STAGECOACH FUNDS INC /AK/, 497, 1996-09-13

STAGECOACH FUNDS INC /AK/
497, 1996-09-13

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STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
Dated April 29, 1996
as Reprinted September 6, 1996

AGGRESSIVE GROWTH FUND

CLASS A AND CLASS B

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

Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company, commonly referred to as a "mutual fund." This Statement of
Additional Information ("SAI") contains information about one of the funds in
the Stagecoach Family of Funds -- the AGGRESSIVE GROWTH FUND (the "Fund"). The
Fund offers two classes of shares -- Class A Shares and Class B Shares. This
SAI relates to both such classes of shares. The investment objective of the Fund
is described in its Prospectus under the section entitled "How the Fund Works --
Investment Objectives and Policies." The Fund seeks to achieve its investment
objective by investing all of its assets in the Capital Appreciation Master
Portfolio (at times, the "Master Portfolio") of Master Investment Trust (the
"Trust"), which has the same investment objective as the Fund. The Fund may
withdraw its investment in the Capital Appreciation 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 September 6, 1996. All terms used in this
SAI that are defined in the Prospectus have the meanings assigned in the
Prospectus. A copy of the Prospectus for the 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.

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TABLE OF CONTENTS

PAGE
----
Investment Restrictions . . . . . . . . . . . . . . . . . . . . 3
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . 10
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . 11
Performance Calculations . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . 16
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . 16
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . 18
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Independent Auditors . . . . . . . . . . . . . . . . . . . . . 24
Financial Information . . . . . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1

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INVESTMENT RESTRICTIONS

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "Investment Objectives
and Policies." The Fund and the Master Portfolio are subject to the following
investment restrictions, all of which are fundamental policies. These
restrictions cannot be changed, as to either the Fund or the Master Portfolio
without approval by the holders of a majority (as defined by the 1940 Act) of
the outstanding voting securities of the Fund or the Master Portfolio, as
appropriate. Whenever the Fund is requested to vote on a fundamental policy of
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and it
will cast its votes as instructed by such shareholders.

Neither the Fund nor the 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 investments in that
industry would be 25% or more of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
and provided further, that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (1);

(2) purchase or sell real estate or real estate limited
partnerships (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 the Fund's investment program may be deemed to be
an underwriting; and provided further, that the purchase by the Fund of
securities issued by a diversified, open-end management investment company, or
a series thereof, with substantially the same investment objective, policies
and restrictions as such Fund shall not constitute an underwriting for purposes
of this paragraph (4);

(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified
open-end management company, or a series thereof, with substantially the same
investment objective, policies

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and restrictions as such Fund, without regard to the limitations set forth in
this paragraph (5);

(6) 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 borrowings exceed
5% of its net assets);

(7) make loans of portfolio securities having a value that
exceeds 50% of the current value of its total assets, provided that, this
restriction does not apply to the purchase of fixed time deposits, repurchase
agreements, commercial paper and other types of debt instruments commonly sold
in a public or private offering; nor

(8) purchase securities of any issuer (except securities issued
by the U.S. Government, its agencies or 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; provided that the Fund may invest
all its assets in a diversified, open-end management investment company, or a
series thereof, with substantially the same investment objective, policies and
restrictions as such Fund, without regard to the limitations set forth in this
paragraph (8).

With respect to fundamental investment policy (7), the Fund and the Master
Portfolio do not intend to loan their portfolio securities during the coming
year.

The Fund and the Master Portfolio are subject to the following
non-fundamental policies. These restrictions may be changed by a 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 Fund nor the Master Portfolio may:

(1) 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) purchase or sell real estate limited partnership interests;

(3) write, purchase or sell puts, calls or options or any
combination thereof, except to the extent described in the Prospectus and
except that the Fund may purchase securities with put rights in order to
maintain liquidity;

(4) 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

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U.S. Government if, by reason thereof, the value of its aggregate investment in
such securities will exceed 5% of its total assets;

(5) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) if, as
a result, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer; nor

(6) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days.

In addition, as a matter of non-fundamental policy, the Fund may
invest in shares of other open-end, management investment companies, subject to
the limitations of Section 12(d)(1) of the 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. The
Fund does not intend to invest more than 5% of its net assets in such
securities during the coming year. Notwithstanding any other investment policy
or limitation (whether or not fundamental), as a matter of fundamental policy,
the Fund may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund.

As a matter of non-fundamental policy, the Fund and the Master
Portfolio may each invest up to 25% of their respective net assets in
securities of foreign governmental issues that are denominated in and pay
interest in U.S. dollars.

MANAGEMENT

The following information supplements and should be read in
conjunction with the section in the prospectus entitled "Management of the
Fund." 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.

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<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*R. Greg Feltus, 45 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, 54 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, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

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<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.

Richard H. Blank, Jr., 40 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 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 directors and officers of Overland
Express 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, prior to January 1, 1996 and the reorganization of Wells Fargo
Nikko Investment Advisors, a former affiliate of Wells Fargo, was considered to
be in the same "fund complex," as such term is defined in Form N-1A under the
1940 Act, as the Company. Effective January 1, 1996, the Company, Overland
Express Funds, Inc., Stagecoach Trust, Life & Annuity Trust and Master
Investment Trust are considered to be members of the same fund complex and are
no longer part of the same fund complex as MasterWorks Funds Inc., Master
Investment Portfolio and Managed Series Investment Trust. 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.

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Investment Adviser. The Fund has not engaged an investment
adviser. The Master Portfolio (which has the same investment objective as the
Fund, and in which the Fund invests all its assets) is advised by Wells Fargo
Bank. The Advisory Contract 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 Contract, Wells Fargo Bank furnishes to the Board of Trustees periodic
reports on the investment strategy and performance of the Master Portfolio.

Wells Fargo Bank has agreed to provide to the Master Portfolio,
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 portfolio of the 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 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 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.

The Strategic Growth Fund of Overland Express Funds, Inc. (as
defined in the Prospectus, the "Predecessor Fund") previously retained Wells
Fargo Bank as investment adviser. For the period from inception of the
Predecessor Fund (January 20, 1993) to February 20, 1996, the Predecessor Fund
operated on a stand-alone basis, did not participate in a master/feeder
structure. From January 20, 1993 to December 31, 1993, Wells Fargo Bank waived
payment of all advisory fees of $68,217. For the year ended December 31, 1994,
the Predecessor Fund incurred $207,239 in advisory fees payable to Wells Fargo
Bank, and $9,550 of such fees were waived. For the year ended December 31,
1995, the Predecessor Fund incurred $302,821 in advisory fees payable to Wells
Fargo Bank. Wells Fargo Bank did not waive any such fees.

Wells Fargo Bank also serves as Custodian and Transfer and
Dividend Disbursing Agent for the Fund and the Master Portfolio. See
"Custodian and Transfer and Dividend Disbursing Agent".

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<PAGE> 9

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 Master Portfolio.
Under the respective Administration Agreements with the Company and the Trust,
Stephens furnishes the Company and the Trust with office facilities, together
with those ordinary clerical and bookkeeping services that are not 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
shares of the Fund.

Prior to February 20, 1996, Stephens served as administrator and
distributor on behalf of the Predecessor Fund.

For the period from inception to December 31, 1993, the
Predecessor Fund's administrative fees totaled $20,483. For the year ended
December 31, 1993, the aggregate dollar amount of underwriting commissions paid
to Stephens by Overland Express Funds, Inc. was $3,604,377, and Stephens
retained $3,457,989 of such commissions. For the same period, Wells Fargo
Securities Inc. ("WFSI"), a subsidiary of Wells Fargo Bank and 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 Predecessor Fund's
administrative fees totaled $62,623. For the same period, the aggregate dollar
amount of underwriting commissions paid by Overland Express Funds, Inc. 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, 1994.

For the year ended December 31, 1995, the Predecessor Fund's
administrative fees totaled $91,128. For the same period, the aggregate dollar
amount of underwriting commissions paid on sales/redemptions of the shares of
Overland Express Funds, Inc. was $1,424,127, and Stephens retained $152,656 of
such commissions. WFSI and its registered representatives received $31,366 of
such commissions for the year.

Custodian and Transfer and Dividend Disbursing Agent. The
following information supplements and should be read in conjunction with the
section of the Prospectus entitled "Custodian, 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 Master Portfolio. The
Custodian, among other things, maintains a custody account or accounts in the
name of the Fund and the Master Portfolio; receives and delivers all assets for
the Fund and the 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 Master Portfolio and pays all
expenses of the Fund and the Master Portfolio. For its services as Custodian,
Wells Fargo Bank receives an asset-based fee and transaction charge from the
Master Portfolio; and for its services as

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transfer and dividend and disbursing agent, it receives a base fee and
per-account fees from the Fund.

DISTRIBUTION PLAN

The following information supplements and should be read in
conjunction with the Prospectus section entitled "Distribution Plans." As
indicated in the Prospectus, the Fund has adopted a distribution plan (a
"Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the
"Rule") for each class of shares of the Fund. The Plan for the Class A Shares
and the Plan for the Class B Shares were each adopted by the Board of Directors
on November 15, 1995, 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 "Non-Interested Directors").

Under the Plan and pursuant to the Distribution Agreement, the
Fund may pay the Distributor, as reimbursement for distribution-related
expenses and compensation for distribution-related services, a monthly fee at
an annual rate of up to 0.10% of the average daily net assets attributable to
Class A Shares and up to 0.75% of the average daily net assets attributable to
the Class B 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 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 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 Non-Interested Directors. Agreements related to the Plans also must be
approved by such vote of the directors and the Non-Interested 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 relevant class of the Fund or by vote of a
majority of the Non-Interested Directors on not more than 60 days' written
notice. Each 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 relevant class of the Fund, and no material amendment to the
Plans may be made except by a majority of both the Directors of the Company and
the Non-Interested Directors.

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<PAGE> 11

Each Plan requires that 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.

The Class A and Class D Shares of the Predecessor Fund have
distribution plans under Rule 12b-1 currently in place. Pursuant to these
Plans, the Predecessor Fund may pay a monthly fee at the annual rate of up to
0.25% of the average daily net assets attributable to the Class A Shares and up
to 0.75% of the average daily net assets attributable to the Class D Shares of
the Predecessor Fund.

For the year ended December 31, 1995 the Class A Shares and Class
D Shares of the Predecessor Fund incurred $102,390 and $148,475, respectively,
in fees under their respective distribution plans; the fees were paid as
compensation to underwriters.

SERVICING PLAN

As indicated in the Fund's Prospectus, the Fund has adopted a
Servicing Plan ("Servicing Plan") with respect to its Class A and Class B
Shares. The Board of Directors adopted each Servicing Plan on November 15,
1995. The Board of Directors included 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 Non-Interested
Directors").

Under the Servicing Plan and pursuant to the Servicing Agreements
for the Class A Shares, 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 A
Shares. Under the Servicing Plan and pursuant to the Servicing Agreements for
the Class B Shares, 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 the Class B
Shares. The actual fee payable to servicing agents is determined, within such
limits, 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.

Each 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 Non-Interested 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 Non- Interested 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

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majority of the Servicing Plan Non-Interested Directors. No material amendment
to the Servicing Plans may be made except by a majority of both the Directors
of the Company and the Servicing Plan Non-Interested Directors.

Each 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.

The Predecessor Fund has a Servicing Plan currently in place with
respect to its Class D Shares. Pursuant to the Servicing Plan the Predecessor
Fund may pay one or more servicing agents a fee of up to 0.25% of the average
daily net assets of the Fund attributable to the Class D Shares as compensation
for certain services. The Predecessor Fund paid the following amounts in
servicing fees during each of the last three fiscal years pursuant to the Plan
for the Class D Shares:

1993 $ 7,839
1994 $37,050
1995 $49,492

PERFORMANCE CALCULATIONS

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 Prospectus, the Fund 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") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Prospectus, the Fund 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 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 returns on the Class A Shares of the
Predecessor Fund for the period from the Predecessor Fund's commencement of
operations (January 20, 1993) to December 31, 1995, assuming a 4.50% sales load
and no sales load, were 25.05% and 27.01%, respectively. The average annual
total return on the Class D Shares of the Predecessor Fund for the period from
inception (July 1, 1993) to December 31, 1995 was

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22.68%. The annual total returns on the Class A Shares of the Fund for the one
year ended December 31, 1995, assuming a 4.50% sales loan and no sales load
were 36.06% and 42.51% respectively. The annual total return on the Class D
Shares of the Predecessor Fund for the one-year ended December 31, 1995 was
40.57%, assuming payment of the 1% CDSC.

The Fund may advertise the cumulative total return of the
Predecessor Fund. Cumulative total return is computed by determining the
aggregate compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment.

In addition to the above performance information, the Fund may
also advertise the cumulative total return of the 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 the Fund, assuming all Fund dividends and capital
gain distributions are reinvested, without reflecting the effect of any sales
charge that would be paid by an investor, and is not annualized.

The cumulative total return on the Class A Shares of the
Predecessor Fund for the period from the Predecessor Fund's commencement of
operations (January 20, 1993) to December 31, 1995, assuming a 4.50% sales load
and no sales load, were 102.84% and 93.74%, respectively.

The average annual total return on the Class D Shares of the
Predecessor Fund for the period from inception (July 1, 1993) to December 31,
1995, based on the expenses and performance history of the Class D Shares and
restated to include the maximum CDSC of 1.0% applicable on redemption of the
Fund's Class B Shares, was 22.38%. The cumulative total return on the Class D
Shares of the Predecessor Fund for the same period, based on the expenses and
performance history of the Class D Shares and restated to include the maximum
CDSC of 1.0% applicable on redemption of the Fund's Class B Shares, was 65.69%.
The annual total return on the Class D Shares of the Predecessor Fund for the
year ended December 31, 1995, based on the expenses and performance history of
the Class D Shares and restated to include the maximum CDSC of 3.0% applicable
on redemption of the Fund's Class B Shares, was 38.64%.

From time to time and only to the extent the comparison is
appropriate for a class of Shares of the Fund, the Company may quote
performance or price-earning ratios of a 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+ Years 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

13
<PAGE> 14

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 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 a class of shares the Fund is 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
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 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

14
<PAGE> 15

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 or the Master Portfolio invests may be compared to
relevant indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate
the historical performance of the Fund or the Master Portfolio 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 any
class of 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.

