that this investment restriction
does not affect the Fund's ability to invest a portion or all of its assets in
the CIT Master Portfolio;

(2) purchase or sell real estate or real estate limited
partnership interests (other than money market securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein), commodities or commodity contracts;

(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;

(4) 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 the Fund's or the CIT Master Portfolio's
investment program (including the Fund's investment in the Trust) may be deemed
to be an underwriting;

(5) make investments for the purpose of exercising control or
management, provided that this restriction does not affect the Fund's ability
to invest a portion or all of its assets in the CIT Master Portfolio;

(6) issue senior securities, except that the Fund and the CIT
Master Portfolio may borrow from banks up to 10% of the current value of their
respective net assets for temporary purposes only in order to meet redemptions,
and these borrowings may be secured by the pledge of up to 10% of the current
value of their respective net assets (but investments may not be purchased
while any such borrowing in excess of 5% of their respective net assets
exists);

3
<PAGE> 103
(7) write, purchase or sell puts, calls, warrants or options or
any combination thereof, except that the Fund and the CIT Master Portfolio may
purchase securities with put rights in order to maintain liquidity; or

Whenever the Fund is requested to vote on a change in a
fundamental investment restriction of the CIT Master Portfolio, the Fund will
hold a meeting of its shareholders and will cast its vote as instructed by such
shareholders.

The Fund and the CIT Master Portfolio are subject to the following
non-fundamental policies:

Neither the Fund nor the CIT Master Portfolio may:

(1) purchase or retain securities of any issuer if the
officers, directors or trustees of the Company, the CIT Master Portfolio or the
Investment Adviser owning beneficially more than one-half of one percent (0.5%)
of the securities of the issuer together owned beneficially more than 5% of
such securities;

(2) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;

(3) invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are fully guaranteed or insured by the U.S. Government, a state,
commonwealth, possession, territory, the District of Columbia or by an entity
in existence at least three years, or the securities are backed by the assets
and revenues of any of the foregoing if, by reason thereof, the value of its
aggregate investments in such securities will exceed 5% of its total assets,
provided that this restriction does not affect the Fund's ability to invest a
portion or all of its assets in the CIT Master Portfolio; or

(4) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days, fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, restricted securities (which are securities that must be registered
under the Securities Act of 1933 before they may be offered or sold to the
public), and illiquid securities, provided that this restriction does not
affect the Fund's ability to invest a portion or all of its assets in the CIT
Master Portfolio.

As provided in Rule 2a-7 under the Act, the CIT Master Portfolio
may only purchase "Eligible Securities" (as defined in Rule 2a-7) and only if,
immediately after such purchase, the CIT Master Portfolio would have no more
than 5% of its total assets in "First Tier Securities" (as

4
<PAGE> 104
defined in Rule 2a-7) of any one issuer, excluding government securities and
except as otherwise permitted for temporary purposes and for certain guarantees
and unconditional puts; the CIT Master Portfolio would own no more than 10% of
the voting securities of any one issuer; the CIT Master Portfolio would have no
more than 5% of its total assets in "Second Tier Securities" (as defined in
Rule 2a-7); and the CIT Master Portfolio would have no more than the greater of
$1 million or 1% of its total assets in Second Tier Securities of any one
issuer.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Foreign Obligations. The CIT Master Portfolio may invest a portion
of its assets (no more than 5%) in 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 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 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.

Unrated Investments. The CIT Master Portfolio may purchase
instruments that are not rated if, in the opinion of Wells Fargo Bank as
investment adviser, such obligations are of comparable quality to other
high-quality investments that are permitted to be purchased by the CIT Master
Portfolio. After purchase by the CIT Master Portfolio, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase
by the CIT Master Portfolio. Neither event requires an immediate sale of such
security by the CIT Master Portfolio. To the extent the ratings given by
Moody's Investors Service ("Moody's") or Standard and Poor's Rating Group
("S&P") may change as a result of changes in such organizations or their rating
systems, the CIT Master Portfolio will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus and in this SAI. The ratings of Moody's and S&P are more
fully described in the Appendix to this SAI.

MANAGEMENT

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund, the Master
Portfolio and Management." The principal occupations during the past five years
of the Directors and principal executive Officer of the Company are listed
below. The address of each, unless otherwise indicated, is 111 Center Street,
Little Rock, Arkansas

5
<PAGE> 105
72201. Directors deemed to be "interested persons" of the Company for purposes
of the 1940 Act are indicated by an asterisk.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- ---------------------- -------- --------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.

Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy;Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.

*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
</TABLE>

6
<PAGE> 106
<TABLE>
<S> <C> <C>
Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

COMPENSATION TABLE
For the Year Ended December 31, 1995

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director

*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes 9,438 37,000
Director
</TABLE>

7
<PAGE> 107
COMPENSATION TABLE (Continued)
For the Year Ended December 31, 1995

*J. Tucker Morse 8,313 33,250
Director
</TABLE>

Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the Company
serves in the identical capacity as Officers and Directors of Stagecoach Funds,
Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and as Trustees
and/or Officer of Stagecoach Trust, Master Investment Portfolio, Life & Annuity
Trust, Master Investment Trust and Managed Series Investment Trust, each of
which is a registered open-end management investment company and each of which
is considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of the fund complex.

As of the date of this SAI, Directors and officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.

Investment Adviser. The Fund has not engaged an investment
adviser. The Trust has engaged Wells Fargo Bank to advise the CIT Master
Portfolio. The Advisory Contract provides that Wells Fargo Bank shall furnish
to the CIT Master Portfolio investment guidance and policy direction in
connection with the daily portfolio management of the CIT Master Portfolio.
Pursuant to the Advisory Contract, Wells Fargo Bank furnishes to the Board of
Trustees of the Trust periodic reports on the investment strategy and
performance of the CIT Master Portfolio.

Wells Fargo Bank has agreed to provide to the CIT Master
Portfolio, among other things, money market security and fixed-income research,
analysis and statistical and economic data and information concerning interest
rate and security market trends, portfolio composition, credit conditions and
average maturities of the investments of the CIT Master Portfolio.

The Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the CIT Master Portfolio's

8
<PAGE> 108
outstanding voting securities or by the Board of Trustees of the Trust 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 Act) of any such party.
The Advisory Contract may be terminated on 60 days' written notice by either
party and will terminate automatically if assigned.

For the years ended December 31, 1993, 1994 and 1995, the CIT
Master Portfolio paid to Wells Fargo Bank the advisory fees indicated below and
Wells Fargo Bank waived the indicated amounts:

<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$861,200 -0- $1,426,685 -0- $1,902,572 $255,082
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. In addition, the Trust
has retained Stephens as administrator on behalf of the CIT Master Portfolio.
Under the respective Administration Agreements with the Company and the Trust,
Stephens, in connection therewith, furnishes the Fund and the CIT Master
Portfolio with office facilities, together with those ordinary clerical and
bookkeeping services that are not being furnished by Wells Fargo Bank. Stephens
also has entered into a Distribution Agreement with the Company pursuant to
which it has the responsibility of distributing shares of the Fund.

For the years ended December 31, 1993, 1994 and 1995, the Fund and
the CIT Master Portfolio paid administrative fees to Stephens as follows:

<TABLE>
<CAPTION>
FUND 1993 1994 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overland Sweep Fund $86,086 $142,613 $215,624
CIT Master Portfolio $86,120 $142,669 $215,765
</TABLE>

Shareholder Servicing Agent. As described in the Prospectus, Wells
Fargo Bank serves as shareholder servicing agent for the Fund. For the year
ended December 31, 1995, the Fund paid no shareholder servicing fees to Wells
Fargo Bank.

Custodian and Transfer and Dividend Disbursing Agent. Wells
Fargo Bank has been retained to act as custodian and transfer and dividend
disbursing agent for the Fund and the CIT Master Portfolio. The custodian,
among other things, maintains a custody account or accounts in the name of the
Fund and the CIT Master Portfolio; receives and delivers all assets for the
Fund and the CIT Master Portfolio upon purchase and upon sale or maturity;
collects and receives all income and other payments and distributions on
account of the assets of the Fund and the CIT Master Portfolio and pays all
expenses of the Fund and the CIT Master Portfolio. For its services as
Custodian, Wells Fargo Bank receives an asset-based fee and

9
<PAGE> 109
transaction charges; and for its services as transfer and dividend disbursing
agent, it receives a base fee and per- account fees.

For the year ended December 31, 1995, the Fund did not pay any
custody fees. For the same period, the CIT Master Portfolio paid $149,559 to
Wells Fargo Bank for its services as custodian. For the same period, the Fund
paid $3,018,737 to Wells Fargo Bank for transfer and dividend disbursing agency
services and the CIT Master Portfolio did not pay any such fees.

DISTRIBUTION PLAN

As indicated in the Prospectus, the Fund has adopted a Plan under
Section 12(b) of the Act and Rule 12b-1 thereunder. The Plan was adopted by the
Company's Board of Directors on August 14, 1991, including a majority of the
Directors who were not "interested persons" (as defined in the 1940 Act) of the
Fund and who had no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan (the "Qualified Directors").

The Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Agreements related to the Plan must also be
approved by such vote of the Directors and the Qualified Directors. Such
agreements 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. 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 Directors of
the Company and the Qualified Directors.

10
<PAGE> 110
The Plan requires that the Treasurer of the Fund shall provide to
the Directors, and the Directors 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 Directors who are not
"interested persons" of the Company be made by such disinterested Directors.

For the year ended December 31, 1995, the Fund's distributor
received the following amount of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan.

PRINTING & MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overland Sweep Fund $4,743,731 $9,671 $20,777 $4,713,283
</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives did not receive any compensation under the Plan.

CALCULATION OF YIELD

As indicated in the Prospectus, the Fund may advertise certain
yield information. Current yield for the Fund is calculated based on the net
changes, exclusive of capital changes, over a seven-day period, in the value of
a hypothetical pre-existing account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one
percent. The yield for the Fund for the seven-day period ended December 31,
1995 was 4.50%.

Effective yield for the Fund is calculated by determining the net
change exclusive of capital changes in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result. The
effective yield for the Fund for the seven-day period ended December 31, 1995
was 4.61%.

The Fund's yield will fluctuate from time to time, unlike bank
deposits or other investments that pay a fixed yield for a stated period of
time, and does not provide a basis for determining future yields since it is
based on historical data. Yield is a function of portfolio

11
<PAGE> 111
quality, composition, maturity and market conditions as well as the expenses
incurred by or allocated to the Fund and the CIT Master Portfolio.