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.

The Company also may disclose in advertising and other types of
literature, information and statements the distribution rate on the shares of
each class of the Fund. Distribution rate, which may be annualized, is the
amount determined by dividing the dollar amount per share of the most recent
dividend by the most recent NAV or maximum offering price per share as of a
date specified in the sales literature. Distribution rate will be accompanied
by the standard 30-day yield as required by the SEC.

The Company also may disclose, in advertising statements 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 and
the total amount of assets under management by Wells Fargo Investment
Management Group

15
<PAGE> 16

("IMG"). As of December 31, 1995, IMG had $30.1 billion in assets under
management. The Company may disclose in advertising, statements and other
types of literature the amount of assets and mutual fund assets managed by
Wells Fargo Bank. As of June 30, 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 advertising and other types of
literature that investors can open and maintain Sweep Accounts over the Internet
or through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available to
investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the first
major bank to offer an on-line application for a mutual fund account that can be
filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.

DETERMINATION OF NET ASSET VALUE

The following information supplements and should be read in
conjunction with the Prospectus section entitled "Purchase of Shares." Net
asset value per share for each class of the Fund and net asset value per unit
of the Master Portfolio are each determined by the Custodian of the Fund on
each day the Exchange is open for trading as of the close of regular trading on
the Exchange, which is currently 4:00 p.m. New York time.

Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other 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
Master Portfolio other than money market instruments maturing in 60 days or
less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the 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
Portfolio 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
the Master Portfolio's interests and the Fund's shares.

PORTFOLIO TRANSACTIONS

Purchases and sales of securities by the Master Portfolio usually
are 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 Portfolio also may purchase portfolio securities in
underwritten offerings and may purchase securities directly from the

16
<PAGE> 17

issuer. The cost of executing the Master Portfolio's portfolio securities
transactions consists primarily of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC
or an exemption is otherwise available. The 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 1940 Act and in compliance with procedures adopted by
the Board of Trustees.

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 Portfolio's portfolio decisions and the placing of
portfolio transactions. In placing orders, it is the policy of the Company and
Trust to obtain the best results taking into account the dealer's general
execution and operational facilities, the type of transaction involved and
other factors such as the dealer's risk in positioning the securities involved.
While Wells Fargo Bank generally seeks reasonably competitive spreads or
commissions, the Master Portfolio does not necessarily pay the lowest spread or
commission available.

In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.

Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Master Portfolio. The Board
of Trustees will periodically review the commissions paid by the Master
Portfolio to consider whether the commissions paid over representative periods
of time appear to be reasonable in relation to the benefits inuring to the
Master Portfolio. It is possible that certain of the supplementary research or
other services received will primarily benefit one or more other investment
companies or other accounts for which investment discretion is exercised.
Conversely, the Master Portfolio may be the primary beneficiary of the research
or services received as a result of portfolio transactions effected for such
other account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable
than that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.

Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to the Master Portfolio's investment programs.
Research services received from brokers supplement Wells Fargo Bank's own
research and may include the following types of information: statistical and
background information on industry groups and individual companies; forecasts
and interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services to Wells Fargo Bank and to the
Trust's Trustees with respect to the performance, investment activities and
fees and expenses of other mutual Funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.

The outside research assistance is useful to Wells Fargo Bank
since the brokers utilized by Wells Fargo Bank as a group tend to follow a
broader universe of securities and other matters than the staff of Wells Fargo
Bank can follow. In addition, this research provides Wells Fargo Bank with a
diverse perspective on financial markets. Research services which are provided
to Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolio by improving the quality of
Wells Fargo Bank's investment advice. The advisory fees paid by the Master
Portfolio are not reduced because Wells Fargo Bank receives such services.

Securities of Regular Brokers or Dealers. On December 31, 1995,
the Predecessor Fund to the Master Portfolio owned securities of its "regular
brokers or dealers or their parents", as defined in the 1940 Act, as follows:
$1,638,000 of Goldman Sachs & Co. Government Repurchase Agreement.

Brokerage Commissions. For the year ended December 31, 1994, the
Predecessor Fund paid brokerage commissions in the amount of $171,356.

For the year ended December 31, 1995, the Predecessor Fund paid
brokerage commissions in the amount of $190,359; brokerage commissions were not
paid to any affiliated brokers.

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<PAGE> 18

Portfolio Turnover. Portfolio turnover generally involves some
expenses to the 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 Portfolio paying substantially more brokerage commissions,
since most transactions in government securities and municipal securities are
effected on a principal basis. Portfolio turnover can generate short-term
capital gain tax consequences. The portfolio turnover rate will not be a
limiting factor when Wells Fargo Bank deems portfolio changes appropriate.

FEDERAL INCOME TAX

The following information supplements and should be read in
conjunction with the Prospectus sections entitled "Dividends and Distributions"
and "Taxes." The Prospectus of the Fund describes generally the tax treatment
of distributions by the Master Portfolio and 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) the Fund derive at least 90% of its
annual gross income 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 derive 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 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 and the
securities of other regulated investment companies), or in two or more issuers
which the taxpayer controls and which are determined to be engaged in the same
or similar trades or businesses. For purposes of complying with these
qualification requirements, the Fund will be deemed to own a proportionate
share of the Master Portfolio's assets. 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 stockholders at least 90% of the sum 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 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.

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<PAGE> 19

Income and dividends received by the 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 the Master Portfolio does not expect to hold more than 50% of the value
of its total assets in securities of foreign issuers, the Fund does not expect
to be eligible to elect to "pass through" foreign tax credits to shareholders.

The Master Portfolio will be treated as a non-publicly traded
partnership rather than as a regulated investment company or a corporation
under the Code. As a non-publicly traded partnership under the Code, any
interest, dividends and gains or losses of the Master Portfolio will be deemed
to have been "passed through" to the Fund and other investors in the Master
Portfolio, regardless of whether such interest, dividends or gains have been
distributed by the Master Portfolio or losses (through contribution) have been
realized by the Fund and other investors. Therefore, to the extent the Master
Portfolio were to accrue but not distribute any interest, dividends or gains,
the Fund would be deemed to have realized and recognized its proportionate
share of interest, dividends or gains without receipt of any corresponding
distribution. However, the Master Portfolio will seek to minimize recognition
by investors of interest, dividends, gains or losses without a corresponding
distribution.

Gains or losses on sales of portfolio securities by the Master
Portfolio 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 such as
where the Master Portfolio acquires a put or writes 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 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 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. Gains recognized on the disposition of a debt obligation
(including tax-exempt obligations purchased after April 30, 1993) purchased by
the Fund at a market discount (generally at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of
market discount which accrued during the period of time the Master Portfolio
held the debt obligation.

As of the printing of this SAI, the maximum individual marginal
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

19
<PAGE> 20

individual marginal tax rate applicable to net capital gains is 28.00%; and the
maximum marginal corporate tax rate applicable to ordinary income and net
capital gains is 35.00% (except that 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). Naturally, the amount of tax payable by an
individual or corporation will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.

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 an option written by a Master
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase by such Master Portfolio of the option from its holder, the Master
Portfolio 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 Master
Portfolio in the closing transaction. Some realized capital losses may be
deferred if they result from a position which is part of a tax straddle.

If securities are sold by a Master Portfolio pursuant to the
exercise of a call option written by it, such Master Portfolio will add the
premium received to the sale price of the securities delivered in determining
the amount of gain or loss on the sale. If securities are purchased by a
Master Portfolio pursuant to the exercise of a put option written by it, such
Master Portfolio will subtract the premium received from its cost basis in the
securities purchased. The requirement that the Master Portfolio derive less
than 30% of its gross income from gains from the sale of securities held for
less than three months may limit the Master Portfolio's ability to write
options.

Offsetting positions held by a regulated investment company
involving certain financial forward, futures or options contracts may be
considered, for tax purposes, to constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Section 1092 of the Code which,
in certain circumstances, overrides or modifies the provisions of Section 1256.

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<PAGE> 21

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 and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain may be characterized as short-term capital gain or
ordinary income.

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, 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 Portfolio may involve sophisticated tax rules such as
marked to market rules that would result in income or gain recognition by the
Master Portfolio without corresponding current cash receipts. Although the
Master Portfolio will seek to avoid significant noncash income, such noncash
income could be recognized by the Master Portfolio, in which case the Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.

The foregoing discussion and the discussions in the Prospectus
address only some of the federal tax considerations generally affecting
investments in a Fund. Each investor is urged to consult his or her tax
adviser regarding specific questions as to Federal, state or local taxes.

CAPITAL STOCK

The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Fund, the Master
Portfolio and Management."

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<PAGE> 22

The Company, an open-end management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 17,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one of the following funds -- the Asset Allocation, California
Tax-Free Bond, California Tax-Free Income, California Tax-Free Money Market
Mutual, Corporate Stock, Diversified Income, Ginnie Mae, Growth and Income,
Money Market Mutual, National Tax-Free Money Market Mutual, Short-Intermediate
U.S. Government Income, U.S. Government Allocation and Variable Rate
Government Funds -- and the Board of Directors may, in the future, authorize
the issuance of other series of capital stock representing shares of additional
investment portfolios.

The Fund is comprised of two classes of shares, Class A Shares and
Class B 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 series unless otherwise
required by the Act, in which case all shares will be voted in the aggregate.
For example, a change in a series' fundamental investment policy affects only
one series and would be voted upon only by shareholders of the series and not
by shareholders of the Company's other series. Additionally, approval of an
advisory contract is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority" when referring to approvals to be obtained
from shareholders of a class of the Fund, means the vote of the lesser of (i)
67% of the shares of such class the Fund represented at a meeting if the
holders of more than 50% of the outstanding shares such class of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of such class the Fund. The term "majority," when referring to 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 an annual meeting of shareholders in
any year in which it is not required to elect directors under the 1940 Act.

Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the 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 relevant class of
shares of the Fund that are available for distribution, and a distribution of
any general assets not attributable to a particular investment portfolio that
are available for

22
<PAGE> 23

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 for the consideration described in the Prospectus, 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. However, 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 Master Portfolio 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 the Fund is requested to vote on a matter with respect to
the 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 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 April 15, 1996, Stephens was the beneficial owner of 100% of
the outstanding voting securities of the Fund and, as such, could be considered
a "controlling person" of the Fund for purposes of the 1940 Act. Upon
commencement of the public offering of the Fund's shares it is expected that
Stephens will own a significantly smaller percentage of the Fund's shares and
will no longer be considered a controlling person.

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<PAGE> 24

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 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, financial statements and independent
auditors' report of the Predecessor Fund for the year ended December 31, 1995
are incorporated by reference to Post-Effective Amendment No. 20 to the
Company's Registration Statement as filed with the SEC on Form N-1A on February
28, 1996. The portfolio of investments, audited financial statements and
independent auditors' report are attached to all SAIs delivered to current or
prospective shareholders.

24
<PAGE> 25
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
Dated April 29, 1996,
as Reprinted on September 6, 1996

U.S. GOVERNMENT ALLOCATION FUND
CORPORATE STOCK FUND
ASSET ALLOCATION FUND

CLASS A AND CLASS B

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

Stagecoach Funds, Inc. is an open-end, series investment company.
This Statement of Additional Information ("SAI") contains information about
three of the funds in the Stagecoach Family of Funds. This SAI is not a
prospectus, but supplements and should be read in conjunction with the current
Prospectus describing the U.S. GOVERNMENT ALLOCATION FUND and the ASSET
ALLOCATION FUND dated April 29, 1996, and the Prospectus describing the
CORPORATE STOCK FUND dated September 6, 1996, (each, a "Fund" and
collectively, the "Funds") of Stagecoach Funds, Inc. (the "Company") as it may
be revised from time to time. All terms used in this SAI that are defined in
each Fund's Prospectus will have the meaning 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 calling the Transfer Agent at
the telephone number indicated above.

As described in each Prospectus, each of these Funds invests all of
its assets in a separate Master Portfolio of Master Investment Trust ("MIT"),
an open-end management investment company, having the same investment objective
as the Fund bearing the corresponding name. Each of the Funds, other than the
Corporate Stock Fund, offers two classes (each a "Class") of shares -- Class A
shares and Class B shares. This SAI relates to the shares offered by the
Corporate Stock Fund (which shares sometimes referred to herein collectively,
the "Class A shares") and to both Classes of shares offered by the other Funds.
The investment objective of each Fund is described in its Prospectus under the
Section entitled "How the Funds Work -- Investment Objectives and Policies."

Wells Fargo Bank, N.A. ("Wells Fargo Bank") is investment adviser and
BZW Barclays Global Fund Advisors ("BGFA"), an affiliate of Barclays Bank PLC
("Barclays"), is investment sub-adviser to each of the Master Portfolios of
MIT. Stephens Inc. ("Stephens") serves as the Company's administrator and as
distributor of each Fund's shares.

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

1
<PAGE> 26
TABLE OF CONTENTS

<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . 8
Management of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Performance Calculations. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . 30
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

2
<PAGE> 27
INTRODUCTION

The Company is a registered investment company consisting of eight
series including the Funds. MIT is a registered investment company consisting
of thirteen series including the Master Portfolios. Each Fund invests all of
its assets in the corresponding Master Portfolio of MIT (as illustrated below),
which has the same investment objectives as the related Fund.

<TABLE>
<CAPTION>
Fund Corresponding Master Portfolio
- ---- ------------------------------
<S> <C>
U.S. Government Allocation Fund U.S. Government Allocation Master Portfolio
Corporate Stock Fund Corporate Stock Master Portfolio
Asset Allocation Fund Asset Allocation Master Portfolio
</TABLE>

INVESTMENT RESTRICTIONS

General. Each Master Portfolio has the same investment objective as
its related Fund. 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 of Directors 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 Fund's Prospectus and
this SAI.

Investment Restrictions of the Funds. Each Fund has adopted the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the outstanding voting securities of such Fund. Whenever a
Fund is requested to vote on a fundamental policy of the Master Portfolio in
which it invests, such Fund holds a meeting of Fund shareholders and casts its
votes as instructed by such Fund's shareholders.

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
be 25% or more of the current value of its 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) in the case of the
Corporate Stock Fund and the Asset Allocation Fund, any industry in which the
S&P 500 Index becomes concentrated to the same degree during the same period,
and (iii) in the case of the Asset Allocation Fund, money market instruments

3
<PAGE> 28
invested in the banking industry (but the Fund will not do so unless the SEC
staff confirms that it does not object to the Fund reserving freedom of action
to concentrate investments in the banking industry); and provided further, that
a Fund may invest all of its assets in a diversified, open-end management
investment company, or a series thereof, with substantially the same investment
objective, policies and restrictions as such Fund, without regard to the
limitations set forth in this paragraph (1);

(3) purchase or sell commodities or commodity contracts; except
that each Fund may purchase and sell (i.e., write) options, forward contracts,
futures contracts, including those relating to indices, and options on futures
contracts or indices, and may participate in interest rate and index swaps;

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

(5) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for margin payments in
connection with transactions in options, forward contracts, futures contracts,
including those relating to indices, and options on futures contracts or
indices) or make short sales of securities;

(6) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an issuer and the later disposition of such securities
in accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by a Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (6);

(7) make investments for the purpose of exercising control or
management; provided that a Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (7);

(8) issue senior securities, except to the extent the activities
permitted in Investment Restrictions Nos. 3 and 5 may be deemed to give rise
to a senior security but do not violate the provisions of section 18 of the
1940 Act, and except that each Fund may borrow up to 20% of the current value
of each such Fund's net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of each such Fund's net assets (but investments

4
<PAGE> 29
may not be purchased by such Funds while any such outstanding borrowings exceed
5% of the respective Fund's net assets);

(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that each Fund may engage
in options transactions to the extent permitted in Investment Restrictions Nos.
3 and 5, and except that each Fund may purchase securities with put rights in
order to maintain liquidity; or

(10) 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 the Fund's total assets would be invested
in the securities of any one issuer or the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that a Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (10).

Each Fund may make loans in accordance with its investment policies.

As a fundamental policy, each Fund may invest, notwithstanding any
other investment restrictions (whether or not fundamental), all of its assets
in the securities of a single open-end, management investment company with
substantially the same fundamental investment objectives, policies and
restrictions as such Fund.

Each Fund is subject to the following non-fundamental policies which
may be changed by a majority vote of the Board of Directors of the Company at
any time and without approval of the shareholders.

No Fund may:

(1) purchase or retain securities of any issuer if the officers or
Directors of the Company or the investment adviser owning beneficially more
than one-half of one percent (0.50%) of the securities of the issuer together
owned beneficially more than 5% of such securities;

(2) purchase 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;

(3) purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, and
equity securities of issuers

5
<PAGE> 30
which are not readily marketable if by reason thereof the value of its
aggregate investment in such classes of securities will exceed 5% of its total
assets; or

(4) invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven days.

Investment Restrictions of the Master Portfolios. Each Master
Portfolio has adopted the following investment restrictions, all of which are
fundamental policies; that is, they may not be changed without approval by the
vote of the holders of a majority (as defined in the 1940 Act) of the
outstanding voting securities of such Master Portfolio.

None of 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 any Master Portfolio's investments in that
industry would be 25% or more of the current value of its 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) in the case of the Corporate Stock Master Portfolio and the Asset
Allocation Master Portfolio, any industry in which the S&P 500 Index becomes
concentrated to the same degree during the same period, and (iii) in the case
of the Asset Allocation Master Portfolio, money market instruments invested in
the banking industry (but the Master Portfolio will not do so unless the SEC
staff confirms that it does not object to the Master Portfolio reserving
freedom of action to concentrate investments in the banking industry);

(3) purchase or sell commodities or commodity contracts; except
that each Master Portfolio may purchase and sell (i.e., write) options, forward
contracts, futures contracts, including those relating to indices, and options
on futures contracts or indices, and may participate in interest rate and index
swaps;

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

(6) underwrite securities of other issuers, except to the extent
that the purchase of permitted investments directly from the issuer thereof or
from an underwriter for an

6
<PAGE> 31
issuer and the later disposition of such securities in accordance with the
Master Portfolio's investment program may be deemed to be an underwriting;

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

(8) issue senior securities, except to the extent the activities
permitted in Investment Restrictions Nos. 3 and 5 may be deemed to give rise
to a senior security but do not violate the provisions of section 18 of the
1940 Act, and except that each Master Portfolio may borrow up to 20% of the
current value of each such Master Portfolio's net assets for temporary purposes
only in order to meet redemptions, and these borrowings may be secured by the
pledge of up to 20% of the current value of each such Master Portfolio's net
assets (but investments may not be purchased by such Master Portfolios while
any such outstanding borrowings exceed 5% of the respective Master Portfolio's
net assets);

(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that each Master Portfolio
may engage in options transactions to the extent permitted in Investment
Restrictions Nos. 3 and 5, and except that each Master Portfolio may purchase
securities with put rights in order to maintain liquidity; or

Each Master Portfolio may make loans in accordance with their
investment policies.

Each Master Portfolio is subject to the following non-fundamental
policies which may be changed by a majority vote of the Board of Trustees of
MIT at any time and without approval of the shareholders.

No Master Portfolio may:

(1) purchase or retain securities of any issuer if the officers or
Directors of MIT or Wells Fargo Bank owning beneficially more than one-half of
one percent (0.50%) of the securities of the issuer together owned beneficially
more than 5% of such securities;

7
<PAGE> 32
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;

(3) 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 its aggregate investment in such classes of securities
will exceed 5% of its total assets; or

(4) invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven days.

In addition, the Master Portfolios 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 Wells Fargo Bank will waive its advisory fees for that portion of the
Master Portfolios' assets so invested, except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition.

MIT may make commitments more restrictive than the restrictions listed
above, so as to permit the sale of shares of a feeder fund that invests in the
Master Portfolio in certain states. Should MIT determine that a commitment is
no longer in the best interest of the Master Portfolio and its interestholders,
MIT reserves the right to revoke the commitment by terminating the sale of such
Master Portfolio's shares in the state involved.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

PORTFOLIO SECURITIES. To the extent set forth in the Prospectus and
SAI, each Master Portfolio may invest in the securities described below.

Asset Allocation Model. A key component of the Asset Allocation Model
is a set of assumptions concerning expected risk and return and investor
attitudes toward risk which are incorporated into the asset allocation
decision. The principal inputs of financial data to the Asset Allocation Model
currently are (i) consensus estimates of the earnings, dividends and payout
ratios on a broad cross-section of common stocks as reported by independent
financial reporting services which survey a broad cross-section of Wall Street
analysts, (ii) the estimated current yield to maturity on new long-term
corporate bonds rated "AA" by S&P, (iii) the present yield on money market
instruments, (iv) the historical statistical standard deviation in investment
return for each class of asset, and (v) the historical statistical correlation
of investment returns among the various asset classes in which the Asset
Allocation Master Portfolio invests. Using these data, the Asset Allocation
Model is run daily to determine the recommended asset allocation. The model's
recommendations are presently made in 10% increments.

8
<PAGE> 33
Unrated Investments. Each Master Portfolio 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 Master Portfolio. After purchase by a Master
Portfolio, a security may cease to be rated or its rating may be reduced below
the minimum required for purchase by such Master Portfolio. Neither event will
require a sale of such security by such Master Portfolio. 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 Master Portfolio will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.

Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Master Portfolios may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of such Fund may be used for letter of credit-backed investments.

Pass-Through Obligations. The Master Portfolios 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 or government-sponsored enterprise (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. Certain of the securities in which the U.S.
Government Allocation Master Portfolio and the Asset Allocation Master
Portfolio may invest will be purchased 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. These Master Portfolios 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 Master Portfolio will segregate cash, U.S. Government obligations
or other high-quality debt instruments in an amount at least equal in value to
the Master

9
<PAGE> 34
Portfolio's commitments to purchase when-issued securities. If the value of
these assets declines, the Master Portfolio will segregate additional liquid
assets on a daily basis so that the value of the segregated assets is equal to
the amount of such commitments.

Loans of Portfolio Securities. All of the Master Portfolios may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government obligations or other high-
quality debt instruments equal to at least 100% of the current market value of
the securities loan (including accrued interest thereon) plus the interest
payable to such Master Portfolio with respect to the loan is maintained with
the Master Portfolio. In determining whether to lend a security to a
particular broker, dealer or financial institution, Wells Fargo Bank will
consider all relevant facts and circumstances, including the creditworthiness
of the broker, dealer, or financial institution. Any loans of portfolio
securities will be fully collateralized based on values that are marked to
market daily. The Master Portfolios will not enter into any portfolio security
lending arrangement having a duration of longer than one year. Any securities
that a Master Portfolio may receive as collateral will not become part of the
Master Portfolio's portfolio at the time of the loan and, in the event of a
default by the borrower, the Master Portfolio will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Master Portfolio is permitted to invest. During the time securities
are on loan, the borrower will pay the Master Portfolio any accrued income on
those securities, and the Master Portfolio may invest the cash collateral and
earn additional income or receive an agreed-upon fee from a borrower that has
delivered cash-equivalent collateral. None of the Master Portfolios will lend
securities having a value that exceeds 33 1/3% of the current value of its
total assets. Loans of securities by any of the Master Portfolios will be
subject to termination at the Master Portfolio's or the borrower's option. The
Master Portfolios may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly
or indirectly, with the Company, MIT, its Adviser, or its Distributor.

Futures Contracts and Options Transactions. Each Master Portfolio may
enter into futures contracts and may purchase and write options thereon. Upon
the exercise, the writer of the option delivers to the holder of the option the
futures position and the accumulated balance in the writer's futures margin
account, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. The potential loss
related to the purchase of options on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of the
option is fixed at the time of sale, there are no daily cash payments to
reflect changes in the value of the underlying contract; however, the value of
the option may change daily, and that change would be reflected in the net
asset value of the relevant Master Portfolio.

10
<PAGE> 35
Foreign Currency Transactions. If a Master Portfolio enters into a
foreign currency transaction or forward contract, such Master Portfolio
deposits, if required by applicable regulations, with MIT's custodian cash or
high-grade debt securities in a segregated account of the Master Portfolio in
an amount at least equal to the value of the Master Portfolio's total assets
committed to the consummation of the forward contract. If the value of the
securities placed in the segregated account declines, additional cash or
securities are placed in the account so that the value of the account equals
the amount of the Master Portfolio's commitment with respect to the contract.

At or before the maturity of a forward contract, a Master Portfolio
either may sell a portfolio security and make delivery of the currency, or may
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract pursuant to which such Master
Portfolio obtains, on the same maturity date, the same amount of the currency
which it is obligated to deliver. If the Master Portfolio retains the
portfolio security and engages in an offsetting transaction, such Master
Portfolio, at the time of execution of the offsetting transaction, incurs a
gain or a loss to the extent that movement has occurred in forward contract
prices. Should forward prices decline during the period between the Master
Portfolio's entering into a forward contract for the sale of a currency and the
date it enters into an offsetting contract for the purchase of the currency,
the Master Portfolio will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Master Portfolio will suffer
a loss to the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.

The cost to a Master Portfolio of engaging in current transactions
varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because transactions in
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved. Wells Fargo Bank or BGFA, as appropriate, considers
on an ongoing basis the creditworthiness of the institutions with which a
Master Portfolio enters into foreign currency transactions. The use of forward
currency exchange contracts does not eliminate fluctuations in the underlying
prices of the securities, but it does establish a rate of exchange that can be
achieved in the future. If a devaluation generally is anticipated, the Master
Portfolio may not be able to contract to sell the currency at a price above the
devaluation level it anticipates.

The purchase of options on currency futures allows a Master Portfolio,
for the price of the premium it must pay for the option, to decide whether or
not to buy (in the case of a call option) or to sell (in the case of a put
option) a futures contract at a specified price at any time during the period
before the option expires.

Future Developments. Each Master Portfolio may take advantage of
opportunities in the areas of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Master

11
<PAGE> 36
Portfolio or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with a Master Portfolio's
investment objective and legally permissible for the Master Portfolio. Before
entering into such transactions or making any such investment, a Master
Portfolio would provide appropriate disclosure in its Prospectus or this SAI.

Stock Index Options. The Master Portfolios may purchase and write
(i.e., sell) put and call options on stock indices as a substitute for
comparable market positions in the underlying securities. A stock index
fluctuates with changes in the market values of the stocks included in the
index. The aggregate premiums paid on all options purchased may not exceed 20%
of a Master Portfolio's total assets and the value of the options written may
not exceed 10% of the value of the Master Portfolio's total assets.

The effectiveness of purchasing or writing stock index options will
depend upon the extent to which price movements in a Master Portfolio's
portfolio correlate with price movements of the stock index selected. Because
the value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether a Master Portfolio will
realize a gain or loss from purchasing or writing stock index options depends
upon movements in the level of stock prices in the stock market generally or,
in the case of certain indices, in an industry or market segment, rather than
movements in the price of particular stock.

When a Master Portfolio writes an option on a stock index, the Master
Portfolio will place in a segregated account with the Master Portfolio's
custodian cash or liquid securities in an amount at least equal to the market
value of the underlying stock index and will maintain the account while the
option is open or otherwise will cover the transaction.

Stock Index Futures and Options on Stock Index Futures. Each Master
Portfolio may invest in stock index futures and options on stock index futures
as a substitute for a comparable market position in the underlying securities.
A stock index future obligates the seller to deliver (and the purchaser to
take), effectively, an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. With
respect to stock indices that are permitted investments, each Master Portfolio
intends to purchase and sell futures contracts on the stock index for which it
can obtain the best price with consideration also given to liquidity.

Interest-Rate Futures Contracts and Options on Interest-Rate Futures
Contracts. Each Master Portfolio may invest in interest-rate futures contracts
and options on interest-rate futures contracts as a substitute for a comparable
market position in the underlying securities. Each Master Portfolio may also
sell options on interest-rate futures contracts as part of closing purchase
transactions to terminate its options positions. No assurance

12
<PAGE> 37
can be given that such closing transactions can be effected or as to the degree
of correlation between price movements in the options on interest rate futures
and price movements in the Master Portfolio's portfolio securities which are
the subject of the transaction.