Yield information for the Fund may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The Fund's yield, 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.

In addition to the above performance information, the Fund may
advertise average annual total return information. Average annual total return
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods (or the life of the Fund, which periods are stated in the
advertisement), and is measured by comparing the value of an investment in the
Fund at the beginning of the relevant period to the redemption value at the end
of the period and annualizing the result, assuming that all Fund dividends and
capital gains distributions are reinvested.

From time to time and only to the extent the comparison is
appropriate for the Fund, the Company may quote the Fund's performance or
price-earning ratio in advertising and other types of literature as compared to
the performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury
Bill Rate, 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), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, 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 Fund's performance also may be compared to
those 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 Fund's 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. Any such comparisons may be useful to investors
who wish to compare the Fund's past performance with that of its competitors.
Of course, past performance cannot be a guarantee of future results. The
Company also may include, from time to time, a reference to

12
<PAGE> 112
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 Company 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 the Fund; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of the 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 Fund's historical performance or current or potential value
with respect to the particular industry or sector.

The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as S&P or Moody's. 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 Company 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.

The Company also may disclose in sales literature, information and
statements that the Company's investment adviser, Wells Fargo Bank, is listed
in Nelson Publications' ("Nelson's") "Top 20" performance rankings as published
in the 1994 edition of "America's Best Money Managers." The Nelson survey ranks
the performance of money managers in over 30 asset/style categories and is
based on analysis of performance composites and surveys of institutional money

13
<PAGE> 113
managers. The Company may also disclose in advertising and other types of sales
literature the assets and categories of assets under management by the
Company's investment adviser and the total amount of assets under management by
Wells Fargo Investment Management Group ("IMG"). As of December 31, 1995, IMG
had $30.1 billion in assets under management.

The Company may disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank. As of April 1, 1996, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $56 billion of assets of
individuals, trusts, estates and institutions and $17 billion of mutual fund
assets.

DETERMINATION OF NET ASSET VALUE

Net asset value per share for the Fund is determined by the
Custodian of the Fund on each day the Fund is open for trading.

As indicated under "Determination of Net Asset Value, Dividends
and Distributions" in the Prospectus, the CIT Master Portfolio uses the
amortized cost method to determine the value of its portfolio securities
pursuant to Rule 2a-7 under the 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 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 CIT Master Portfolio
would receive if the security were sold. During these periods the yield to
investors 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 CIT Master Portfolio's investments on a
particular day, a prospective investor in the CIT Master Portfolio would be
able to obtain a somewhat higher yield than would result from investment in a
fund using solely market values, and existing CIT Master Portfolio investors
would receive correspondingly less income. The converse would apply during
periods of rising interest rates. Since the Fund expects to invest all of its
assets in the CIT Master Portfolio, Fund shareholders can expect that their
investments in the Fund will correspond similarly.

Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the CIT Master Portfolio 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 Eligible Securities determined by the Trust's 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 the Rule, the Board is
required to establish procedures designed to stabilize, to the extent
reasonably possible, the CIT Master

14
<PAGE> 114
Portfolio's net asset value. Such procedures include review of the Trust's
portfolio by the Board of Trustees, at such intervals as it may deem
appropriate, to determine whether the CIT Master Portfolio's net asset value
calculated by using available market quotations deviates within 1/2 of 1% of
the value 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, 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 by using available market quotations.

PORTFOLIO TRANSACTIONS

The CIT Master Portfolio 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 the CIT Master Portfolio's investment decisions and the
placing of portfolio transactions. In placing orders, it is the policy of the
CIT Master Portfolio 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 CIT Master Portfolio will not
necessarily be paying the lowest spread or commission available.

Purchases and sales of the CIT Master Portfolio's portfolio
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. The CIT Master Portfolio also will purchase
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, taxable money market securities are traded
on a net basis and do not involve brokerage commissions. The cost of executing
the portfolio transactions will consist primarily of dealer spreads and
underwriting commissions. Under the Act, persons affiliated with the CIT Master
Portfolio are prohibited from dealing with the CIT Master Portfolio as a
principal in the purchase and sale of portfolio securities unless an exemptive
order allowing such transactions is obtained from the Commission or an
exemption is otherwise available. The CIT Master Portfolio 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 Act and in compliance with procedures adopted by the
Trust's Board of Trustees.

Wells Fargo Bank, as the Investment Adviser of the CIT Master
Portfolio, may, in circumstances in which two or more dealers are in a position
to offer comparable results for a 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

15
<PAGE> 115
performed by Wells Fargo Bank under the Advisory Contract, 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 the CIT Master Portfolio 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 CIT Master Portfolio.

Brokerage Commissions. For the year ended December 31, 1995, the
Fund and the CIT Master Portfolio did not pay brokerage commissions.

Securities of Regular Broker/Dealers. On December 31, 1995, the
CIT Master Portfolio owned securities of its "regular brokers or dealers" or
their parents, as defined in the 1940 Act as follows: $52,415,000 in Goldman
Sachs & Co. Repurchase Agreements.

Portfolio Turnover. Because the investments of the CIT Master
Portfolio consist of securities with relatively short-term maturities, the CIT
Master Portfolio can expect to experience high portfolio turnover. A high
portfolio turnover rate should not adversely affect the CIT Master Portfolio
(or the Fund), however, because portfolio transactions ordinarily will be made
directly with principals on a net basis and, consequently, the CIT Master
Portfolio usually will not incur brokerage expenses. No underwriting or
brokerage commissions or sales load will be incurred by the Fund when investing
in the CIT Master Portfolio.

FEDERAL INCOME TAXES

The Prospectus describes generally the tax treatment of
distributions by the Fund and the CIT Master Portfolio. This section of the SAI
includes additional information concerning federal income taxes.

Qualification as a "regulated investment company" under the Code
requires, among other things, that (a) at least 90% of the Fund's annual gross
income be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities; (b) the
Fund derive less than 30% of its gross income from gains from the sale or other
disposition of securities held for less than three months; and (c) the Fund
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 securities or the securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. For purposes of complying with these qualification
requirements, the Fund will "look-through" to the CIT Master Portfolio's
investments. As a regulated investment company, the Fund will not be subject to
federal income tax on its net

16
<PAGE> 116
investment income and net capital gains, if any, distributed to its
shareholders, provided that it distributes to its shareholders at least 90% of
its net investment income earned in each year.

A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. The Fund will either actually or be deemed to distribute
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.

It is expected that the net income of the Fund will be a positive
amount at the time of each determination thereof. If, however, the net income
of the Fund determined at any time is a negative amount (which could occur, for
instance, upon non-payment of interest and/or principal by an issuer of a
security held by the CIT Master Portfolio), the Fund would first offset the
negative amount with respect to each shareholder account from the dividends
declared during the month with respect to each such account. If and to the
extent that such negative amount exceeds such declared dividends at the end of
the month, the Fund will reduce the number of its outstanding shares by
treating each shareholder as having been redeemed by the Fund that number of
full and fractional shares in the account of such shareholder which represents
the shareholder's proportion of the amount of such excess. Each shareholder
will be deemed to have agreed to such redemption in these circumstances by
investing in the Fund.

Although dividends will be declared daily based on each day's
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 dividends. Thus, if during a taxable year
the Fund's declared dividends (as declared daily throughout the year) exceed
the Fund's net income (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 dividend. It is expected that the Fund's net
income, on an annual basis, will equal the dividends declared during the year.

Gains or losses on sales of portfolio securities by the Master
Portfolio generally will be long-term capital gains or losses. To the extent
that the Master Portfolio, and thereby the Fund, recognizes long-term capital
gains, such gains will be distributed at least annually, and these
distributions will be taxable to shareholders as long-term capital gains,
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 shareholders not later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a designated capital gain distribution
with respect to a 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 gains distributions thereon.

17
<PAGE> 117
charge previously incurred 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) for the purposes of determining the amount of gain or loss on
the exchange, but will be treated as having been incurred in the acquisition of
such other shares.

Any loss realized on a redemption of shares of the Fund will be
disallowed to the extent shares are reacquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.

As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60%; (marginal rates may be higher for some
individuals due to phase-out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28.00% and
the maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35.00%. However, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of income tax of up to $100,000.

Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a foreign corporation, foreign partnership,
nonresident alien individual, or nonresident alien fiduciary of a trust or
estate (a "foreign shareholder") will be subject to U.S. withholding tax (at a
rate of 30% or a lower treaty rate). Withholding will not apply if a dividend
paid by the Fund to a foreign shareholder is "effectively connected" with a
U.S. trade or business, in which case the reporting and withholding requirement
applicable to U.S. citizens, U.S. residents or domestic corporations will
apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.

CAPITAL STOCK

On any matter submitted to a vote of shareholders, all shares then
entitled to vote will be voted by the Fund unless otherwise required by the
Act, in which case all shares will be voted in the aggregate. For example, a
change in the Fund's fundamental investment policies would be voted upon only
by shareholders of the Fund, as would the approval of any advisory contract for
the Fund. However, all shares of the Company may vote together in the election
or selection of Directors, principal underwriters and accountants for the
Company. Approval by the shareholders of the Fund is effective whether or not
sufficient votes are received from the shareholders of the

18
<PAGE> 118
Company's other investment portfolios to approve the proposal as to those
investment portfolios. As used in the Prospectus and in this Statement of
Additional Information, 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 Company
as a whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. The
Company may dispense with annual meetings of shareholders in any year in which
it is not required to elect Directors under the Act.

Each share of the Fund represents an equal proportional interest
in the Fund with each other share 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 Directors. In the event of the
liquidation or dissolution of the Company, shareholders of the Fund are
entitled to receive the assets attributable to 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 Directors in their sole discretion may
determine.

Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.

The Trust is a business trust organized under the laws of
Delaware. In accordance with Delaware law and in connection with the tax
treatment sought by the Trust, the Trust's Declaration of Trust provides that
its investors would be personally responsible for Trust liabilities and
obligations, but only to the extent the Trust property is insufficient to
satisfy such liabilities and obligations. The Declaration of Trust also
provides that the Trust shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Trust, its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities, and that investors will be indemnified to
the extent they are held liable for a disproportionate share of Trust
obligations. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Trust itself was unable to meet its obligations.

The Declaration of Trust further provides that obligations of the
Trust are not binding upon the Trustees individually but only upon the property
of the Trust and that the Trustees will not be liable for any action or failure
to act, but nothing in the Declaration of Trust protects a Trustee against any
liability to which the Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the Trustee's office.