Interest-Rate and Index Swaps. Each Master Portfolio may enter into
interest-rate and index swaps in pursuit of its investment objective.
Interest-rate swaps involve the exchange by a Master Portfolio with another
party of their respective commitments to pay or receive interest (for example,
an exchange of floating-rate payments for fixed-rate payments). Index swaps
involve the exchange by the Master Portfolio with another party of cash flows
based upon the performance of an index of securities or a portion of an index
of securities that usually include dividends or income. In each case, the
exchange commitments can involve payments to be made in the same currency or in
different currencies. Each Master Portfolio will usually enter into swaps on a
net basis. In so doing, the two payment streams are netted out, with the
Master Portfolio receiving or paying, as the case may be, only the net amount
of the two payments. If a Master Portfolio enters into a swap, it will
maintain a segregated account on a gross basis, unless the contract provides
for a segregated account on a net basis. If there is a default by the other
party to such a transaction, the Master Portfolio will have contractual
remedies pursuant to the agreements related to the transaction.

The use of interest-rate and index swaps is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. There is no limit,
except as provided below, on the amount of swap transactions that may be
entered into by a Master Portfolio. These transactions generally do not
involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to swaps generally is limited to the
net amount of payments that the Master Portfolio is contractually obligated to
make. There is also a risk of a default by the other party to a swap, in which
case the Fund may not receive net amount of payments that the Master Portfolio
contractually is entitled to receive. Each Fund and Master Portfolio may
invest up to 10% of its respective net assets in interest-rate and index swaps.

Some of the permissible investments described herein are considered
"derivative" securities because their value is derived, at least in part, from
the price of another security or a specified asset, index or rate. For
example, the futures contracts and options on futures contracts that the Master
Portfolios may purchase are considered derivatives. The Master Portfolios may
only purchase or sell these contracts or options as substitutes for comparable
market positions in the underlying securities. Also, asset-backed securities
issued or guaranteed by U.S. Government agencies or instrumentalities and
certain floating- and variable-rate instruments can be considered derivatives.
Some derivatives may be more sensitive than direct securities to changes in
interest rates or sudden market moves. Some derivatives also may be
susceptible to fluctuations in yield or value due to their structure or
contract terms.

13
<PAGE> 38
Wells Fargo Bank and BGFA use a variety of internal risk management
procedures to ensure that derivatives use is consistent with a Master
Portfolio's investment objective, does not expose the Master Portfolio to undue
risk and is closely monitored. These procedures include providing periodic
reports to the Board of Trustees concerning the use of derivatives.

The use of derivatives by the Master Portfolios also is subject to
broadly applicable investment policies. For example, a Master Portfolio may
not invest more than a specified percentage of its assets in "illiquid
securities," including those derivatives that do not have active secondary
markets. Nor may a Master Portfolio use certain derivatives without
establishing adequate "cover" in compliance with Securities and Exchange
Commission rules limiting the use of leverage.

Foreign Obligations. 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
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
interest 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. None of the
Master Portfolios may invest 25% or more of its assets in foreign obligations.

MANAGEMENT OF THE COMPANY

14
<PAGE> 39
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

15
<PAGE> 40
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.

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

</TABLE>

16
<PAGE> 41

<TABLE>
<S> <C> <C>
*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.

Investment Adviser. Wells Fargo Bank provides investment advisory
services to each Master Portfolio pursuant to an Investment Advisory Agreement
dated April 30, 1996 with MIT. Each such Investment Advisory Agreement will be
referred to as the "Advisory Agreement". The Advisory Agreements provide that
Wells Fargo Bank shall furnish to the Master Portfolios investment guidance and
policy direction in connection with the daily portfolio management of each
Master Portfolio. Pursuant to the Advisory Agreements, Wells Fargo Bank
furnishes to the Board of Trustees periodic reports on the investment strategy
and performance of each Master Portfolio. As to each Master Portfolio, the
applicable Advisory Agreement has an initial two-year term, and will thereafter
be subject to annual approval by (i) MIT's Board of Trustees or (ii) vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
such Master Portfolio, provided that in either event the continuance also is
approved by a majority of MIT's Board of Trustees who are not "interested
persons" (as defined in the 1940 Act) of MIT or Wells Fargo Bank, by vote cast
in person at a meeting called for the purpose of voting on such approval. As
to each Master Portfolio, the Advisory Agreement is terminable without penalty,
on 60 days' written notice, by MIT's Board of Trustees or by vote of the
holders of a majority of such Master Portfolio's shares or, on not less than 60
days' written notice, by Wells Fargo Bank. Each Advisory Agreement terminates
automatically, as to the relevant Master Portfolio, in the event of its
assignment (as defined in the 1940 Act).

Wells Fargo Bank has engaged BGFA to provide sub-investment advisory
services to each Master Portfolio of MIT pursuant to a Sub-Investment Advisory
Agreement (the "Sub-Advisory Agreement") dated April 30, 1996. As to each
Master Portfolio, the Sub-Advisory Agreement has an initial two-year term, and
will thereafter be subject to annual approval by (i) MIT's Board of Trustees or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding
securities of such Master Portfolio, provided that in either event the
continuance also is approved by a majority of MIT's Board of Trustees who are
not interested persons (as defined in the 1940 Act) of the Master Portfolio or
BGFA, by vote cast in person at a meeting called for the purpose of voting on
such approval. As to each Master Portfolio, the Sub-Advisory Agreement is
terminable without penalty, on 60 days' written notice, by MIT's Board of
Trustees or by vote of the holders of a majority of such Master Portfolio's
interests. The Sub-Advisory Agreement terminates automatically upon an
assignment (as defined in the 1940 Act). Subject to the direction of MIT's
Board of Trustees and the overall supervision and control of Wells Fargo Bank
and MIT, BGFA is responsible for investing and reinvesting the Master

17
<PAGE> 42
Portfolios' assets. BGFA has agreed to furnish to Wells Fargo Bank periodic
reports on the investment activity and performance of the Master Portfolios,
and such additional reports and information as Wells Fargo Bank and MIT's Board
of Trustees and officers shall reasonably request.

Wells Fargo Bank has agreed to provide to the Master Portfolios, 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 Allocation Master Portfolio and the Asset
Allocation Master Portfolio, average maturities of the portfolios of each of
those Master Portfolios.

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. (the
"Reorganization"). Prior to the Funds' conversion to master/feeder structure,
Wells Fargo Bank provided investment advisory services directly to the Funds.
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
FEES FEES FEES FEES FEES FEES
FUND PAID WAIVED PAID WAIVED PAID WAIVED
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation $3,136,581 -0- $3,907,880 -0- $3,814,364 -0-

Corporate Stock $1,248,207 -0- $1,259,739 -0- $1,398,439 -0-

U.S. Government $1,090,400 -0- $1,034,079 -0- $ 680,049 -0-
Allocation
</TABLE>

Prior to the Reorganization on January 1, 1996 and the Funds'
conversion to master/feeder structure, WFNIA provided sub-advisory services
directly to the Funds. For the years ended December 31, 1993, 1994 and 1995,
Wells Fargo paid to WFNIA the sub-advisory fees indicated below with respect to
the Funds (before the conversion to master/feeder structure):

18
<PAGE> 43
<TABLE>
<CAPTION>
1993 1994 1995
FUND FEES PAID FEES PAID FEES PAID
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset Allocation $1,586,982 $2,106,980 $2,043,249

Corporate Stock $ 239,319 $ 241,489 $ 269,787

U.S. Government $ 366,951 $ 353,761 $ 244,478
Allocation
</TABLE>

Administrator and Distributor. The Company has retained Stephens as
administrator and distributor on behalf of each of its Funds. Each
Administration Agreement between Stephens and each Fund states that Stephens
shall provide as administrative services, among other things: (i) general
supervision of the operation of the Fund, including coordination of the
services performed by Wells Fargo Bank, transfer and dividend disbursing agent,
custodian, shareholder servicing agent(s), independent public accountants and
legal counsel, regulatory compliance, including the compilation of information
for documents such as reports to, and filings with, the SEC and state
securities commissions; and preparation of proxy statements and shareholder
reports for the Fund; and (ii) general supervision relative to the compilation
of data required for the preparation of periodic reports distributed to the
Company's officers and Board of Directors. Stephens also furnishes office
space and certain facilities required for conducting the business of the Fund
together with those ordinary clerical and bookkeeping services that are not
being furnished by Adviser. Stephens also pays the compensation of the
Company's Directors, officers and employees who are affiliated with Stephens.

For the fiscal 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 $238,347 $315,787 $306,436

Corporate Stock Fund $ 74,804 $ 75,748 $ 92,555

U.S. Government Allocation Fund $ 65,395 $ 62,168 $ 40,803
</TABLE>

The Advisory Agreement for each Master Portfolio and the
Administration Agreements for each Fund and Master Portfolio provide that if,
in any fiscal year, the

19
<PAGE> 44
total expenses of the Fund and corresponding Master Portfolio incurred by, or
allocated to, the Fund or corresponding Master Portfolio (excluding taxes,
interest, brokerage commissions and other portfolio transaction expenses, other
expenditures that are capitalized in accordance with generally accepted
accounting principles, extraordinary expenses and amounts accrued or paid under
the Plan (defined below) but including the fees provided for in the Advisory
Agreement and the Administration Agreements) exceed the most restrictive
expense limitation applicable to the Fund and/or corresponding Master Portfolio
imposed by the securities laws or regulations of the states from time to time
in which the Fund's shares are registered for sale, Adviser and Stephens shall
waive or reimburse their fees proportionately under the Advisory Agreement and
the Administration Agreements, respectively, for each Fund or corresponding
Master Portfolio for the fiscal year to the extent of the excess or reimburse
the excess, but only to the extent of their respective fees. The Advisory
Agreement for each Master Portfolio and the Administration Agreements for each
Fund and Master Portfolio further provide that the total expenses of the Fund
or Master Portfolio shall be reviewed monthly so that, to the extent the
annualized expenses for such month exceed the most restrictive applicable
annual expense limitation, the monthly fees under the agreements shall be
reduced as necessary. The most stringent applicable restriction limits these
expenses for any fiscal year to 2.50% of the first $30 million of the average
net assets of the Fund and/or the corresponding Master Portfolio, 2.00% of the
next $70 million of average net assets, and 1.50% of the average net assets in
excess of $100 million. To the extent the Funds and/or the Master Portfolios
will incur miscellaneous expense in connection with the conversion to
master/feeder structure, Wells Fargo Bank has agreed to absorb such expenses
for at least one year following the Reorganization.

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. The dollar amount of
shareholder servicing fees paid by the Corporate Stock Fund and each class of
the Asset Allocation and U.S. Government Allocation Funds for each of the last
three fiscal years is listed below:

<TABLE>
<CAPTION>
FUND 1995
- ----------------------------------------------------------
<S> <C>
Corporate Stock Fund $ 861,478

Asset Allocation Fund: Class A $3,029,551

Asset Allocation Fund: Class B $ 34,813

U.S. Government Allocation Fund: Class A $ 406,707

U.S. Government Allocation Fund: Class B $ 1,322
</TABLE>

20
<PAGE> 45
Custodian and Transfer and Dividend Disbursing Agent. BZW Barclays
Global Investors, N.A. ("BGI") acts as the custodian for the Funds and the
Master Portfolios. For its services as custodian, BGI receives an asset-based
fee and transaction charge from the respective Funds. For the year ended
December 31, 1995, the Funds did not pay any custody fees.

Wells Fargo Bank has been retained to act as the transfer and dividend
disbursing agent for the Funds, and receives for its services a base fee and
per-account fees from each Fund. For the year 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>
Asset Allocation Fund $470,918

Corporate Stock Fund $ 43,987

U.S. Government Allocation Fund $ 95,715
</TABLE>

Underwriting Commissions. For the fiscal years ended December 31,
1993 and 1994, the Funds' distributor retained $26,215,173 and $5,415,227,
respectively, in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Fund shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), and its registered representatives received $378,895 and $904,274,
respectively, in underwriting commissions in connection with the purchase or
redemption of Fund shares.

For the year ended December 31, 1995, the aggregate amount of
underwriting commissions paid to Stephens on sales/redemptions of the
Registrant's shares was $1,251,311. Stephens retained $162,660 of such
commissions. WFSI and its registered representatives retained $399,809 of such
commissions.

DISTRIBUTION PLANS

As indicated in each Fund's respective Prospectus, each of the Funds
has adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act
and Rule 12b-1 thereunder (the "Rule"). The Plans for the Corporate Stock Fund
and the shares now designated the Class A Shares of each other Fund were
adopted by the Company's Board of Directors on October 22, 1991, including a
majority of the Directors who were not "interested persons" (as defined in the
1940 Act) of the respective 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"), and were approved by the initial shareholder of

21
<PAGE> 46
each Fund on December 31, 1991. The Plans for the Class B shares of each Fund
having such shares were adopted by the Company's Board of Directors, including
a majority of the Qualified Directors, on July 27, 1994.

The Plans in effect for the Corporate Stock Fund and the Class A
Shares of each other Fund allow such Funds to 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 each
such Fund by paying on an annual basis up to 0.05% of the respective Fund's
average daily net assets or average daily net assets attributable to Class A
Shares of such Fund, as the case may be. The plans for the Corporate Stock
Fund and Class A Shares of the other Funds provide only for the reimbursement
of actual expenses. The plans for the Class B Shares allow each Fund with such
shares to pay to Stephens Inc., as compensation for distribution-related
services provided, or as reimbursement for distribution-related expenses
incurred a monthly fee at the annual rate of up to 0.70% of the average daily
net assets attributable to the Class B Shares of each respective Fund. The
actual fee payable to Stephens shall, within such limit, be determined from
time to time by mutual agreement between the Company and Stephens. In
addition, each Plan contemplates that to the extent any fees payable pursuant
to a Shareholder Servicing Agreement are deemed to be for distribution-related
services, rather than shareholder services, such payments are approved and
payable pursuant to such Plan.

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. Any agreements related to the Plans
("Agreements") also must be approved by majority vote of the Directors and the
Qualified Directors. Such Agreements will terminate automatically if assigned.
The Corporate Stock Fund may terminate such Agreements at any time, without
payment of any penalty, by a vote of a majority of the outstanding voting
securities of such Fund. Each of the Funds with Class A and Class B shares may
terminate such Agreements at any time, without payment of any penalty, by a
vote of a majority of outstanding voting securities of the Class of shares
affected by such Agreement. The amounts payable under each Plan may not be
increased materially without, in the case of the Corporate Stock Fund, the
approval of a majority of the voting securities of such Fund, or, in the case
of the other Funds, without the approval of a majority of the voting securities
of each Class of Funds effected by such Agreements. Material amendments to a
Plan may not be made except by affirmative vote of a majority of both the
Directors of the Company and the Qualified Directors.

Each 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.

22
<PAGE> 47
For the year ended December 31, 1995, the Funds paid the fees and/or
expenses listed below pursuant to their 12b-1 distribution plans.

<TABLE>
<CAPTION>
PRINTING & MARKETING COMPENSATION
FUND TOTAL MAILING BROCHURES TO
PROSPECTUS DEALERS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Allocation Fund
Class A $955,893 $58,656 $897,237 N/A
Class B $ 59,525 N/A N/A $59,525

Corporate Stock Fund $ 41,620 $16,503 $ 25,117 N/A

U.S. Government Allocation
Fund
Class A $ 95,225 $19,422 $ 75,803 N/A
Class B $ 13,468 N/A N/A $13,468
</TABLE>

PERFORMANCE CALCULATIONS

As described in the Prospectuses for each Fund, the IRA Funds of the
Trust were reorganized into the corresponding Funds of the Company on January
2, 1992. Therefore, the performance information for the Funds is based on that
of the IRA Funds for the periods prior to January 2, 1992, and reference should
be made to the footnotes to the condensed financial information in the
"Financial Highlights" section of each Prospectus regarding differences in
investment objectives, policies and/or restrictions between certain of the
Funds and the IRA Funds, which may affect the relevance of the performance
information provided below.

The Corporate Stock Fund may advertise certain total return
information computed in the manner described in each Funds' 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 shares of the Fund ("P")
over a period of years ("n") according to the following formula: P(1+T)n = ERV.
In addition, the Corporate Stock Fund, at times, may 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 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.

23
<PAGE> 48
The Asset Allocation and U.S. Government Allocation Funds may
advertise certain total return information with respect to each class of shares
computed in the manner described in such Fund's 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 Class of shares ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, the Funds that assess a sales charge, at times, also may calculate
total return based on net asset value per share of each Class (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 for the period since inception (March
31, 1987) to December 31, 1995 for the Class A Shares of the U.S. Government
Allocation Fund, assuming a 4.50% sales load, was 7.93%. The average annual
total return on Class A Shares for the same period, assuming no sales load, was
8.50%. The average annual total return on Class A Shares for the five-year
period ended December 31, 1995, assuming a 4.50% sales load, was 8.36%. The
average annual total return on Class A Shares for the same period, assuming no
sales load, was 9.36%. The annual total return on Class A Shares for the year
ended December 31, 1995, assuming a 4.50% sales load, was 9.73%. The annual
total return for the Class A Shares for the same period, assuming no sales
load, was 14.91%.

The annual total return on the Class B Shares of the U.S. Government
Allocation Fund for the year ended December 31, 1995, assuming payment of the
maximum CDSC was 11.11%. The annual total return on the Class B Shares for the
same period if no CDSC was paid was 14.11%.

The average annual total return for the period since inception
(November 13, 1986) to December 31, 1995, for the Class A Shares of the Asset
Allocation Fund, assuming a 4.50% sales load was 11.05%. The average annual
return for the same period on Class A Shares, assuming no sales load, was
11.61%. The average annual total return on Class A Shares for the five-year
period ended December 31, 1995, assuming a 4.50% sales load, was 12.49%. For
the same period the average annual total return on Class A Shares, assuming no
sales load, was 13.53%. The annual total return on Class A Shares for the year
ended December 31, 1995, assuming a 4.50% sales load, was 23.36%. For the same
period, the annual total return on Class A Shares, assuming no sales load, was
29.18%.

The annual total return on the Class B Shares of the Asset Allocation
Fund for the year ended December 31, 1995, assuming payment of the maximum CDSC
was 24.72%.

24
<PAGE> 49
The annual total return on Class B Shares for the same period if the CDSC was
not paid was 27.72%.

The average annual total return assuming a purchase at net asset
value, for the period since inception (January 25, 1984) to December 31, 1995,
for the Corporate Stock Fund was 14.10%. Similarly, the average annual total
return for the five-year period ended December 31, 1995, was 15.33%. For the
year ended December 31, 1995, average annual total return on shares of the
Corporate Stock Fund was 35.99%.

Each of the Asset Allocation and U.S. Government Allocation Funds may
advertise cumulative total return on its Class A and B 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 for the Class A Shares of the Asset
Allocation Fund from inception to December 31, 1995, assuming a 4.50% sales
load and no sales load, was 160.28% and 172.52%, respectively. The cumulative
total return for the Class A Shares for the five-year period ended December 31,
1995, assuming a 4.50% sales load and no sales load, was 80.12% and 88.59%,
respectively. The cumulative total return on the Class A Shares for the
three-year period ended December 31, 1995, assuming a 4.50 sales load and no
sales load, was 37.82% and 44.29%, respectively.

The cumulative total return for the Class A Shares of the U.S.
Government Allocation Fund from inception to December 31, 1995, assuming a
4.50% sales load and no sales load, was 96.30% and 105.53%, respectively. The
cumulative total return for the Class A Shares for the five-year period ended
December 31, 1995, assuming a 4.50% sales load and no sales load, was 49.36%
and 56.41%, respectively. The cumulative total return on the Class A Shares
for the three-year period ended December 31, 1995, assuming a 4.50% sales load
and no sales load, was 19.87% and 25.54%, respectively.

The cumulative total return on the shares of the Corporate Stock Fund
from inception to December 31, 1995 was 381.62%. The cumulative total return
for the ten-year period ended December 31, 1995 was 253.09%. The cumulative
total return for the five-year period ended December 31, 1995 was 104.08. The
cumulative total return for the three-year period ended December 31, 1995 was
48.73%.

As indicated in its Prospectus, the U.S. Government Allocation Fund
may advertise certain yield information on their shares. As and to the extent
required by the SEC, yield on each Class of shares, will be calculated based on
a 30-day (or one month) period, computed by dividing the net investment income
per share earned during the

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<PAGE> 50
period by the maximum offering price per share 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
outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share on the last day of the period. 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 a Fund's 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.

The yield for the 30-day period ended December 31, 1995, assuming a
maximum sales load of 4.50%, on the Class A Shares of the U.S. Government
Allocation Fund was 4.24%. The 30-day yield for the same period on the Class A
Shares, assuming no sales charge, was 4.25%.

The yield on each Class of the U.S. Government Allocation 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 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.

In addition, investors should recognize that changes in the net asset
values of shares of each Class of the U.S. Government Allocation Fund will
affect the yield of each such Class for any specified period, and such changes
should be considered together with the yield of each Class in ascertaining the
total return for the period to shareholders of each Fund. Yield information
for each Fund or each Class of shares of the Funds, as the case may be, may be
useful in reviewing the performance of such Funds and for providing a basis for
comparison with investment alternatives. The yield of each Fund or each Class
of a Fund, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.

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

26
<PAGE> 51
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, sap'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 Fund or Class of shares, as appropriate, 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 Fund or Class of shares, as appropriate,
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 Fund or Class of shares 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.

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.

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<PAGE> 52
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 Fund: (i) the Consumer Price Index may be used to assess the
real rate of return from an investment in a Fund; (ii) other government
statistics, including, but not limited to, The Survey of Current Business, may
be used to illustrate investment attributes of a Fund or the general economic,
business, investment, or financial environment in which a Fund operates; (iii)
the effect of tax-deferred compounding on the investment returns of a Fund or a
Class of shares, or on returns in general, may be illustrated by graphs,
charts, etc., where such graphs or charts would compare, at various points in
time, the return from an investment in a Fund or Class of shares (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (iv) the sectors or industries in which a Fund invests may be
compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys)
to evaluate a Fund's historical performance or current or potential value with
respect to the particular industry or sector.

In addition, performance information for a Class of shares of the U.S.
Government Allocation Fund, the Asset Allocation Fund and the shares of the
Corporate Stock 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
results of a Fund or Class of shares 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
investment strategy of the U.S. Government Allocation Fund and the
corresponding Master Portfolio and the Asset Allocation Fund and the
corresponding Master Portfolio and a comparison of this strategy with other
investment strategies. In particular, the responsiveness of these Funds as to
changing market conditions may be discussed. For example, the Company may
describe the benefits derived by having Wells Fargo Bank monitor and reallocate
investments among the asset categories described in the Prospectus of each Fund
and Master Portfolio. The Company's advertising or other marketing material
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 Master Portfolio 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.

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<PAGE> 53
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 a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a 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 a Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.

From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the 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 June 30, 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 also may disclose in sales literature, information and
statements the distribution rate on the shares of each class of the Fund.
Distribution rate, which may be annualized, is the amount determined by
dividing the dollar amount per share of the most recent dividend by the most
recent NAV or maximum offering price per share as of a date specified in the
sales literature. Distribution rate will be accompanied by the standard 30-day
yield as required by the SEC.

The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or
through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.

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<PAGE> 54
DETERMINATION OF NET ASSET VALUE

Net asset value per share for each Master Portfolio or per share for
each Class of each Master Portfolio is determined by the Custodian of the
Master Portfolio on each day the NYSE is open for trading.

Securities of a Master Portfolio for which market quotations are
available are valued at latest prices. Securities of a Master Portfolio 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.
Futures contracts will be marked to market daily at their respective settlement
prices determined by the relevant exchange. These prices are not necessarily
final closing prices, but are intended to represent prices prevailing during
the final 30 seconds of the trading day. 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 NYSE, or, in the absence of any sale on the valuation date, at
latest quoted bid prices. Options not listed on a 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 Master
Portfolios 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

GENERAL

MIT 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 MIT's Board of Trustees, Wells Fargo Bank is responsible for
each Master Portfolio's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the MIT 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.

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<PAGE> 55
Except in the case of equity securities purchased by the Corporate
Stock Master Portfolio and the Asset Allocation Master Portfolio, 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 Master Portfolios
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, money market
securities, ARMs and CMOs are traded on a net basis and do not involve
brokerage commissions. The cost of executing a Master Portfolio's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with MIT are
prohibited from dealing with MIT 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 Corporate Stock and Asset Allocation Master Portfolios.
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. No Master Portfolio will 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 SEC or unless an
exemption is otherwise available.

In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolios to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews of
the stock, bond, and government securities markets and the economy.

Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and does
not reduce the advisory fees payable by the Master Portfolios. The Board of
Trustees will periodically review the commissions paid by the Master Portfolios
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolios. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the Master Portfolios may be the primary beneficiary of the research or
services received as a result of portfolio transactions effected for such other
account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.

Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to a Master Portfolio's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
securities, markets, specific industry groups and individual companies;
information on political developments; portfolio management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to Wells Fargo
Bank and to MIT's Trustees with respect to the performance, investment
activities and fees and expenses of other mutual funds. Such information may
be communicated electronically, orally or in written form. Research services
may also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.

The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolios by improving the quality
of Wells Fargo Bank's investment advice. The advisory fees paid by the Master
Portfolios are not reduced because Wells Fargo Bank receives such services.

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Brokerage Commissions. For the year ended December 31, 1993, the
Asset Allocation Fund and the Corporate Stock Fund paid brokerage commissions
in the amounts of $294,861 and $30,123, respectively. For the year ended
December 31, 1994, the Asset Allocation Fund and the Corporate Stock Fund paid
brokerage commissions in the amounts of $99,002 and $31,896, respectively. For
the year ended December 31, 1995, the Asset Allocation Fund and Corporate Stock
Fund paid brokerage commissions in the amounts of $34,488 and $8,696,
respectively. The U.S. Government Allocation Fund did not pay any brokerage
commissions during 1995 and none of the Funds paid brokerage commissions to
affiliated brokers.

The higher portfolio turnover rate for the U.S. Government Allocation
Master Portfolio should not adversely affect this Master Portfolio because
portfolio transactions ordinarily are made directly with principals on a net
basis and, consequently, this Master Portfolio usually does not incur brokerage
expenses. Portfolio turnover rate is not a limiting factor when Wells Fargo
Bank deems portfolio changes appropriate.

Securities of Regular Broker/Dealers. As of December 31, 1995, none
of the Funds owned securities of their regular broker-dealers.

FEDERAL INCOME TAXES

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

Qualification 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 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 each 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 each Fund's
assets and 10% of the outstanding voting

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<PAGE> 57
securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or of two or more issuers which the taxpayer 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 be deemed to own a proportionate share of the
Master Portfolio assets. 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
stockholders at least 90% of its net investment income and tax-exempt income
earned in each year.

A 4% nondeductible excise tax will be imposed on each Fund (other than
to the extent of each Fund's tax-exempt income) to the extent it does not meet
certain minimum distribution requirements by the end of each calendar year.
For this purpose, any income or gain retained by each Fund that is subject to
income tax will be considered to have been distributed by year-end. Each Fund
intends to distribute substantially all of its net investment income and net
capital gains and, thus, expects not to be subject to the excise tax.

Income and dividends received by each 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 each Fund is expected to
consist of securities of foreign issuers, each Fund will not be eligible to
elect to "pass through" foreign tax credits to shareholders.

Each Master Portfolio will be treated as a non-publicly traded
partnership rather than as a regulated investment company or a corporation
under the Code. As a non-publicly traded partnership under the Code, any
interest, dividends and gains or losses of each Master Portfolio will be deemed
to have been "passed through" to its corresponding Fund bearing the same name
and any other investors in each Master Portfolio, regardless of whether or not
such interest, dividends or gains have been distributed by the Master Portfolio
or losses have been realized (through contribution) by its corresponding Fund
and any other investors. Therefore, to the extent each Master Portfolio were
to accrue but not distribute any interest, dividends, or gains, its
corresponding Fund would be deemed to have realized and recognized its
proportionate share of interest, dividends, or gains without receipt of any
corresponding distribution. However, each Master Portfolio will seek to
minimize recognition by investors of interest, dividends, or gains without a
corresponding distribution.

Gains or losses on sales of portfolio securities by each Master
Portfolio 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 each Master Portfolio

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<PAGE> 58
acquires a put or writes a call thereon. Other gains or losses on the sale of
securities will be short-term capital gains or losses. Gain recognized on the
disposition of a debt obligation (including, with respect to obligations
purchased after April 30, 1993, tax-exempt obligations) purchased by each
Master Portfolio at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the
Master Portfolio held the debt obligation.