The interests in the CIT Master Portfolio have substantially
identical voting and other rights as those rights enumerated above for Fund
shares. The CIT Master Portfolio also intends

19
<PAGE> 119
to dispense with annual meetings, but is required by Section 16(c) of the Act
to hold a special meeting and assist investor communications under the
circumstances described above with respect to the Company. Whenever the Fund is
requested to vote on a matter with respect to the CIT Master Portfolio, the
Fund will hold a meeting of Fund shareholders and will cast its votes as
instructed by such shareholders.

In a situation where the Fund does not receive instruction from
certain of its shareholders on how to vote the corresponding shares of the CIT
Master Portfolio, the Fund will vote such shares in the same proportion as the
shares for which the Fund does receive voting instructions.

As of December 31, 1995, no shareholders were known by the Company
to own 5% or more of the Fund's outstanding shares.

OTHER

The Registration Statement of the Trust and the Company, including
the Fund's Prospectus, the SAI and the exhibits filed therewith, may be
examined at the office of the Commission in Washington, D.C. Statements
contained in the Fund's 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 these Registration
Statements, each such statement being qualified in all respects by such
reference.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and the Trust. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain Securities and Exchange Commission filings. KPMG Peat
Marwick LLP's address is Three Embarcadero Center, San Francisco, California
94111.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and
independent auditors' report for the Fund and CIT Master Portfolio for the year
ended December 31, 1995, are hereby incorporated into this SAI by reference to
Amendment No. 8 to the registration statement of Master Investment Trust (SEC
File No. 811-6415), as filed on Form N-1A with the SEC on March 21, 1996. The
portfolio of investments, audited

20
<PAGE> 120
financial statements and independent auditors' reports are attached to all SAIs
delivered to shareholders or prospective shareholders.

21
<PAGE> 121
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 two highest ratings for corporate bonds are "Aaa" and
"Aa." 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. Moody's applies numerical
modifiers: 1, 2 and 3 in the "Aa" category 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 two highest ratings for corporate bonds are "AAA" and
"AA." 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." The ratings in the
"AA" category 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 corporate commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations."

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> 122
OVERLAND EXPRESS FUNDS, INC.

Telephone: 1-800-552-9612

STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996

SHORT-TERM MUNICIPAL INCOME FUND
SHORT-TERM GOVERNMENT-CORPORATE INCOME FUND

-------------------------------

Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about two of the Company's portfolios -- the Short-Term Municipal
Income Fund and the Short-Term Government-Corporate Income Fund (the "Funds").
The investment objective of each Fund is described in its Prospectus under
"Investment Objectives and Policies." Each Fund seeks to achieve its investment
objective by investing all of its assets in a separate Master Portfolio (each,
a "Master Portfolio" and collectively, the "Master Portfolios") of Master
Investment Trust (the "Trust") with the same investment objective as the Fund
bearing the corresponding name. Each Fund may withdraw its investment in the
corresponding Master Portfolio at any time, if the Board of Directors of the
Company determines that such action is in the best interests of the Fund and
its shareholders. Upon such withdrawal, the Company's Board would consider
alternative investments, including investing all of a Fund's assets in another
investment company with the same investment objective as the Fund or hiring an
investment adviser to manage the Fund's assets in accordance with the
investment policies and restrictions described in the Prospectus and below with
respect to the Trust.

This SAI is not a prospectus and should be read in conjunction
with the Funds' Prospectus, dated May 1, 1996. All terms used in this SAI that
are defined in the Prospectus have the meanings as assigned in the Prospectus.
A copy of the Prospectus may be obtained without charge by writing Stephens
Inc., the Company's sponsor, administrator and distributor, at 111 Center
Street, Little Rock, Arkansas 72201, or calling the Transfer Agent at the
telephone number indicated above.
-------------------------------

1
<PAGE> 123
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Information About Permitted Investment Activities . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 124
INVESTMENT RESTRICTIONS

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies."

The Funds and the Master Portfolios are subject to the following
investment restrictions, all of which are fundamental policies. These
restrictions cannot be changed, as to a Fund or a Master Portfolio, without
approval by the holders of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Fund or such Master Portfolio, as the
case may be. Whenever a Fund is requested to vote on a fundamental policy of
the Master Portfolio in which it invests, such Fund will hold a meeting of Fund
shareholders and will cast its votes as instructed by such Fund's shareholders.

Neither the Funds nor the Master Portfolios may:

(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 or a Master Portfolio's
investments in that industry would exceed 25% of the current value of the
Fund's or the Master Portfolio's total assets, provided that there is no
limitation with respect to: (1) investments in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; and (2) municipal
securities (for the purpose of this restriction, private activity bonds and
notes shall not be deemed municipal securities if the payment of principal and
interest on such bonds or notes is the ultimate responsibility of
non-governmental issuers); and provided further that there is no limitation
with respect to investments by the Fund in securities issued by registered
investment companies.

(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein), commodities or commodity
contracts, or interests in oil, gas, or other mineral exploration or
development programs.

(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities.

(4) 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 or a Master Portfolio's investment
program may be deemed to be an underwriting.

(5) make investments for the purpose of exercising control or
management.

(6) purchase puts, calls, straddles, spreads, or any
combination thereof, except that a Fund or a Master Portfolio may purchase
securities with put rights in order to maintain liquidity.

3
<PAGE> 125
(7) issue senior securities, except that a Fund or a Master
Portfolio may borrow from banks up to 10% of the current value of its net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 10% of the current value of
its net assets (but investments may not be purchased by the Fund or the Master
Portfolio while any such outstanding borrowing in excess of 5% of its net
assets exists).

(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, with respect to 75% of the total assets, more than 5% of the value
of a Fund's or a Master Portfolio's total assets would be invested in the
securities of any one issuer or the Fund or the Master Portfolio would own more
than 10% of the outstanding voting securities of such issuer.

(9) lend their portfolio securities having a value that exceeds
50% of the current value of their total assets, provided that, for purposes of
this restriction, the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering will not be subject to this restriction. The Funds and the
Master Portfolios do not intend to make loans of their portfolio securities
during the coming year.

The Funds and the Master Portfolios are subject to the following
non-fundamental policies. These restrictions may be changed by vote of a
majority of the Directors of the Company or the Trustees of the Trust, as the
case may be, at any time.

Neither the Funds nor the Master Portfolios may:

(1) invest more than 5% of their net assets at the time of
purchase in warrants, or more than 2% of their net assets in warrants which are
not listed on the New York or American Stock Exchange.

(2) purchase or retain securities of any issuer if the
officers, directors or trustees of the Company, the Trust or the Investment
Adviser owning beneficially more than one-half of one percent (0.5%) of the
securities of the issuer together own beneficially more than 5% of such
securities.

(3) invest in securities of issuers who, with their
predecessors, have been in existence less than three years, unless the
securities are guaranteed or insured by the U.S. Government, or a state or
municipality, or an agency or instrumentality thereof, if, by reason thereof,
the value of a Fund's or a Master Portfolio's aggregate investment in such
securities will exceed 5% of its total assets.

(4) write, purchase or sell options.

(5) invest more than 15% of the current value of their net
assets in repurchase agreements maturing in more than seven days, fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days and other illiquid securities.

4
<PAGE> 126
(6) purchase, hold or deal in real estate limited partnerships.

(7) engage in any short sales other than short sales against the box.

ADDITIONAL INFORMATION ABOUT
PERMITTED INVESTMENT ACTIVITIES

The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Investment Objectives
and Policies" and "Additional Information About Permitted Investment
Activities."

When-Issued Securities. The Master Portfolios may purchase
securities on a when-issued basis, in which case delivery and payment normally
take place within 120 days after the date of the commitment to purchase.
However, the Short-Term Government-Corporate Income Master Portfolio does not
intend to invest more than 5% of its net assets in when-issued securities
during the coming year. The Master Portfolio makes commitments to purchase
securities on a when- issued basis only with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation, and
no income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery.

The Master Portfolios have established segregated accounts in
which each Master Portfolio maintains liquid assets in an amount at least equal
in value to each Master Portfolio's commitments to purchase when-issued
securities. If the value of these assets declines, the Master Portfolios 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.

Municipal Bonds. As discussed in the Prospectus, the two principal
classifications of municipal bonds in which the Short-Term Municipal Income
Master Portfolio may invest 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 public 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,

5
<PAGE> 127
wherein a specially created district or project area levies a tax (generally on
its taxable property) to 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. Subject to its investment
objective and policies, the Master Portfolio is not limited with respect to
which category of municipal bond it may acquire. Some or all of these bonds may
be considered "private activity bonds" for federal income tax purposes.

Municipal Notes. The Short-Term Municipal Income Master Portfolio
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.

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 will also
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
value of outstanding securities, including those held by the Short-Term
Municipal Income Master Portfolio, will generally decline and (if purchased at
par value) will sell at a discount. If interest rates fall, the values of
outstanding securities will generally increase and (if purchased at par value)
will sell at a premium. Changes in the value of municipal securities held by
the Master Portfolio arising from these or other factors will cause changes in
the net asset value per share of the Portfolio.

Unrated Investments. Each Fund may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank as Investment Adviser, such
obligations are of

6
<PAGE> 128
comparable quality to other high-quality investments that are permitted to be
purchased by such Fund. After purchase by any of the Funds, a security may
cease to be rated or its rating may be reduced below the minimum required for
purchase by such Fund. Neither event requires an immediate 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 systems,
the Funds will attempt to use comparable ratings as standards for investments
in accordance with the investment policies contained in their Prospectuses and
in this SAI. The ratings of Moody's and S&P are more fully described in the
Appendix to this SAI.

MANAGEMENT

*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens ; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
</TABLE>

7
<PAGE> 129
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- --------------------
<S> <C> <C>
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.

*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

8
<PAGE> 130
COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1995

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director

*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes 9,438 37,000
Director

Robert M. Joses 9,938 39,000
Director

*J. Tucker Morse 8,313 33,250
Director
</TABLE>

As of the date of this SAI, Directors and officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.

9
<PAGE> 131
Investment Adviser. The Funds have not engaged an investment
adviser. The Master Portfolios are advised by Wells Fargo Bank. The Advisory
Contract for each Master Portfolio provides that Wells Fargo Bank shall furnish
to the Master Portfolio investment guidance and policy direction in connection
with the daily portfolio management of the Master Portfolio. Pursuant to the
Advisory Contracts, Wells Fargo Bank furnishes to the Board of Trustees of the
Trust periodic reports on the investment strategy and performance of the Master
Portfolios.

Wells Fargo Bank has agreed to provide to the Master Portfolios,
among other things, money market and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the investments of the Master Portfolios. Each Fund, and
indirectly each Fund's shareholders, would bear a pro rata portion of any
advisory fees paid by its corresponding Master Portfolio, respectively.

Each 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 Master Portfolio'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 Contracts or
"interested persons" (as defined in the 1940 Act) of any such party. The
Advisory Contracts may be terminated on 60 days' written notice by either party
and will terminate automatically if assigned.

For the years ended December 31, 1994 and 1995, the Master
Portfolios paid to Wells Fargo Bank the following advisory fees and Wells Fargo
Bank waived the indicated amounts:

<TABLE>
<CAPTION>
1994* 1995
----- ----
MASTER PORTFOLIO FEES PAID FEES WAIVED FEES PAID FEES WAIVED
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Municipal Income $ 0 $7,879 $ 0 $62,512
Short-Term Government-Corporate Income $ 0 $131 $ 0 $11,944
</TABLE>

_________________
*The Short-Term Municipal Income and Short-Term Government-Corporate Income
Master Portfolios commenced operations on June 3, 1994 and September 19, 1994,
respectively.

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Funds. In addition, the Trust
has retained Stephens as administrator on behalf of the Master Portfolios.
Under the respective Administration Agreements with the

10
<PAGE> 132
Company and the Trust, Stephens, in connection therewith, furnishes the Company
and the Trust with office facilities, together with those ordinary clerical and
bookkeeping services that are not being furnished by Wells Fargo Bank.
Stephens also pays the compensation of the Company's Directors, officers and
employees who are affiliated with Stephens.

For the years ended December 31, 1994 and 1995, the Funds paid
administrative fees to Stephens as follows:

<TABLE>
<CAPTION>
FUND 1994* 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Municipal Income Fund $2,497 $19,436
Short-Term Government-Corporate $39 $3,560
Income Fund
</TABLE>

____________________
*The Short-Term Municipal Income Fund and the Short-Term Government-Corporate
Income Fund commenced operations on June 3, 1994 and September 19, 1994,
respectively.

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as Custodian and Transfer and Dividend Disbursing
Agent for the Funds and the Master Portfolios. The Custodian, among other
things, maintains a custody account or accounts in the name of each Fund and
each Master Portfolio, receives and delivers all assets for each Fund and each
Master Portfolio 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 each Master Portfolio, and pays all expenses of each Fund and
each Master Portfolio. For its services as Custodian, Wells Fargo Bank receives
an asset-based fee and transaction charges from each Master Portfolio; and for
its services as transfer and dividend disbursing agent, Wells Fargo Bank
receives a base fee and per-account fees from each Fund. For the year ended
December 31, 1995, the Funds did not pay any custody or transfer and dividend
disbursing agency fees.

For the year ended December 31, 1994, the aggregate dollar amount
of underwriting commissions paid to Stephens was $1,408,759 and Stephens
retained

11
<PAGE> 133
$1,351,388 of such commissions. WFSI and its registered representatives
received $57,371 of such commissions.

For the year ended December 31, 1995, the aggregate dollar amount of
underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares was $1,478,541. Stephens retained $1,447,175 of such
commissions. WFSI and its registered representatives retained $31,366 of such
commissions.

DISTRIBUTION PLANS

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Distribution Plans."

As indicated in the Prospectus of the Funds, each Fund has adopted
a Plan under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule"). A Plan for each Fund was adopted on April 27, 1994, by the Board of
Directors, including a majority of the Directors 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 Plans (the "Qualified Directors").

Under the Plans and pursuant to the Distribution Agreement, the
Funds may pay the Distributor, as compensation for distribution-related
services, monthly fees at annual rates of up to 0.25% of the average daily net
assets of each Fund. The actual fee payable to the Distributor is determined,
within such limit, from time to time by mutual agreement between the Company
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 NASD Rules of Fair Practice. The Distributor may enter
into selling agreements with one or more selling agents 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 a Fund's shares
attributable to them. 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.

Each of the Plans will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Qualified Directors. Any Distribution Agreement related to the
Plans also must be approved by such vote of the Directors and the Qualified
Directors. The Distribution Agreement terminates 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 involved. 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
Fund involved, and no material amendments to the

12
<PAGE> 134
Plans may be made except by a majority of both the Directors of the Company and
the Qualified Directors.

Each of the Plans requires that the Treasurer of the Company shall
provide to the Directors, and the Directors shall review, at least quarterly, a
written report of the amounts expended (and purposes therefor) under the Plans.
The Rule also requires that the selection and nomination of Directors who are
not "interested persons" of the Company be made by such disinterested
Directors.

For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.

<TABLE>
<CAPTION>
PRINTING & MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Government Corporate
Income $5,933 N/A N/A $5,933

Short-Term Municipal Income
$32,393 N/A N/A $32,393
</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives did not receive any compensation under each Fund's Plans.

CALCULATION OF YIELD AND TOTAL RETURN

The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Determination of Net
Asset Value" and "Performance Data."

As indicated in the Funds' Prospectus, the Funds may advertise
certain total return information computed in the manner described in the
Prospectus. 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 in a
Fund ("P") over a period of years ("n") according to the following formula:
P(1+T)n = ERV. In addition, as indicated in the Prospectus, the Funds also may
at times, calculate total return based on net asset value per share (rather
than the public offering price), in which case the figures would not reflect
the effect of any sales charges that would have been paid by an investor, or
might be based on the assumption that a sales charge other than the maximum
sales charge (reflecting a Volume Discount) was assessed, provided that total
return data derived pursuant to the calculation described above also are
presented.

13
<PAGE> 135
In addition to the above performance information, the Funds may
also advertise the cumulative total return of a Fund for one-month,
three-month, six-month, and year-to-date periods. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a 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.

The average annual total return on shares of the Short-Term
Municipal Income Fund for the period since inception (June 3, 1994) to December
31, 1995, assuming payment of the maximum 3.00% sales load and no sales load,
was 1.98% and 3.90%, respectively. The average annual total return for the year
ended December 31, 1995, assuming a 3.00% sales load was 2.96%, and no sales
load was 6.10%.

The average annual total return on shares of the Short-Term
Government-Corporate Income Fund for the period since inception (September 19,
1994) to December 31, 1995, assuming payment of the maximum 3.00% sales load
and no sales load, was 4.00% and 6.41%, respectively. The average annual total
return for the year ended December 31, 1995, assuming a payment of a 3.00%
sales load was 4.86%, and no sales load, was 8.05%.

As indicated in the Funds' Prospectus, the Funds may also
advertise certain yield information. As and to the extent required by the SEC,
yield for each Fund's shares is calculated based on a 30-day (or one-month)
period, computed by dividing the net investment income per share earned during
the period by the maximum offering price per share of the Fund on the last day
of the period, according to the following formula: YIELD = 2[((a-b:-cd)+1)6-1],
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 the Fund outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per share of the Fund on the last
day of the period. The net investment income of a Fund includes actual interest
income, plus or minus amortized purchase discount (which may include original
issue discount) or premium, less accrued expenses. Realized and unrealized
gains and losses on portfolio securities are not included in net investment
income. For purposes of sales literature, yield also may be calculated on the
basis of the net asset value per share rather than the public offering price,
or based on the assumption that a sales charge other than the maximum sales
charge (reflecting a Volume Discount) was assessed, provided that the yield
data derived pursuant to the calculation described above also are presented.
For the 30 days ended December 31, 1995, the yield on shares of the Short-Term
Municipal Income Fund assuming payment of the maximum 3.00% sales load, was
2.43%, and no sales load, was 3.66%. Similarly, for the 30 days ended December
31, 1995 the yield on shares of the Short-Term Government- Corporate Income
Fund assuming payment of the maximum 3.00% sales load, was 2.66%, and no sales
load, was 4.96%.

The tax-equivalent yield for the Short-Term Municipal Income Fund
is computed by dividing that portion of the yield which is tax-exempt by one
minus a stated income tax rate and

14
<PAGE> 136
adding the product to that portion, if any, of the yield of the Fund that is
not tax-exempt. This yield figure may not reflect the applicability of the
alternative minimum tax. For the 30 days ended December 31, 1995, the
tax-equivalent yield for the Short-Term Municipal Income Fund, assuming the
1995 maximum combined federal and California personal income tax rate of 42.40%
and payment of the maximum sales load of 3.00%, was 6.35%, and assuming the
same tax rate and no sales load, was 6.55%.

The yield for the Funds' shares will fluctuate from time to time,
unlike fixed-rate bank deposits or other investments that pay a fixed yield for
a stated period of time. Past yields are based on historical data and do not
provide a basis for determining future yields, since yield is a function of
portfolio quality, composition, maturity and market conditions as well as the
expenses allocated to the Funds.

In addition, investors should recognize that changes in the net
asset values of shares of the Funds will affect the yield of the Funds' shares
for any specified period, and such changes should be considered together with
the Funds' yield in ascertaining the Funds' total return to shareholders for
the period. Yield information for the Funds' shares may be useful in reviewing
the performance of the Funds' shares and for providing a basis for comparison
with investment alternatives. The yield of the Funds' 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 the Funds, the Company may quote the performance or
price-earning ratio of the Funds' shares in advertising and other types of
literature as compared to the performance of the Lehman Brothers Municipal Bond
Index, 1-Year Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average,
the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury
Index, IBC/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), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, 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 also may be compared
to those 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 performance of the Funds is

15
<PAGE> 137
calculated by relating net asset value per share at the beginning of a stated
period to the net asset value of the investment at the end of the period,
assuming reinvestment of all capital gain distributions and dividends paid at
net asset value. Any such comparisons may be useful to investors who wish to
compare the past performance of the Funds with that of their competitors. Of
course, past performance cannot be a guarantee of future results. The Company
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.

In addition, the Company 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
Company 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 Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for the Funds: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in the Funds; (ii)
other government statistics, including, but not limited to, The Survey of
Current Business, may be used to illustrate investment attributes of the Funds
or the general economic, business, investment, or financial environment in
which the Funds operate; (iii) the effect of tax-deferred compounding on the
investment returns of the Funds 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 Funds (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends at net asset value and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which the
Funds invest 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 the Funds with respect to the particular industry or sector.

The Company also may discuss in advertising and other types of
literature that the Funds have been assigned a rating by an NRSRO, such as S&P
or Moody's. Such rating would assess the creditworthiness of the investments
held by the Funds. The assigned rating would not be a recommendation to
purchase, sell or hold the Funds' shares since the rating would not comment on
the market price of the Funds' shares or the suitability of the Funds 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 Funds or their investments. The Company may
compare the performance of the Funds with other investments that are assigned
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Funds' past performance with other rated investments.