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 a
capital gains distribution 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 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 thereon.

Any loss realized on a redemption or exchange of shares of any 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.
In addition, if a shareholder exchanges or otherwise disposes of Fund shares
within 90 days of having acquired such shares, and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
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.

As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6%, the maximum individual rate applicable
to net realized capital gains is 28% and the maximum corporate tax rate
applicable to ordinary income and net realized capital gains is 35%. 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.

If an option written by a Master Portfolio lapses or is terminated
through a closing transaction, such as a repurchase by such Master Portfolio of
the option from its holder, the Master Portfolio 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 Master Portfolio in the closing transaction.
Some realized capital losses may be deferred if they result from a position
which is part of a tax straddle.

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<PAGE> 59
If securities are sold by a Master Portfolio pursuant to the exercise
of a call option written by it, such Master Portfolio will add the premium
received to the sale price of the securities delivered in determining the
amount of gain or loss on the sale. If securities are purchased by a Master
Portfolio pursuant to the exercise of a put option written by it, such Master
Portfolio will subtract the premium received from its cost basis in the
securities purchased. The requirement that the Master Portfolio derive less
than 30% of its gross income from gains from the sale of securities held for
less than three months may limit the Master Portfolio's ability to write
options.

The amount of any gain or loss realized by a Master Portfolio 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 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,
generally 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 marked to market rule and the
"60%/40%" rule. Currency transactions may be subject to Section 988 of the
Code, under which foreign currency gains or losses would generally be computed
separately and treated as ordinary income or losses. Each Master Portfolio
will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.

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.

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

Foreign Shareholders. Under the Code, distributions of net investment
income by any Fund to a nonresident alien individual, non-resident 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
each 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 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 and real estate mortgage investment conduit ("REMIC")
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, and thereby its corresponding Fund, in which
case the Fund may distribute cash derived from other sources in order to meet
the minimum distribution requirements described above.

The foregoing discussion, and the discussions in the prospectus
applicable to each shareholder, address only some of the federal tax
considerations generally affecting investments in a Fund. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
federal, state or local taxes.

FUND EXPENSES

36
<PAGE> 61
reports, notices, proxy statements and reports to regulatory agencies;
insurance premiums and certain expenses relating to insurance coverage; trade
association membership dues; brokerage and other expenses connected with the
execution of portfolio transactions; fees and expenses of its custodian,
including those for keeping books and accounts and calculating the NAV per
share of a Fund; expenses of shareholders' meetings; expenses relating to the
issuance, registration and qualification of Fund shares; pricing services, and
any extraordinary expenses. Expenses attributable to a Fund are charged
against a Fund's assets. General expenses of the Company are allocated among
all of the funds of the Company, including a Fund, in a manner proportionate to
the net assets of each Fund, on a transactional basis, or on such other basis
as the Company's Board of Directors deems equitable.

CAPITAL STOCK

The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of fourteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth, the Asset Allocation Fund,
the California Tax-Free Bond Fund, the California Tax-Free Income Fund, the
California Tax-Free Money Market Mutual Fund, the Corporate Stock Fund, the
Diversified Income Fund, the Ginnie Mae Fund, the Growth and Income Fund, the
Money Market Mutual Fund, the Short-Intermediate U.S. Government Income Fund,
the U.S. Government Allocation Fund, the Variable Rate Government Fund and the
Strategic Growth Fund -- and the Board of Directors may, in the future,
authorize the issuance of other series of capital stock representing shares of
additional investment portfolios.

The Asset Allocation and U.S. Government Allocation Funds have two
classes of shares -- Class A shares and Class B shares. The Corporate Stock
Fund has a single class of shares. With respect to matters affecting one Class
but not another, shareholders vote as a Class. Subject to the foregoing, all
shares of a Fund have equal voting rights and will be voted in the aggregate,
and not by series, except where voting by a series is required by law or where
the matter involved only affects one series. For example, a change in a Fund's
fundamental investment policy affects only one series and would be voted upon
only by shareholders of the Fund involved. Additionally, approval of an
advisory contract, since it affects only one Fund, is a matter to be determined
separately by Series. Approval by the shareholders of one Series is effective
as to that Series whether or not sufficient votes are received from the
shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus of each Fund and in this SAI, the term "majority,"
when referring to approvals to be obtained from shareholders of a Class of
shares of a Fund, means the vote of the lesser of (i) 67% of the shares of the
Class represented at a meeting if the holders of more than 50% of the
outstanding shares of the Class are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Class of the Fund. As used in the
Prospectus of each Fund and in this SAI, the term "majority," when referring to
approvals to be obtained from shareholders of the Fund, means the vote of the
lesser of (i) 67% of the shares of the Fund represented at a meeting if the
holders of more than 50% of the

37
<PAGE> 62
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 an annual meeting of shareholders in any
year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.

Each share of a Fund or Class represents an equal proportional
interest in the Fund or Class 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 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.

MIT is an open-end, series management investment company organized as
a Delaware business trust. In accordance with Delaware law and in connection
with the tax treatment sought by MIT, MIT's Declaration of Trust provides that
its investors would be personally responsible for MIT's liabilities and
obligations, but only to the extent MIT property is not sufficient to satisfy
such liabilities and obligations. The Declaration of Trust also provides that
MIT shall maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of MIT, 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 MIT 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 MIT itself was
unable to meet its obligations.

38
<PAGE> 63
The Declaration of Trust further provides that obligations of MIT are
not binding upon its Trustees individually but only upon the property of MIT
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 each Master Portfolio of MIT have substantially
identical voting and other rights as those rights described above for shares of
the Funds. MIT may 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
a Fund is required to vote on a matter with respect to MIT, 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 MIT,
such 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, no shareholders of the Corporate Stock Fund,
nor any Class A or Class B shareholder of the Asset Allocation Fund and U.S.
Government Allocation Fund, were known by the Company to own 5% or more of
their respective outstanding shares.

OTHER

The Registration Statements for MIT and the Company, including the
Prospectus for each Fund, the SAI and the exhibits filed therewith, may be
examined at the office of the SEC in Washington, D.C. Statements contained in
a Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in a 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 MIT. 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.

39
<PAGE> 64
FINANCIAL INFORMATION

The portfolio of investments, financial statements and independent
auditors' report for the Funds contained in Post-Effective Amendment No. 21 to
the Company's Registration Statement, as filed on Form N-1A with the SEC on
February 29, 1996, are hereby incorporated by reference into this SAI. The
portfolio of investments, audited financial statements and independent
auditors' reports are attached to all SAIs delivered to current or prospective
shareholders.

40
<PAGE> 65
SAI APPENDIX

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

Corporate Bonds

Moody's: The four highest ratings for corporate bonds are "Aaa,"
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Bonds rated "Aa" are of
"high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1,
2 and 3 in each rating category from "Aa" through "Baa" in its rating system.
The modifier 1 indicates that the security ranks in the higher end of its
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.

S&P: The four highest ratings for corporate bonds are "AAA," "AA,"
"A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by S&P and
have an extremely strong capacity to pay interest and repay principal. Bonds
rated "AA" have a "very strong capacity to pay interest and repay principal"
and differ "from the highest rated issued only in small degree." Bonds rated
"A" have a "strong capacity" to pay interest and repay principal, but are
"somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.

Corporate Commercial Paper

Moody's: The highest rating for corporate commercial paper is "P-1"
(Prime-1). Issuers rated "P-1" have a "superior capacity for repayment of
short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.

A-1
<PAGE> 66
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-2
<PAGE> 67

STAGECOACH FUNDS, INC.

Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
Dated April 29, 1996
as Amended on September 6, 1996

DIVERSIFIED INCOME FUND

CLASS A AND CLASS B

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

Stagecoach 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 DIVERSIFIED
INCOME FUND (the "Fund"). This SAI relates to Class A and Class B shares. The
investment objective of the Fund is described in the Prospectus under the
selection entitled "How the Fund Works -- Investment Objective and Policies."

This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus dated September 6, 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. ("Stephens"), 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> 68
TABLE OF CONTENTS

Statement of Additional Information

<TABLE>
<S> <C>
Investment Restrictions... . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities. . . . . . . . . . . 5
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . 12
Performance Calculations. . . . . . . . . . . . . . . . . . . . 14
Determination of Net Asset Value. . . . . . . . . . . . . . . . 17
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . 18
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . 19
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . 22
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Independent Auditors . . . . . . . . . . . . . . . . . . . . . 23
Financial Information . . . . . . . . . . . . . . . . . . . . . 23
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 69

INVESTMENT RESTRICTIONS

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

(1) The Fund may not 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 equal or exceed 25% of the current value of
the Fund's total assets, provided that there is no limitation with respect to
investments in securities issued or guaranteed by the United States Government,
its agencies or instrumentalities.

(2) The Fund may not 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) The Fund may not purchase securities on margin (except for
short-term credits necessary for the clearance of transactions) or make short
sales of securities.

(4) The Fund may not 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) The Fund may not make investments for the purpose of
exercising control or management.

(6) The Fund may not 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 borrowings
exceed 5% of its net assets.

(7) 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 would own more than 10% of the outstanding voting securities of such
issuer.

(8) The Fund may not write, purchase or sell puts, calls or
options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity.

3
<PAGE> 70

(9) The Fund may not make loans of 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 policy (9), the Fund does
not intend to loan its portfolio securities during the coming year.

Non-Fundamental Investment Policies. The Fund is subject to the
following non-fundamental policies; that is, they may be changed by a majority
vote of the Board of Directors without shareholder approval:

(1) The Fund may invest not 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 may not 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 (0.50%) of the securities
of the issuer together own beneficially more than 5% of such securities.

(3) The Fund 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. The Fund does not intend to invest more than 5%
of its net assets in such securities during the coming year. Notwithstanding
any other investment policy or limitation (whether or not fundamental), the
Fund may invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies and limitations as the Fund.

(4) The Fund may not 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 if, by reason
thereof, the value of its aggregate investment in such securities will exceed
5% of its total assets.

(5) The Fund may not purchase or sell real estate limited
partnership interests.

(6) The Fund will not invest more than 10% of its net assets in
illiquid securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale, (b) fixed time
deposits that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable within seven
days.

4
<PAGE> 71

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Privately Issued Securities (Rule 144A). The Fund may invest in
privately issued securities which may be resold only in accordance with Rule
144A under the Securities Act of 1933 ("Rule 144A Securities"). Rule 144A
Securities are restricted securities and will not be publicly traded.
Accordingly, the liquidity of the market for specific Rule 144A Securities may
vary. The investment adviser, under guidelines approved by Board of Directors
of the Company will evaluate the liquidity characteristics of each Rule 144A
Security proposed for purchase by the Fund on a case-by-case basis and will
consider the following factors, among others, in their evaluation: (1) the
frequency of trades and quotes for the Rule 144A Security; (2) the number of
dealers willing to purchase or sell the Rule 144A Security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
Rule 144A Security; and (4) the nature of the Rule 144A Security and the nature
of the marketplace trades (e.g., the time needed to dispose of the Rule 144A
Security, the method of soliciting offers and the mechanics of transfer).

Warrants. The Fund may invest not 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 Fund may only
purchase warrants on securities in which the Fund may invest directly.

When-Issued Securities. The Fund 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
Fund does not intend to invest more than 5% of its net assets in when-issued
securities during the coming year. The Fund will only 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 segregate 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 segregate additional liquid assets on a daily
basis so that the value of the segregated assets is equal to the amount of such
commitments.

5
<PAGE> 72

Other Investment Companies. As a shareholder in another
investment company, the Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees, in addition to the advisory and other expenses the Fund bears directly in
connection with its own operations.

Unrated Investments. The 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 the Fund. After purchase by a Fund, a security may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund. To
the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.

Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Fund may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of the Fund
may be used for letter of credit-backed investments.

Convertible Securities (Lower Rated Securities). Subject to the
limitations described in the Fund's Prospectus, the Fund may invest in
convertible securities that are not rated in one of the four highest rating
categories by a NRSRO. The yields on such lower rated securities, which
includes securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.

6
<PAGE> 73

conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable unrated securities
may diminish the Fund's ability to (a) obtain accurate market quotations for
purposes of valuing such securities and calculating its net asset value and (b)
sell the securities at fair value either to meet redemption requests or to
respond to changes in the economy or in financial markets.

Certain lower rated debt securities and comparable unrated
securities frequently have call or buy-back features that permit their issuers
to call or repurchase the securities from their holders, such as the Fund. If
an issuer exercises these rights during periods of declining interest rates,
the Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to the Fund.

The market for certain lower rated securities and comparable
unrated securities is relatively new and has not weathered a major economic
recession. The effect that such a recession might have on such securities is
not known. Any such recession, however, could disrupt severely the market for
such securities and adversely affect the value of such securities. Any such
economic downturn also could adversely affect the ability of the issuers of
such securities to repay principal and pay interest thereon.

MANAGEMENT

7
<PAGE> 74
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

8
<PAGE> 75
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.

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>

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> 76

Investment Adviser. The Fund is advised by Wells Fargo Bank
pursuant to an Advisory Contract which 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
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 to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:

10
<PAGE> 77

<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
FEES FEES FEES FEES FEES FEES
FUND PAID WAIVED PAID WAIVED PAID WAIVED
- -------------------------------------------------------------------------------------------------------
Diversified $ 0 $63,535 $192,033 $ 0 $312,512 $ 0
Income Fund
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. The Administration
Agreement between Stephens and the Fund states that Stephens shall provide as
administrative services, among other things: (i) general supervision of the
operation of the Fund, including coordination of the services performed by the
Fund's investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent(s), independent public accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions; and preparation of proxy statements and shareholder reports for
the Fund; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Company's
Officers and Board of Directors. Stephens also furnishes office space and
certain facilities required for conducting the business of the Fund 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, 1993, 1994 and 1995, the Fund
paid administrative fees to Stephens as follows:

<TABLE>
<S> <C> <C> <C>
FUND 1993 1994 1995
- --------------------------------------------------------------------------------------------------------
Diversified Income Fund $3,810 $11,522 $18,751
</TABLE>

The Advisory Contract and Administration Agreement for the Fund
provide that if, in any fiscal year, the total expenses of the Fund incurred
by, or allocated to, the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for the Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration Agreement for the Fund further provide
that the Fund's total expenses shall be reviewed monthly so that, to the extent
the annualized expenses for such month exceed the most restrictive applicable
annual expense limitation, the monthly fees under the contract and the
agreement shall

11
<PAGE> 78

be reduced as necessary. The most stringent applicable restriction limits
these expenses for any year to 2.50% of the first $30 million of the Fund's
average net assets, 2.00% of the next $70 million of average net assets, and
1.5% of the average net assets in excess of $100 million.