16
<PAGE> 138
The Company also may disclose in advertising and other types of
literature, information and statements that the Company's investment adviser,
Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the 1994 edition of "America's Best Money
Managers." The Nelson survey ranks the performance of money managers in over 30
asset/style categories and is based on analysis of performance composites and
surveys of institutional money managers. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser.

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 Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach 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
Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by its investment adviser
or sub-adviser and the total amount of assets under management by Wells Fargo
Investment Management Group ("IMG"). As of December 31, 1995, IMG had $30.1
billion in assets under management. The Company may disclose in advertising,
statements and other literature the amount of assets and mutual fund assets
managed by Wells Fargo Bank. As of April 1, 1996, Wells Fargo Bank and its
affiliates provided investment advisory services for approximately $56 billion
of assets of individuals, trusts, estates and institutions and $17 billion of
mutual fund assets.

The Company may disclose in sales literature, information and
statements the distribution rate on the Fund's shares. 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.

The Company also may disclose in advertising and other types of
literature, information and statements, the average credit quality of each
Fund's portfolio or categories of investments therein, as of a specified date
or period. Average credit quality is calculated on a dollar weighted average
basis based on ratings assigned each issue or issuer, as the case may be, by
S&P and/or Moody's. In the event one rating agency does not rate the issue or
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.

17
<PAGE> 139
DETERMINATION OF NET ASSET VALUE

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Purchase of Shares."

Net asset value per share for each Fund and net asset value per
unit of the Master Portfolio is determined by Wells Fargo Bank on each day the
Exchange is open for trading.

Securities of the Master Portfolios for which market quotations
are available are valued at latest prices. In the absence of any sale of such
securities on the valuation date and in the case of other securities, including
U.S. Government securities but excluding debt instruments maturing in 60 days
or less, the valuations are based on latest quoted bid prices. Debt instruments
maturing in 60 days or less are valued at amortized cost. In all cases, bid
prices will 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 the Master Portfolios for which current market quotations are
not readily available are valued at fair value as determined in good faith by
the Trust's Trustees and in accordance with procedures adopted by the Trustees.

Expenses and fees, including advisory fees, are accrued daily and
are taken into account for the purpose of determining the net asset value of
each Master Portfolio's shares.

PORTFOLIO TRANSACTIONS

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies."

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 the Master Portfolios' portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Company 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 Master
Portfolios will not necessarily be paying the lowest spread or commission
available.

Purchases and sales of securities by the Master Portfolios are
usually principal transactions. Portfolio securities normally are purchased or
sold from or to dealers serving as market makers for the securities at a net
price. The Master Portfolios also may purchase portfolio securities in
underwritten offerings and may purchase securities directly from the issuer.
The cost of executing the Master Portfolios' portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Trust are

18
<PAGE> 140
prohibited from dealing with the Trust as a principal in the purchase and sale
of securities unless an exemptive order or other relief allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Master Portfolios 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 Adviser of the Master
Portfolios, may, in circumstances in which two or more brokers are in a
position to offer comparable results for a Master Portfolio's portfolio
transaction, give preference to a broker 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 is 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
are not necessarily 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 the Master
Portfolios 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 Master Portfolios.

Brokerage Commissions. For the year ended December 31, 1995,
neither the Funds nor the Master Portfolios paid any Brokerage Commissions.

Securities of Regular Broker Dealers. As of December 31, 1995,
only the Short-Term Government-Corporate Income Master Portfolio owned
securities of its "regular brokers or dealers" or their parents as defined in
the 1940 Act: $93,000 of Goldman Sachs Pooled Repurchase Agreements.

Portfolio Turnover. For the year ended December 31, 1995, the
portfolio turnover rates were 227% and 46%, respectively, for the Short-Term
Government-Corporate Income Master Portfolio and the Short-Term Municipal
Income Master Portfolio. Portfolio turnover generally involves some expense to
a Master Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. A high portfolio turnover rate should not result in the Master
Portfolios paying substantially more brokerage commissions, since most
transactions in government securities and municipal securities are effected on
a principal basis. Portfolio turnover also can generate short-term capital
gains tax consequences. The portfolio turnover rate will not be a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate.

FEDERAL INCOME TAXES

The following information supplements and should be read in
conjunction with the sections in the Prospectus entitled "Dividends and
Distributions" and "Taxes."

19
<PAGE> 141
The Prospectus of the Funds describes generally the tax treatment
of distributions by the Funds and the Master Portfolios. This section of the
SAI includes additional information concerning federal income taxes.

Qualification of each Fund as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code") requires, among
other things, that (a) at least 90% of the Fund's annual gross income be
derived from interest, payments with respect to securities loans, dividends and
gains from the sale or other disposition of securities or options thereon; (b)
the Fund derives less than 30% of its gross income from gains from the sale or
other disposition of securities or options thereon held for less than three
months; and (c) the Fund diversifies 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 the Fund's assets is invested in the
securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies), or of two or more issuers
which the Fund controls and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses. For purposes of
complying with these qualification requirements, each Fund will "look-through"
to its corresponding Master Portfolio's investments. As a regulated investment
company, each Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that it distributes to its shareholders at least 90% of the sum of its
net investment company taxable income and net tax-exempt income earned in each
year.

A 4% nondeductible excise tax will be imposed on a Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. Each Fund will either 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.

Although dividends will be declared daily based on each day's
earnings, for federal income tax purposes, each 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 dividends. Thus, if during a
taxable year the Fund's declared dividends (as declared daily throughout the
year) exceed the Fund's net income (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 dividend. It is expected that each
Fund's net income, on an annual basis, will equal the dividends declared during
the year.

Gains or losses on sales of portfolio securities by the Master
Portfolios will generally be long-term capital gains or losses. Market discount
earned on tax-exempt obligations, however, will not qualify as tax-exempt
income. Other gains or losses on the sale of securities will be short-term
capital gains or losses. To the extent that a Master Portfolio, and thereby its
corresponding Fund, recognizes long-term capital gains, such gains will be
distributed at

20
<PAGE> 142
least annually by the Fund. Such distributions will be taxable to shareholders
as long-term capital gains, 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 shareholders not later than 60 days
after the close of the Fund's taxable year.

If a shareholder receives designated capital gain distributions
(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
gains distribution thereon. In addition, any loss realized by a shareholder
upon the sale or redemption of Fund shares held less than six months is
disallowed to the extent of any tax-exempt interest dividends received by the
shareholder thereon. These rules shall not apply, however, to losses incurred
under a periodic redemption plan.

As of the date of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60%; (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions) the
maximum individual tax rate applicable to net capital gains is 28.00%; and the
maximum corporate tax rate applicable to ordinary income and net capital gains
is 35.00% (however, to eliminate the benefit of lower marginal corporate income
tax rates, corporations which have taxable income in excess of $100,000 for a
taxable year will be required to pay an additional amount of income tax of up
to $11,750 and corporations which have taxable income in excess of $15,000,000
for a taxable year will be required to pay an additional amount of income tax
of up to $100,000).

Also, any loss realized on a redemption or exchange of shares of a
Fund will be disallowed to the extent shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.

The amount of any gain or loss realized by the Fund on closing out
a futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each calendar year will be
required to be "marked to market" for federal income tax purposes. 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 be
treated as long-term capital gain or loss, and the remainder will be treated as
short-term capital gain or loss.

21
<PAGE> 143
If, in the opinion of each Fund, ownership of its shares has or
may become concentrated to an extent that could cause the Fund to be deemed a
personal holding company within the meaning of the Code, the Fund may require
the redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.

Short-Term Municipal Income Fund. The percentage of total
dividends paid by this Fund with respect to any taxable year which qualify for
exclusion from gross income ("exempt-interest dividends") will be the same for
all shareholders receiving dividends within such year. In order for this Fund
to pay exempt-interest dividends during any taxable year, at the close of each
fiscal quarter at least 50% of the aggregate value of the Fund's assets must
consist of tax-exempt obligations. 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. It is anticipated that the Fund will meet this requirement
with respect to each fiscal quarter.

The Fund will notify each shareholder in writing within 60 days of
the end of each calendar year of the portion of the dividends paid with respect
to such year that constitutes exempt-interest dividends. The aggregate amount
of dividends so designated cannot, however, 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 and
other expenses incurred by a shareholder to purchase or carry Fund shares is
not deductible for income tax purposes to the extent the shareholder receives
exempt- interest dividends during his or her taxable year. Exempt-interest
dividends will be tax-exempt for purposes of federal income tax.

In addition, the IRS has devised federal alternative minimum tax
("AMT") rules to 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 exempt-interest from
"private activity bonds," issued after August 7, 1986. To the extent that the
Fund invests in private activity bonds, shareholders who pay AMT will be
required to report that portion of Fund dividends attributed 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 the Funds. 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 the Fund. With respect to corporate shareholders of
the Fund, exempt-interest dividends paid by the Fund are 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 minimum
rate of 28.00% and corporations at a maximum rate of 20.00%. Shareholders with
questions or concerns about AMT should consult their tax advisors.

22
<PAGE> 144
Foreign Shareholders. Under the Code, distributions of net
investment income by the Funds to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year.

Other Matters. Investors should be aware that the investments to
be made by the Master Portfolios may involve sophisticated tax rules such as
the original issue discount rules that would result in income or gain
recognition by the Master Portfolios without corresponding current cash
receipts. Although the Master Portfolios will seek to avoid significant noncash
income, such noncash income could be recognized by a Master Portfolio, in which
case the Master Portfolio may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.

Shares of the Short-Term Municipal Income Fund may not be suitable
for tax-exempt institutions, retirement plans qualified under Section 401 of
the Code, H.R. 10 plans, and IRAs since such institutions, plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from this Fund.

CAPITAL STOCK

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Organization and
Capital Stock."

The Funds have only one class of shares, but other of the
Company's portfolios are comprised of two or more classes of shares. 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, on any
matter submitted to a vote of shareholders, all shares then entitled to vote
will be voted separately by portfolio of the Company unless otherwise required
by the 1940 Act, in which case all shares will be voted in the aggregate. For
example, a change in one of the Funds' fundamental investment policies would be
voted upon only by shareholders of such Fund and not by shareholders of the
Company's other investment portfolios. Additionally, approval of an advisory
contract is a matter to be determined separately by portfolio. Approval by the
shareholders of one portfolio is effective as to that portfolio whether or not
sufficient votes are received from the shareholders of the other portfolios to
approve the proposal as to those portfolios. As used in the Prospectus and in
this SAI, the term "majority," when referring to approvals to be obtained from
shareholders of a 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

23
<PAGE> 145
outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held. The Company may dispense with
annual meetings 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 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 Directors. In the event of the liquidation or dissolution of
the Company, shareholders of a Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to the Fund or a portfolio
that are available for distribution in such manner and on such basis as the
Directors in their sole discretion may determine.

Shares have no preemptive rights. All shares, when issued in
accord with the prospectus and for the consideration described therein, will be
fully paid and non-assessable by the Company.

The interests in the Master Portfolios have substantially
identical voting and other rights as those rights enumerated above for Fund
shares. The Trust also intends to dispense with annual meetings, but will hold
a special meeting and assist investor communications under the circumstances
described above with respect to the Company in accord with provisions under
Section 16(c) of the Act. Whenever a Fund is requested to vote on a matter with
respect to a

24
<PAGE> 146
Master Portfolio, the Fund will hold a meeting of Fund shareholders and will
cast its votes as instructed by such shareholders.

In a situation where a Fund does not receive instruction from
certain of its shareholders on how to vote the corresponding shares of a Master
Portfolio, the Fund will vote such shares in the same proportion as the shares
for which the Fund does receive voting instructions.

As of February 29, 1996, the shareholders identified below were
known by the Company to own 5% or more of the outstanding shares of the
Short-Term Municipal Income Fund or the Short-Term Government-Corporate Income
Fund in the following capacities:

<TABLE>
<CAPTION>
PERCENTAGE OF CAPACITY
NAME OF FUND NAME AND ADDRESS OF SHAREHOLDER FUND OWNED
- ------------ ------------------------------- ----- -----
<S> <C> <C> <C>
Short-Term Municipal Income Fund Wells Fargo Bank Agent FBO 5.38% Record
Alma Properties
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO 5.37% Record
Moore Trust
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO 11.78% Record
Symons
201 3rd Street, 11th Floor
San Francisco, CA 94163

Richard M. Jacobsen & 7.66% Record
Susan P. Jacobsen TTEES
Richard & Susan Jacobsen Family TR
3201 Ash Street
Palo Alto, CA 94306

Herman & Raymond Christensen 27.74% Beneficial
801 American Street
San Carlos, CA 94070

JJ & W 14.04% Beneficial
P.O. Box 5807
Redwood City, CA 94063
</TABLE>

25
<PAGE> 147
<TABLE>
<CAPTION>
PERCENTAGE OF CAPACITY
NAME OF FUND NAME AND ADDRESS OF SHAREHOLDER FUND OWNED
- ------------ ------------------------------- ----- -----
<S> <C> <C> <C>
Short-Term Government-Corporate Wells Fargo Bank Agent for Advanced Medical 9.65% Beneficial
Income Fund 201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent for 6.72% Beneficial
Oxnard Skating
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent for 11.75% Beneficial
Hiller Museum
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO 11.11% Beneficial
Victoria Partnership
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO Xeruco 29.00% Beneficial
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO 5.75% Beneficial
Table Mountain
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO 7.27% Beneficial
Aids Emergency Fund
201 3rd Street, 11th Floor
San Francisco, CA 94163

Wells Fargo Bank Agent FBO Interlink 5.68% Beneficial
201 3rd Street, 11th Floor
San Francisco, CA 94163
</TABLE>

26
<PAGE> 148
OTHER

The Registration Statements of the Trust and the Company,
including the Funds' Prospectus, the SAI and the exhibits filed therewith, may
be examined at the office of the SEC 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.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company and the Trust. KPMG Peat Marwick LLP provides audit
services, tax return preparation and assistance and consultation in connection
with review of certain SEC filings. KPMG Peat Marwick LLP's address is Three
Embarcadero Center, San Francisco, California 94111.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and
independent auditors' report for the Funds and Master Portfolios for the year
ended December 31, 1995 are hereby incorporated into this SAI by reference to
Amendment No. 8 to the Registration Statement of Master Investment Trust (SEC
File No. 811-6415), as filed on Form N-1A with the SEC on March 21, 1996. The
portfolio of investments, audited financial statements and independent
auditors' report for the Funds are attached to all SAIs delivered to
shareholders or prospective shareholders.

27
<PAGE> 149
APPENDIX

The following is a description of the ratings given by Moody's and
S&P to corporate bonds, municipal securities 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.

Commercial Paper/Municipal Securities

Moody's: The highest rating for 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 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> 150
OVERLAND EXPRESS FUNDS, INC.

Telephone: 1-800-552-9612

STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1996

VARIABLE RATE GOVERNMENT FUND

-----------------------------

Overland Express Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's portfolios -- the Variable Rate
Government Fund (the "Fund"). The Variable Rate Government Fund offers two
classes of shares -- Class A Shares and Class D Shares. This SAI relates to
both such classes of shares of the Fund. The investment objective of the Fund
is described in its Prospectus under "Investment Objective and Policies."

This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus dated May 1, 1996. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus may be obtained without charge by writing
Stephens Inc., the Company's sponsor, administrator and distributor, at 111
Center Street, Little Rock, Arkansas 72201, or calling the Transfer Agent at
the telephone number indicated above.
-----------------------------

1
<PAGE> 151
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . . 5
Investment by Federal Credit Unions in the Fund . . . . . . . . . . . . . . . . . 6
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . 16
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

2
<PAGE> 152
INVESTMENT RESTRICTIONS

The Fund is subject to the following investment restrictions, all
of which are fundamental policies:

The Fund may not:

(2) purchase or sell real estate (other than securities secured
by real estate or interests therein or securities issued by companies that
invest in real estate or interests therein), commodities or commodity contracts
or interests, in oil, gas, or other mineral exploration or development
programs;

(3) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make short sales of
securities;

(5) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days, restricted
securities, which are securities that must be registered under the Securities
Act of 1933 (the "1933 Act") before they may be offered or sold to the public,
and illiquid securities;

(6) make investments for the purpose of exercising control or
management;

(7) purchase puts, calls, straddles, spreads, or any
combination thereof, except that the Fund may purchase securities with put
rights in order to maintain liquidity;

(8) issue senior securities, except that the Fund may borrow
from banks up to 10% of the current value of its net assets for temporary
purposes only in order to meet redemptions, and these borrowings may be secured
by the pledge of up to 10% of the current value of its net assets (but
investments may not be purchased by the Fund while any such outstanding
borrowing exists);

(9) invest more than 10% of the current value of its net assets
in fixed time deposits that are subject to withdrawal penalties and that have
maturities of more than seven days;

3
<PAGE> 153
(10) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, with respect to 75% of the total assets of the Fund, more than 5%
of the value of the Fund's total assets would be invested in the securities of
any one issuer or, with respect to 100% of the Fund's total assets, the Fund
would own more than 10% of the outstanding voting securities of such issuer;
and

(11) lend its portfolio securities having a value that exceeds
50% of the current value of its total assets, provided that, for purposes of
this restriction, loans will not include the purchase of fixed time deposits,
repurchase agreements, commercial paper and other types of debt instruments
commonly sold in a public or private offering.

With respect to fundamental investment restriction (5), the Fund
does not intend to invest, during the coming year, in repurchase agreements
maturing in more than seven days, restricted securities, which are securities
that must be registered under the 1933 Act before they may be offered or sold
to the public or illiquid securities. With respect to fundamental investment
restriction (7), the Fund does not intend to purchase, during the coming year,
puts, calls, straddles, spreads, or purchase securities with put rights in
order to maintain liquidity. With respect to fundamental investment restriction
(9), the Fund does not intend to invest, during the coming year, in fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days. With respect to fundamental investment restriction (11),
the Fund does not intend to make loans of its portfolio securities during the
coming year.

The Fund is subject to the following non-fundamental policies:

The Fund may not:

(1) invest in warrants, and not more than 2% of its net assets
in warrants which are not listed on the New York or American Stock Exchange;

(2) purchase or retain securities of any issuer if the officers
or Directors of the Company or its Investment Adviser owning beneficially more
than one-half of one percent (0.5%) of the securities of the issuer together
own beneficially more than 5% of such securities;

(4) write, purchase or sell options; and

(5) purchase or sell real estate limited partnership interests.

In addition, the Fund will not invest in commercial paper or
equity securities.

4
<PAGE> 154
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

When-Issued Securities. The Fund may purchase securities on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. However, the Fund
does not intend to invest more than 5% of its net assets in when-issued
securities during the coming year. The Fund only will make commitments to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities, but may sell them before the settlement date if it is
deemed advisable. When-issued securities are subject to market fluctuation, and
no income accrues to the purchaser during the period prior to issuance. The
purchase price and the interest rate that will be received on debt securities
are fixed at the time the purchaser enters into the commitment. Purchasing a
security on a when-issued basis can involve a risk that the market price at the
time of delivery may be lower than the agreed-upon purchase price, in which
case there could be an unrealized loss at the time of delivery.

The Fund will establish a segregated account in which it will
maintain 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 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.

High-Risk Mortgage Securities. As stated in its Prospectus, the
Fund will not invest in Collateralized Mortgage Obligations ("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 (the "FFIEC Policy Statement"). Under
the FFIEC Policy Statement, a CMO qualifies as a "high-risk mortgage security"
if it meets an Average Life Test, an Average Life Sensitivity Test, or a Price
Sensitivity Test. A CMO meets the Average Life Test if it has an expected
weighted average life greater than 10 years. A CMO meets the Average Life
Sensitivity Test if the expected weighted average life of the CMO either (i)
extends by more than 4 years, assuming an immediate and sustained parallel
shift in the yield curve of plus 300 basis points, or (ii) shortens by more
than 6 years, assuming an immediate and sustained parallel shift in the yield
curve of minus 300 basis points. A CMO meets the Price Sensitivity Test if an
immediate and sustained parallel shift in the yield curve of plus or minus 300
basis points would result in an estimated change in the price of the CMO of
more than 17 percent. Under the FFIEC Policy Statement, a CMO floating- rate
debt class, i.e., a CMO the rate of which adjusts at least annually on a
one-for-one basis with a conventional, widely used market interest rate index
(such as the London Interbank Offered Rate), will not be subject to the Average
Life and Average Life Sensitivity Tests if it bears a rate that is below the
contractual cap on the instrument.