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. The
dollar amount of shareholder servicing fees paid by the Fund to Wells Fargo
Bank or its affiliates for the year ended December 31, 1995 was as follows:

FUND 1995
---------------------------------------------------------------------------
Diversified Income Fund $174,644

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. For its services as transfer and dividend disbursing agent, Wells
Fargo Bank receives a base fee and per-account fees. For the year ended
December 31, 1995, the Fund did not pay any custody fees or transfer and
dividend disbursing agency fees to Wells Fargo Bank for such services.

Underwriting Commissions. For the years ended December 31, 1993
and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of the Company's shares.
For the years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of the Company's
shares.

For the year ended December 31, 1995, the aggregate amount of
underwriting commissions on sales/redemptions of the Company's shares was
$1,584,545. Stephens retained $1,251,311 of such commissions. WFSI and its
registered representatives retained $333,234 of such commissions.

DISTRIBUTION PLAN

As indicated in the Prospectus, the Fund, on behalf of each Class
of shares, has adopted a distribution plan (a "Plan") under Section 12(b) of
the 1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plan for the shares
of the Fund now designated the Class A Shares

12
<PAGE> 79

was adopted on October 22, 1992, 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"), and was approved by the initial shareholder of the Fund
on October 21, 1992. The Plan for the Class B Shares was adopted by the Board
of Directors, including a majority of Qualified Directors, on July 27, 1994.

Under the Class A 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
the Fund by paying on an annual basis up to 0.05% of the average daily net
assets attributable to Class A Shares. The Class A Plan provides only for
reimbursement of actual expenses. Under the Class B 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 Fund shareholders by paying on an annual basis up to 0.70% of the
average daily net assets of Class B Shares. The Class B Plan provides for
reimbursement of actual expenses and payment of compensation to the Distributor
and Selling Agents for sales support services. In addition, the Plans
contemplate that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.

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. 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 Class 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
Class of the Fund to which said Plan applies, and no material amendment to a
Plan may be made except by the affirmative vote of a majority of both the
Directors of the Company and the Qualified Directors.

Each 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 such 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 the Plan for each Class.

13
<PAGE> 80

<TABLE>
<CAPTION>
PRINTING & COMPENSATION
MAILING MARKETING TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- ------------------------------------------------------------------------------------------
Diversified Income Fund
<S> <C> <C> <C> <C>
Class A $42,250 $27,257 $14,993 N/A

Class B $14,987 N/A N/A $14,987

</TABLE>

For the year ended December 31, 1995, WFSI and its registered
representatives received no compensation under the Plan for each Class.

PERFORMANCE CALCULATIONS

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 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
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 of a Class of shares based on net
asset value per share of such Class (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 year ended December 31, 1995, assuming a 4.50% sales load, was 24.28%.
The average annual total return for the same year, assuming no sales load, was
30.17%. The average annual total return for the period since inception
(November 18, 1992) to December 31, 1995, on the Class A Shares of the Fund,
assuming a 4.50% sales load, was 12.41%. The average annual total return for
the same period, assuming no sales load, was 14.07%.

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.

14
<PAGE> 81

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

The cumulative total return on the Class A Shares of the Fund for
the period from inception (November 18, 1992) to December 31, 1995, assuming a
4.50% sales load, was 44.12%. The cumulative total return for the same period,
assuming no sales load, was 50.89%.

The average annual total return for the year ended December 31,
1995, on the Class B Shares of the Fund, assuming the maximum CDSC, was 26.64%.
The average annual total return for the same period, assuming no CDSC, was
29.64%.

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 such Class in advertising and other types
of literature as compared to the performance of the Lehman Brothers Municipal
Bond Index, the 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 are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, 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 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 each Class of the Fund will be calculated by relating net asset
value per share of such Class 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 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 the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in a

15
<PAGE> 82

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 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 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 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 may also 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
issuer, as the case may be, in the same tier as the other agency, the highest
rating is used in the calculation.

The Company also may discuss in advertisements 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 Ratings
Group. 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

16
<PAGE> 83

ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.

From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the 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 the Company's
investment adviser. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by a fund's 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 June 30,
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 the custodian of the Fund on each day the NYSE is open for trading.

Securities of the Fund for which market quotations are available
are valued at latest prices. Any security for which the primary market is an
exchange is valued at the last sale price on such exchange on the day of
valuation or if there was no sale on such day, the latest bid price quoted on
such day. In the case of other 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. Prices may 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.

17
<PAGE> 84

PORTFOLIO TRANSACTIONS

Purchases and sales of securities by the Fund 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 Fund
also may purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. The cost of executing the Fund's
portfolio securities transactions consists 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 or other relief
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 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.

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 is
responsible for Fund decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Company to obtain the best overall
terms 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 Fund will
not necessarily be paying the lowest spread or commission available.

In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Fund to pay a broker/dealer which
furnishes brokerage and research services a higher commission than that which
might be charged by another broker/dealer for effecting the same transaction,
provided that Wells Fargo Bank determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker/dealer, viewed in terms of either the particular
transaction or the overall responsibilities of Wells Fargo Bank. Such
brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.

Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and does
not reduce the advisory fees payable by the Fund. The Board of Trustees will
periodically review the commissions paid by the Fund to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Fund. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Fund in any transaction may be less favorable than that
available from another broker/dealer if the difference is reasonably justified
by other aspects of the portfolio execution services offered.

Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Fund's investment programs. Research services received
from brokers supplement Wells Fargo Bank's own research and may include the
following types of information: statistical and background information on
industry groups and individual companies; forecasts and interpretations with
respect to U.S. and foreign economies, securities, markets, specific industry
groups and individual companies; information on political developments;
portfolio management strategies; performance information on securities and
information concerning prices of securities; and information supplied by
specialized services to Wells Fargo Bank and to the Company's Directors with
respect to the performance, investment activities and fees and expenses of
other mutual funds. Such information may be communicated electronically,
orally or in written form. Research services may also include the providing of
equipment used to communicate research information, the arranging of meetings
with management of companies and the providing of access to consultants who
supply research information.

The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Fund by improving the quality of Wells Fargo
Bank's investment advice. The advisory fees paid by the Fund are not reduced
because Wells Fargo Bank receives such services.

18
<PAGE> 85

Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995 the Fund paid the following for brokerage commissions.

FUND 1993 1994 1995
- ---------------------------------------------------------------------------
Diversified Income Fund $68,477 $134,777 $193,078

Securities of Regular Broker/Dealers. On December 31, 1995 the
Diversified Income Fund owned securities of its "regular brokers or dealers,"
or their parents, as defined in the Act, as follows:

FUND REGULAR BROKER/DEALER AMOUNT
- -------------------------------------------------------------------------
[S] [C] [C]
Diversified Income Fund Goldman Sachs & Co. $2,373,000

Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
expected to exceed 150%. The portfolio turnover rate will not be 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
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 foreign currencies, or other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to each Fund's business of investing in such
securities or currencies; (b) the Fund generally derives less than 30% of its
gross income from gains from the sale or other disposition of securities,
options, futures or forward contracts 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 or the securities of other
regulated investment companies), or in two or

19
<PAGE> 86

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 the Fund 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
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 the 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 the Fund is
expected to consist of securities of foreign issuers, the Fund will not be
eligible to elect to "pass through" foreign tax credits to shareholders.

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 such as where the Fund
acquires a put or writes a call thereon. Other gains or losses will be
short-term capital gains or losses. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation.

To the extent that 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 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.

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

20
<PAGE> 87

$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 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. 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. The requirement that
the Fund derives less than 30% of its gross income from gains from the sale of
securities held for less than three months may limit the Fund's ability to
grant options.

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.

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 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

<PAGE> 88

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 Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth Fund, Asset Allocation Fund,
California Tax-Free Bond Fund, California Tax-Free Income Fund, California
Tax-Free Money Market Mutual Fund, Corporate Stock Fund, Diversified Income
Fund, Ginnie Mae Fund, Growth and Income Fund, Money Market Mutual Fund,
National Tax-Free Money Market Mutual Fund, Short-Intermediate U.S. Government
Income Fund and U.S. Government Allocation Fund -- and the Board of Directors
may, in the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.

The Fund is comprised of two Classes of shares -- Class A Shares
and Class B Shares. With respect to matters that affect one Class but not
another (for example, the approval of a Plan), shareholders vote as a Class.
Subject to the foregoing, all shares of a Fund have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by a
series is required by law or where the matter involved only affects one series.
For example, a change in a Fund's fundamental investment policies affects only
one series and would be voted upon only by shareholders of the affected Fund
and not shareholders of the Company's other series. Additionally, approval of
an advisory contract is a matter to be determined separately by series.
Approval by the shareholders of one series is effective as to that series
whether or not sufficient votes are received from the shareholders of the other
series to approve the proposal as to those series. As used in the Prospectus
and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of a Class of 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.

22
<PAGE> 89

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 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 the
Fund or 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 no shareholders were known by the Company
to own 5% or more of the outstanding Class A Shares or Class B Shares of the
Fund.

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.

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, financial statements and independent
auditors' report for the Fund contained in Post-Effective Amendment No. 21 to
the Company's Registration Statement, as filed with the SEC on Form N-1A on
February 29, 1996, are hereby incorporated by reference into this SAI. The
portfolio of investments, audited financial statements and independent
auditors' reports are attached to all SAIs delivered to current or prospective
shareholders.

23
<PAGE> 90

APPENDIX

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

Corporate Bonds

Moody's: The four highest ratings for corporate bonds are "Aaa,"
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Bonds rated "Aa" are of
"high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1,
2 and 3 in each rating category from "Aa" through "Baa" in its rating system.
The modifier 1 indicates that the security ranks in the higher end of its
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.

S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.

Commercial Paper

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> 91

STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1996
as Amended on September 6, 1996

GINNIE MAE FUND
GROWTH AND INCOME FUND

CLASS A AND CLASS B

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

Stagecoach Funds, Inc. is an open-end series investment company.
This Statement of Additional Information ("SAI") contains information about two
of the funds in the Stagecoach Family of Funds -- the GINNIE MAE FUND and the
GROWTH AND INCOME FUND (each, a "Fund" and collectively, the "Funds"). This
SAI relates to Class A and Class B shares offered by each Fund. The
investment objective of each Fund is described in its Prospectus under "How the
Funds Work -- Investment Objectives and Policies."

This SAI is not a prospectus and should be read in conjunction
with the Prospectus dated September 6, 1996, for each of the Funds. All terms
used in this SAI that are defined in each Fund's Prospectus will have the
meaning 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 calling the Transfer Agent at the telephone number indicated above.

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

1
<PAGE> 92
TABLE OF CONTENTS

Statement of Additional Information

Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . . 16
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . 21
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 21
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

2
<PAGE> 93
INVESTMENT RESTRICTIONS

Fundamental Investment Policies. The Funds are subject to the
following investment restrictions, all of which are fundamental policies; that
is, they may not be changed without approval by the vote of the holders of a
majority of the Funds' outstanding voting securities, as described under
"Capital Stock":

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
be 25% or more of the current value of such Fund's total assets, provided that
there is no limitation with respect to investments in obligations of the United
States Government, its agencies or instrumentalities;

(3) purchase commodities or commodity contracts (including
futures contracts), except that a Fund may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;

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

(5) 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;

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

(8) issue senior securities, except the Growth and Income 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 each such Fund's
net assets (but investments may not be purchased by such Funds while any such
outstanding borrowings exceed 5% of the respective Fund's net assets), and
except that the Ginnie Mae Fund may borrow up to 20% of the current value of
its net assets for temporary purposes only in order to meet redemptions, and
these borrowings may be secured

3
<PAGE> 94
by the pledge of up to 20% of the current value of such Fund's net assets (but
investments may not be purchased by such Fund while any such outstanding
borrowings exceed 5% of the Fund's net assets);

(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that the Growth and Income
Fund may purchase securities with put rights in order to maintain liquidity and
may invest up to 5% of its net assets in warrants in accordance with its
investment policies as stated below; or

All of the Funds may make loans in accordance with their
investment policies.

Non-Fundamental Investment Policies. The Funds are subject to the
following non-fundamental policies which may be changed by a majority vote of
the Board of Directors without shareholder approval:

None of the Funds may:

(1) 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 (0.50%) of the securities of the issuer together
owned beneficially more than 5% of such securities;

(3) 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; or

(4) invest more than 10% of the current value of its net assets
in repurchase agreements maturing in more than seven days or other illiquid
securities (including restricted securities).

In addition, 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

4
<PAGE> 95
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.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Unrated Investments. The Funds 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 a sale of such security by such Fund.
To the extent the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, each Fund will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this SAI. The ratings
of Moody's and S&P are more fully described in the SAI Appendix.

Letters of Credit. Certain of the debt obligations (including
certificates of participation, commercial paper and other short-term
obligations) which the Funds may purchase may be backed by an unconditional and
irrevocable letter of credit of a bank, savings and loan association or
insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of Wells Fargo Bank,
are of comparable quality to issuers of other permitted investments of such
Fund may be used for letter of credit-backed investments.

Pass-Through Obligations. Certain of the debt obligations in
which the Ginnie Mae Fund may invest may be 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 Ginnie Mae Fund. Furthermore, as with any debt
obligation, fluctuations in interest rates will inversely affect the market
value of pass-through obligations. The Ginnie Mae 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 or government-sponsored enterprise (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. Certain of the securities in which the
Funds may invest will be purchased on a when-issued basis, in which case
delivery and payment normally take place

5
<PAGE> 96
within 120 days after the date of the commitment to purchase. 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. The Growth and Income Fund currently does not intend to invest more
than 5% of its assets in when-issued securities during the coming year.