5
<PAGE> 155
INVESTMENT BY FEDERAL CREDIT UNIONS IN THE FUND

The Fund will invest only in investments that are permissible for
federal credit unions under the regulations of the National Credit Union
Administration ("NCUA"). Federal credit unions may invest in CMOs that do
constitute "high-risk mortgage securities" for purposes of the FFIEC Policy
Statement. The Fund will enter into repurchase transactions and cash forward
agreements (i.e., "when-issued" securities) only to the extent permissible for
federal credit unions. Specifically, the Fund will enter into repurchase
transactions only where the purchase price of the security obtained in the
transaction will be at or below the market price and either: (1) the repurchase
transaction will be with another financial institution or (2) the Fund will
take physical possession of the security or receive written confirmation of the
purchase and a custodial or safekeeping receipt from a third party under a
written bailment for hire contract, or be recorded as the owner of the security
through the Federal Reserve Book-Entry System. In addition, the Fund will enter
into a cash forward agreement to purchase a security only where: (1) the period
from the trade date to the settlement date does not exceed 120 days; (2) the
Fund has written cash flow projections evidencing its ability to purchase the
security; and (3) the cash forward agreement is settled on a cash basis at the
settlement date.

MANAGEMENT

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- --------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*R. Greg Feltus, 44 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens Insurance
Services Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
</TABLE>

6
<PAGE> 156
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE POSITION DURING PAST 5 YEARS
- --------------------- -------- --------------------
<S> <C> <C>
Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School of Business and
Accountancy; Associate Professor of
Finance of the School of Business and
Accounting at Wake Forest University
since 1983.

*Zoe Ann Hines, 46 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource Management.

*W. Rodney Hughes, 69 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 77 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901

7
<PAGE> 157
COMPENSATION TABLE
For the Year Ended December 31, 1995

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director

*Zoe Ann Hines 0 0
Director

*W. Rodney Hughes 9,438 37,000
Director

Robert M. Joses 9,938 39,000
Director

*J. Tucker Morse 8,313 33,250
Director
</TABLE>

Directors of the Company are compensated annually by the Company
and by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the Company
serves in the identical capacity as Officers and Directors of Stagecoach Funds,
Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and as Trustees
and/or Officer of Stagecoach Trust, Master Investment Portfolio, Life & Annuity
Trust, Master Investment Trust and Managed Series Investment Trust, each of
which is a registered open-end management investment company and each of which
is considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts. Currently the Directors do not
receive any retirement benefits or deferred compensation from the Company or
any other member of the fund complex.

As of the date of this SAI, Directors and officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.

8
<PAGE> 158
Investment Adviser. The Fund is advised by Wells Fargo Bank. The
Advisory Contract provides that Wells Fargo Bank shall furnish to the Fund
investment guidance and policy direction in connection with the daily portfolio
management of the Fund. Pursuant to the Advisory Contract, Wells Fargo Bank
furnishes to the Board of Directors periodic reports on the investment strategy
and performance of the Fund.

The 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 Fund's outstanding voting securities or by
the Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 1940 Act) of any such party. The Advisory Contract may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned. For the years ended December 31, 1993, 1994, and
1995 the Fund paid Wells Fargo Bank the advisory fees indicated below and Wells
Fargo Bank waived the following amounts:

<TABLE>
<CAPTION>
1993 1994 1995
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$8,468,995 $2,976,838 $6,929,600 $1,622,859 $3,561,101 $554,480
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. In connection with the
Administration Agreement with the Company, Stephens furnishes the Company with
office facilities, together with those ordinary clerical and bookkeeping
services that are not being furnished by Wells Fargo Bank. Stephens also has
entered into a Distribution Agreement with the Company pursuant to which
Stephens has the responsibility of distributing Class A Shares and Class D
Shares of the Fund.

For the years ended December 31, 1993, 1994, and 1995, the Fund's
paid the following amounts in administrative fees to Stephens:

9
<PAGE> 159
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as Custodian and Transfer and Dividend Disbursing
Agent for the Fund. The Custodian, among other things, maintains a custody
account or accounts in the name of the Fund, receives and delivers all assets
for the Fund upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of the
Fund, and pays all expenses of the Fund. For its services as Custodian, Wells
Fargo Bank receives an asset-based fee and transaction charges from the Fund;
and for its services as transfer and dividend disbursing agent, it receives a
base fee and per-account fees from the Fund. For the year ended December 31,
1995, the Fund did not pay Wells Fargo Bank any fees for custodian or transfer
and dividend disbursing agency services.

DISTRIBUTION PLANS

As indicated in the Prospectus, the Fund, on behalf of each of its
classes of shares, has adopted a Plan under Section 12(b) of the 1940 Act and
Rule 12b-1 thereunder (the "Rule").

Under the Plan and pursuant to the Distribution Agreement, the
Fund may pay the Distributor, as compensation for distribution-related
services, monthly fees at an annual rate of up to 0.25% of the average daily
net assets attributable to the Class A Shares of the Fund and up to 0.50% of
the average daily net assets attributable to the Class D Shares of the Fund.
The actual fee payable to the Distributor is determined, within such limits,
from time to time by mutual agreement between the Company 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 NASD Rules of Fair Practice. The Distributor may enter into selling
agreements with one or more selling agents 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 the Fund's shares attributable to them. The
Distributor may retain any portion of the total distribution fee

10
<PAGE> 160
payable thereunder to compensate it for distribution-related services provided
by it or to reimburse it for other distribution-related expenses.

The Plan will continue in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Qualified Directors. Any Distribution Agreement related to the Plan
also must be approved by such vote of the Directors and the Qualified
Directors. 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. 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 Directors of
the Company and the Qualified Directors.

The Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors 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 Directors who are not
"interested persons" of the Company be made by such disinterested Directors.

For the year ended December 31, 1995, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.

<TABLE>
<CAPTION>
PRINTING & MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable Rate Gov't
Class A $2,032,814 N/A N/A $2,032,814
Class D $49,954 N/A N/A $49,954
</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives did not receive any compensation under the Plans.

SERVICING PLAN

As indicated in the Prospectus, the Fund has adopted a Servicing
Plan ("Servicing Plan") with respect to its Class D Shares. Under the Servicing
Plan and pursuant to any related Shareholder Servicing Agreements, the Fund may
pay one or more servicing agents, as compensation for performing certain
services, a fee at an annual rate of up to 0.25% of the average daily net
assets of the Fund attributable to its Class D Shares. The actual fee payable
to servicing agents is determined, within such limit, from time to time by
mutual agreement between the Company and each servicing agent and will not
exceed the maximum service fees payable by mutual funds sold by members of the
NASD under the NASD Rules of Fair Practice.

11
<PAGE> 161
The Servicing Plan will continue in effect from year to year if
such continuance is approved by a majority vote of both the Directors of the
Company and the Servicing Plan Qualified Directors. Any form of Shareholder
Servicing Agreement related to the Servicing Plan also must be approved by such
vote of the Directors and the Servicing Plan Qualified Directors. Shareholder
Servicing Agreements 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 Class D Shares of the Fund. The Servicing Plan may not be
amended to increase materially the amount payable thereunder without the
approval of a majority of the outstanding Class D Shares of the Fund, and no
material amendment to the Servicing Plan may be made except by a majority of
both the Directors of the Company and the Qualified Directors.

For the year ended December 31, 1995, the Fund paid $24,977 in
servicing fees pursuant to the Plan for the Class D Shares.

CALCULATION OF YIELD AND TOTAL RETURN

As indicated in the Prospectus, the Fund may advertise certain
total return information for each class of shares computed in the manner
described in the Prospectus. As and to the extent required by the SEC, an
average annual compound rate of return ("T") will be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment in a Fund or a class of shares ("P") over a period of years
("n") according to the following formula: P(1+T)n = ERV. In addition, as
indicated in the Prospectus, the Fund also may at times, calculate total return
for the Fund or a class of shares based on net asset value per share (rather
than the public offering price), in which case the figures would not reflect
the effect of any sales charges that would have been paid by an investor, or
based on the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.

The average annual total return on the Class A Shares of the Fund
for the period since inception (November 1, 1990) to December 31, 1995,
assuming a 3.00% sales load and no sales load, was 4.01% and 4.63%,
respectively. The average annual total return on the Class D Shares

12
<PAGE> 162
of the Fund for the period since inception (July 1, 1993) to December 31, 1995,
assuming no CDSC was paid, was 1.53%.

The average annual total return on the Class A Shares of the Fund
for the five-year period ended December 31, 1995, assuming a 3.00% sales load
and no sales load, was 3.59% and 4.22%, respectively.

The average annual total return on the Class A Shares of the Fund
for the year ended December 31, 1995, assuming a 3.00% sales load and no sales
load, was 4.50% and 7.69%, respectively. The average annual total return on the
Class D Shares of the fund for the year ended December 31, 1995, assuming a
1.00% CDSC, was 6.09%, and no CDSC, was 7.08%.

The Fund may advertise the cumulative total return on its shares.
Cumulative total return of shares is computed on a per share basis and assumes
the reinvestment of dividends and distributions. Cumulative total return of
shares generally is expressed as a percentage rate which is calculated by
combining the income and principal changes for a specified period and dividing
by the net asset value per share at the beginning of the period. Advertisements
may include the percentage rate of total return of shares or may include the
value of a hypothetical investment in shares at the end of the period which
assumes the application of the percentage rate of total return.

The cumulative total return on the Class A Shares of the Fund for
the period from inception (November 1, 1990) to December 31, 1995, assuming a
3.00% sales load and no sales load was 22.55% and 26.34%, respectively. The
cumulative total return on the Class D Shares of the Fund for the period from
inception (July 31, 1993) to December 31, 1995, was 3.88%.

The cumulative total return on the Class A Shares of the Fund for
the five-year period ended December 31, 1995, assuming a 3.00% sales load and
no sales load, was 19.30% and 22.96%, respectively.

As indicated in the Fund's Prospectus, the Fund may advertise
certain yield information for the Fund or a class of shares. As and to the
extent required by the SEC, yield for each class of shares of the Fund will be
calculated based on a 30-day (or one month) period, computed by dividing the
net investment income per share of each class earned during the period by the
maximum offering price per share of each class on the last day of the period,
according to the following formula: YIELD = 2[((a-b:-cd)+1)6-1], 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. The net investment income attributable to a class of shares
includes actual interest income, plus or minus amortized purchase discount
(which may include original issue discount) or premium, less accrued expenses.
Realized and unrealized gains and losses on portfolio securities are not
included in net investment income. For purposes of sales literature, yield also
may be calculated on the basis of the net asset value per share of each class
rather than the public offering price, or based on the assumption that a sales
charge other than the maximum sales charge

13
<PAGE> 163
(reflecting a Volume Discount) was assessed, provided that the yield data
derived pursuant to the calculation described above also are presented.

The yield on the Class A Shares of the Fund for the 30-day period
ended December 31, 1995, assuming the maximum 3.00% sales charge and no sales
charge, was 4.74% and 4.89%, respectively. The yield for the Class D Shares of
the Fund for the thirty-day period ended December 31, 1995, assuming the
maximum CDSC, was 3.98%, and assuming no CDSC, was 4.40%.

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 the Fund or to a particular class of the Fund.

In addition, investors should recognize that changes in the net
asset values of shares of each class of the 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.

The Company may disclose in sales literature, information and
statements, the distribution rate of Fund shares. 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.

From time to time and only to the extent the comparison is
appropriate for each class of shares of the Fund, the Company may quote the
performance or price-earning ratio of each class of shares of the Fund in
advertising and other types of literature as compared to the performance of the
Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill Rate, 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

14
<PAGE> 164
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), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, 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 each class of shares of the
Fund also may be compared to the performance 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
performance of each class of shares of the Fund 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 capital
gains distributions and dividends paid, at the end of the period. Any such
comparisons may be useful to investors who wish to compare the past performance
of each class of shares of the Fund with the performance of the Fund's
competitors. Of course, past performance cannot be a guarantee of future
results. The Company 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 Company 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 the 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 the 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 the Fund
or the general economic, business, investment, or financial environment in
which the Fund operates; (iii) the effect of tax-deferred compounding on the
investment returns of each class of shares of the 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

15
<PAGE> 165
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 the Fund with respect to the particular industry or sector.

The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's Rating
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"). 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 Company may compare the performance of each class of
shares of the Fund with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare each class'
past performance with other rated investments.

The Company also may disclose in advertising and other types of
literature, information and statements that Wells Fargo Bank, the Company's
Investment Adviser, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the 1994 edition of "America's Best Money
Managers." The Nelson survey ranks the performance of money managers in over 30
asset/style categories and is based on analysis of performance composites and
surveys of institutional money managers. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by the Company's investment adviser and the total
amount of assets under management by Wells Fargo Investment Management Group
("IMG"). As of December 31, 1995, IMG had $30.1 billion in assets under
management.

The Company may disclose in advertising, statements and other
literature the amount of assets and mutual fund assets managed by Wells Fargo
Bank. As of April 1, 1996, Wells Fargo Bank and its affiliates provided
investment advisory services for approximately $56 billion of assets of
individuals, trusts, estates and institutions and $17 billion of mutual fund
assets.

DETERMINATION OF NET ASSET VALUE

Net asset value per share for each class of the Fund is determined
by Wells Fargo Bank on each day the Exchange is open for trading.

16
<PAGE> 166
maturing in 60 days or less, the valuations are based on latest quoted bid
prices. Money market instruments maturing in 60 days or less are valued at
amortized cost. The assets of the Fund other than money market instruments
maturing in 60 days or less are valued at latest quoted bid prices. In all
cases, bid prices will be furnished by a reputable independent pricing service
approved by the Board of Directors. 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 the Fund for which current market quotations are not readily
available are valued at fair value as determined in good faith by the Company's
Directors and in accordance with procedures adopted by the Directors.

PORTFOLIO TRANSACTIONS

The Company 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 Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company 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 Fund will
not necessarily be paying the lowest spread or commission available.

Purchases and sales of securities will usually 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. The Fund
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, ARMS and CMOs are
traded on a net basis and do not involve brokerage commissions. The cost of
executing the Fund's portfolio securities transactions will consist primarily
of dealer spreads and underwriting commissions. Under the 1940 Act, persons
affiliated with the Company are prohibited from dealing with the Company 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 Directors.

Wells Fargo Bank, as the Investment Adviser of the Fund, may, in
circumstances in which two or more brokers are in a position to offer
comparable results for the Fund portfolio transaction, give preference to a
broker 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 Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research

17
<PAGE> 167
information. Furthermore, research services furnished by dealers through which
Wells Fargo Bank places securities transactions for the 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 Fund. For the
fiscal year ended December 31, 1995, the Fund paid no brokerage commissions.

Brokerage Commissions. For the year ended December 31, 1995, the
Fund did not pay any brokerage commissions.

Securities of Regular Broker/Dealers. On December 31, 1995, the
Fund owned securities of its "regular brokers or dealers" or their parents, as
defined in the 1940 Act as follows: $1,448,000 of Goldman Sachs & Co. Pooled
Repurchase Agreements.

FEDERAL INCOME TAXES

The Prospectus of the Fund describes generally the tax treatment
of distributions by the Fund. This section of the SAI includes additional
information concerning federal income taxes.

Qualification of the Fund as a "regulated investment company"
under the Code requires, among other things, that (a) at least 90% of the
Fund's annual gross income be derived from interest, payments with respect to
securities loans, dividends and gains from the sale or other disposition of
securities or options thereon; (b) the Fund derives less than 30% of its gross
income from gains from the sale or other disposition of securities or options
thereon held for less than three months; and (c) the Fund diversifies 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 securities and the securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. As a regulated investment company, the Fund will not be
subject to federal income tax on its net investment income and net capital
gains distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of the sum of its net investment income and net
tax-exempt income earned in each year.

Gains or losses on sales of portfolio securities by the Fund
generally will be long-term capital gains or losses if the securities have been
held by it for more than one year, except in

18
<PAGE> 168
certain cases including where the Fund acquires a put or grants a call thereon.
Other gains or losses on the sale of securities will be short- term capital
gains or losses. To the extent that the Fund recognizes long-term capital
gains, such gains will be distributed at least annually. Such distributions
will be taxable to shareholders as long-term capital gains, 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
shareholders not later than 60 days after the close of the Fund's taxable year.

If a shareholder receives designated capital gain distributions
(to be treated by the shareholder as a long-term capital gain) with respect to
a 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 distributions.

As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.60% (marginal rates may be higher for some
individuals due to phase out of exemptions and elimination of deductions), the
maximum individual rate applicable to net realized capital gains is 28.00% and
the maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35.00% (however, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of tax of up to $100,000).

Dividends will be declared daily based on the Fund's daily
earnings. However, for federal income tax purposes, the Fund's respective
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
dividends. Thus, if during a taxable year, the Fund's declared dividends (as
declared daily throughout the year)

19
<PAGE> 169
exceed the Fund's net income (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 dividend. It is expected that the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.

Other Matters. Investors should be aware that the investments
to be made by the Fund may involve sophisticated tax rules such as the original
issue discount, marked to market and real estate mortgage investment conduit
("REMIC") rules that would result in income or gain recognition by the Fund
without corresponding current cash receipts. Although the Fund will seek to
avoid significant noncash income, such noncash income could be recognized by
the Fund, in which case the Fund may distribute cash derived from other sources
in order to meet the minimum distribution requirements described above.

CAPITAL STOCK

The Variable Rate Government Fund is comprised of two classes of
shares, Class A Shares and Class D Shares. 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, on any matter submitted to a vote
of shareholders, all shares then entitled to vote will be voted separately by
Fund or portfolio of the Company unless otherwise required by the 1940 Act, in
which case all shares will be voted in the aggregate. For example, a change in
one of the Fund's fundamental investment policies would be voted upon only by
shareholders of such Fund and not shareholders of the Company's other
investment portfolios. Additionally, approval of an advisory contract is a
matter to be determined separately by portfolio. Approval by the shareholders
of one portfolio is effective as to that portfolio whether or not sufficient
votes are received from the shareholders of the other portfolios to approve the
proposal as to those portfolios. As used in the Prospectus and in this SAI, the
term "majority," when referring to approvals to be obtained from shareholders
of the Fund or a class, means the vote of the lesser of (i) 67% of the shares
of the Fund or class represented at a meeting if the holders of more than 50%
of the outstanding shares of the Fund or class are present in person or by
proxy, or (ii) more than 50% of the outstanding shares of the Fund or class.
The term "majority," when referring to the approvals to be obtained from
shareholders of the Company as a whole, means the vote of the lesser of (i) 67%
of the Company's shares represented at a meeting if the holders of more than
50% of the Company's

20
<PAGE> 170
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. The
Company may dispense with annual meetings of shareholders in any year in which
it is not required to elect Directors under the 1940 Act.

Each share of a class of the 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 Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
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 Directors in their sole
discretion may determine.

Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.

As of February 29, 1996 the shareholders identified below were
known by the Company to own the indicated percentage of the outstanding Class A
and Class D Shares of the Fund in the following capacity:

<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF CLASS CAPACITY
- ------------ --------------- --------- --------
<S> <C> <C> <C>
Variable Rate San Bernadino County 15.19% Beneficial
Government 172 West 3rd St., 1st Floor
Fund (Class A) San Bernadino, CA 92415-0360

Boeing Employee's Credit Union 6.05% Beneficial
Investment Dept. 6th Floor
12770 Gateway Drive
Tukwila, WA 98168

APCO Employees Credit Union 5.25% Beneficial
1608 7th Ave.
Birmingham, AL 35203
</TABLE>

21
<PAGE> 171
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
NAME OF FUND OF SHAREHOLDER OF CLASS CAPACITY
- ------------ --------------- --------- --------
<S> <C> <C> <C>
Variable Rate Merrill Lynch Pierce 30.31% Record
Government Fenner & Smith Inc.
Fund (Class D) Trade House Account
P.O. Box 30561
New Brunswick, NJ 08989-0561

J.C. Bradford & Co. Cust. FBO 11.32% Record
DCIP Limited Partner II
330 Commerce St.
Nashville, TN 37201-1899

City of Waterville 6.12% Beneficial
P.O. Box 9
Waterville, MN 56096
</TABLE>

OTHER

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP has been selected as the independent
auditors for the Company. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.

FINANCIAL INFORMATION

The portfolio of investments, audited financial statements and
independent auditors' report for the year ended December 31, 1995, for the
Variable Rate Government Fund are hereby incorporated by reference in this SAI
to Amendment No. 8 to the Registration Statement of Master Investment Trust
(SEC File No. 811-6415), as filed on Form N-1A with the SEC on March 21, 1996.
The portfolio of investments, audited financial statements and independent
auditors' report are attached to all SAIs delivered to shareholders or
prospective shareholders.

22
<PAGE> 172
APPENDIX

The following is a description of the ratings given by Moody's and
S&P to corporate bonds and commercial paper.

Corporate Bonds

Commercial Paper

A-1