Each Fund will segregate cash, U.S. Government obligations or
other high-quality debt instruments in an amount at least equal in value to the
Fund's commitments to purchase when-issued securities. If the value of these
assets declines, the Fund will segregate additional liquid assets on a daily
basis so that the value of the segregated assets is equal to the amount of such
commitments.

Loans of Portfolio Securities. All of the Funds may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government securities or other high-quality
debt obligations equal to at least 100% of the current market value of the
securities loan (including accrued interest thereon) plus the interest payable
to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund's Investment Adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer,
or financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Fund may receive as collateral
will not become part of the Fund's portfolio at the time of the loan and, in
the event of a default by the borrower, the Fund will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Fund is permitted to invest. During the time securities are on loan,
the borrower will pay the Fund any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed-upon fee from a borrower that has delivered cash-equivalent collateral.
None of the Funds will lend securities having a value that exceeds 33 1/3% of
the current value of its total assets. Loans of securities by any of the Funds
will be subject to termination at the Fund's or the borrower's option. The
Funds may pay reasonable administrative and custodial fees in connection with a
securities loan and may pay a negotiated portion of the interest or fee earned
with respect to the collateral to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Stagecoach, its Investment Adviser, or its Distributor. The Ginnie Mae
Fund currently intends to limit the practice of lending portfolio securities to
no more than 5% of its net assets during the coming year.

Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There

6
<PAGE> 97
may be less publicly available information about a foreign issuer than about a
domestic issuer. Foreign issuers also are not generally subject to uniform
accounting, auditing and financial reporting standards or governmental
supervision comparable to those applicable to 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. The Ginnie Mae Fund does not intend to
invest in foreign obligations during the coming year. The Growth and Income
Fund currently does not intend to invest more than 10% of its assets in foreign
obligations. Neither of the Funds may invest 25% or more of its assets in
foreign obligations.

Convertible Securities (Lower Rated Securities) Subject to the
limitations described in its Prospectus, the Growth and Income Fund may invest
in convertible securities that are not rated in one of the four highest rating
categories by an NRSRO. The yields on such lower rated securities, which
include securities also known as junk bonds, generally are higher than the
yields available on higher-rated securities. However, investments in lower
rated securities and comparable unrated securities generally involve greater
volatility of price and risk of loss of income and principal, including the
probability of default by or bankruptcy of the issuers of such securities.
Lower rated securities and comparable unrated securities (a) will likely have
some quality and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.

While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable unrated securities
may diminish the Fund's ability to (a) obtain accurate market quotations for
purposes of valuing such securities and calculating net asset value

7
<PAGE> 98
and (b) sell the securities at fair value either to meet redemption requests or
to respond to changes in the economy or in financial markets.

Privately Issued Securities (Rule 144A). The Growth and Income
Fund may invest in privately issued securities which may be resold only in
accordance with Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities"). Rule 144A Securities are restricted securities and will not be
publicly traded. Accordingly, the liquidity of the market for specific Rule
144A Securities may vary. The Company's investment adviser, pursuant to
guidelines established by the Board of Directors of the Company will evaluate
the liquidity characteristics of each Rule 144A Security proposed for purchase
by the Fund on a case-by-case basis and will consider the following factors,
among others, in their evaluation: (1) the frequency of trades and quotes for
the Rule 144A Security; (2) the number of dealers willing to purchase or sell
the Rule 144A Security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the Rule 144A Security; and (4) the nature of
the Rule 144A Security and the nature of the marketplace trades (e.g., the time
needed to dispose of the Rule 144A Security, the method of soliciting offers
and the mechanics of transfer). The Growth and Income Fund does not intend to
invest more than 5% of its net assets in Rule 144A Securities during the coming
year.

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

Investment in Warrants. The Growth and Income Fund 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 Growth and Income Fund may only purchase warrants on
securities in which it may invest directly.

8
<PAGE> 99
MANAGEMENT

<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

9
<PAGE> 100
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.

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>

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.

10
<PAGE> 101
Investment Adviser. Each of the Funds is advised by Wells Fargo
Bank pursuant to an Advisory Contract. 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 Ginnie
Mae Fund, the average maturities of its portfolios.

11
<PAGE> 102
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 1940 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

FEES FEES FEES FEES FEES FEES
FUND PAID WAIVED PAID WAIVED PAID WAIVED
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ginnie Mae $888,174 $437,110 $1,185,036 -0- $840,112 -0-
Growth and $443,874 -0- $587,977 -0- $754,149 -0-
Income
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of each of its Funds. Each
Administration Agreement between Stephens and a Fund states that Stephens shall
provide as administrative services, among other things: (i) general
supervision of the operation of the Fund, including coordination of the
services performed by the Fund's investment adviser, transfer and dividend
disbursing agent, custodian, shareholder servicing agent(s), independent public
accountants and legal counsel, regulatory compliance, including the compilation
of information for documents such as reports to, and filings with, the SEC and
state securities commissions; and preparation of proxy statements and
shareholder reports for the Fund; and (ii) general supervision relative to the
compilation of data required for the preparation of periodic reports
distributed to the Company's Officers and Board of Directors. Stephens also
furnishes office space and certain facilities required for conducting the
business of the Fund 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 fiscal 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>
Ginnie Mae Fund $ 81,058 $71,842 $50,407
Growth and Income Fund $ 26,644 $35,279 $45,249
</TABLE>

12
<PAGE> 103
The Advisory Contract and Administration Agreement for each Fund
provide that if, in any fiscal year, the total expenses of the Fund incurred
by, or allocated to, the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for each Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration Agreement for each Fund further
provide that the respective Fund's total expenses shall be reviewed monthly so
that, to the extent the annualized expenses for such month exceed the most
restrictive applicable annual expense limitation, the monthly fees under the
contract and the agreement shall be reduced as necessary. The most stringent
applicable restriction limits these expenses for any fiscal year to 2.50% of
the first $30 million of the Fund's average net assets, 2.00% of the next $70
million of average net assets, and 1.50% of the average net assets in excess of
$100 million.

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. The
dollar amount of shareholder servicing fees paid by each Fund to Wells Fargo
Bank or its affiliates for the year ended December 31, 1995 was as follows:

<TABLE>
<CAPTION>
FUND 1995
-----------------------------------------------------------
<S> <C>
Ginnie Mae Fund $255,060
Growth and Income Fund $452,488
</TABLE>

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian for the Funds. 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 charge from the respective Funds.

For the year ended December 31, 1995, the Funds paid custody fees
to Wells Fargo Bank as follows:

<TABLE>
<CAPTION>
FUND 1995
-----------------------------------------------
<S> <C>
Ginnie Mae $-0-
</TABLE>

13
<PAGE> 104
<TABLE>
<S> <C>
Growth and Income $15,578
</TABLE>

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

<TABLE>
<CAPTION>
FUND 1995
-----------------------------------------------------
<S> <C>
Ginnie Mae $-0-
Growth and Income $160,168
</TABLE>

Underwriting Commissions. For the years ended December 31, 1993
and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Company shares. For the
years ended December 31, 1993 and 1994, Wells Fargo Securities Inc. ("WFSI"),
an affiliated broker-dealer of the Company, and its registered representatives
received $378,895 and $904,274, respectively, in underwriting commissions in
connection with the purchase or redemption of Company shares.

DISTRIBUTION PLANS

As indicated in each Fund's respective Prospectus, each of the
Funds has adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plans for the Class A
Shares of each Fund were adopted by the Company's Board of Directors on October
22, 1991, including a majority of the Directors who were not "interested
persons" (as defined in the 1940 Act) of the respective 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"), and were approved by
the initial shareholder of each Fund on December 31, 1991. The Plans for the
Class B shares of each Fund were adopted by the Company's Board of Directors,
including a majority of the Qualified Directors, on July 27, 1994.

The Plans in effect for the Class A Shares of each Fund allow the
Funds to 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 each Fund by paying on an annual basis
up to 0.05% of the respective Fund's average daily net assets attributable to
Class A Shares. The Plans for the Class A Shares provide only for the
reimbursement of actual expenses. The Plans for the Class B Shares allow each
Fund to defray all or part of the cost of printing prospectuses and other
promotional materials and of delivering materials to prospective shareholders
by paying on an annual basis up to 0.70% of the average daily net assets
attributable

14
<PAGE> 105
to the Class B Shares of each respective Fund. In addition, each Plan
contemplates that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.

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. Any agreements related to the Plans
("Agreements") also must be approved by majority vote of the Directors and the
Qualified Directors. Such Agreements will terminate automatically if assigned.
Each Fund may terminate such Agreements at any time, without payment of any
penalty, by a vote of a majority of outstanding voting securities of the Class
of shares affected by such Agreement. The amounts payable under each Plan may
not be increased materially without the approval of a majority of the voting
securities of each Class of Funds affected by such Agreements. Material
amendments to a Plan may not be made except by affirmative vote of a majority
of both the Directors of the Company and the Qualified Directors.

Each 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 the Plans.

<TABLE>
<CAPTION>
PRINTING &
MAILING MARKETING COMPENSATION TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ginnie Mae Fund
Class A $66,400 $20,590 $45,810 N/A
Class B $29,355 N/A N/A $29,355

Growth and Income Fund
Class A $50,138 $ 41,902 $ 8,236 N/A
Class B $13,068 N/A N/A $13,068
</TABLE>

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

15
<PAGE> 106
PERFORMANCE CALCULATIONS

As described in the Prospectuses for each Fund, the IRA Funds of
the Trust were reorganized into the corresponding Funds of the Company on
January 2, 1992. Therefore, the performance information for the Funds is based
on that of the IRA Funds for the periods prior to January 2, 1992, and
reference should be made to the footnotes to the condensed financial
information in the "Financial Highlights" section of each Prospectus regarding
differences in investment objectives, policies and/or restrictions between
certain of the Funds and the IRA Funds, which may affect the relevance of the
performance information provided below.

Each Fund may advertise certain total return information computed
in the manner described in its 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 Class of shares ("P") over a period of
years ("n") according to the following formula: P(1+T)n = ERV. In addition, a
Fund that assesses a sales charge, at times, also may calculate total return
based on net asset value per share of each Class (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 Funds may advertise the cumulative total return on each class
of 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 average annual total return for the period from inception
(January 3, 1991) to December 31, 1995 on the Class A Shares of the Ginnie Mae
Fund, assuming a 4.50% sales load, was 7.28%. The average annual total return
for the same period, assuming no sales load, was 8.27%. The average annual
total return on the Class A Shares for the Ginnie Mae Fund for the year ended
December 31, 1995, assuming a 4.50% sales load, was 12.24%. The average annual
total return for the same year, assuming no sales load, was 17.53%. The
average annual total return for the year ended December 31, 1995, on the Class
B Shares of the Ginnie Mae Fund, assuming the maximum CDSC, was 13.69%.

16
<PAGE> 107
The cumulative total return for the period from inception (January
3, 1991) to December 31, 1995 on the Class A Shares of the Ginnie Mae Fund,
assuming a 4.50% sales load, was 42.09%. The cumulative total return for the
same period on the Class A Shares of the Ginnie Mae Fund, assuming no sales
load, was 48.77%.

The average annual total return for the period since inception
(August 2, 1990) to December 31, 1995, on the Class A Shares of the Growth and
Income Fund, assuming a 4.50% sales load, was 13.00%. The average annual total
return for the same period, assuming no sales load, was 13.97%. The average
annual total return for the five-year period ended December 31, 1995, on the
Class A Shares of the Growth and Income Fund, assuming a 4.50% sales load, was
13.52%. The average annual total return for the same period, assuming no sales
load, was 14.56%. The average annual total return for the year ended December
31, 1995, on the Class A Shares of the Growth and Income Fund assuming a 4.50%
sales load, was 23.14%. The average annual total return for the same year,
assuming no sales load, was 28.90%. The average annual total return for the
year ended December 31, 1995, on the Class B Shares of the Growth and Income
Fund, assuming the maximum CDSC, was 25.47%. The average annual total return
for the year ended December 31, 1995, on the Class B Shares of the Growth and
Income Fund, assuming no sales charge, was 28.47%.

The cumulative total return for the period since inception (August
2, 1990) to December 31, 1995, on the Class A Shares of the Growth and Income
Fund, assuming a 4.50% sales load, was 93.91%. The cumulative total return for
the same period, assuming no sales load, was 103.02%. The cumulative total
return for the five-year period ended December 31, 1995, on the Class A Shares
of the Growth and Income Fund, assuming a 4.50% sales load, was 88.51%. The
cumulative total return for the same period, assuming no sales load, was
97.30%.

The Ginnie Mae Fund may advertise certain yield information on its
shares. As and to the extent required by the SEC, yield on each Class of
shares will be 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 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 outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. 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 a Fund's 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.

The yields for the 30-day period ended December 31, 1995 on the
Class A Shares of the Ginnie Mae Fund assuming a maximum sales charge of 4.50%,
was 5.80%. The 30-day

17
<PAGE> 108
yield for the same period, assuming no sales charge, was 6.08%. The yield for
the 30-day period ended December 31, 1995 on the Class B Shares of the Ginnie
Mae Fund, assuming the maximum CDSC, was 5.41%. The yield for the same period,
assuming no CDSC, was 5.41%.

The yield on each Class of the Ginnie Mae 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 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.

In addition, investors should recognize that changes in the net
asset values of shares of each Class of shares of the Ginnie Mae Fund will
affect the yield of each such Class for any specified period, and such changes
should be considered together with the yield of each Class in ascertaining the
total return for the period to shareholders. Yield information for each Class
of shares of the Fund may be useful in reviewing the Fund's performance and for
providing a basis for comparison with investment alternatives. The yield of
each Class of the Fund, 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 Class of shares of a Fund, the Company may quote the
performance or price-earning ratio of a Class of shares in advertising and
other types of literature as compared to the performance of the Lehman Brothers
Municipal Bond Index, the 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
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,

18
<PAGE> 109
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 shares 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.

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

19
<PAGE> 110
the investment returns of a Class of Fund shares, 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
Fund shares (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 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 a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by a Fund. The assigned rating would not be a recommendation to purchase,
sell or hold a Fund's shares since the rating would not comment on the market
price of 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 a
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.

From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the 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 the Company's
investment adviser. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by a fund's 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 June 30,
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.

20
<PAGE> 111
DETERMINATION OF NET ASSET VALUE

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

Securities of a Fund for which market quotations are available are
valued at latest prices. Securities of a 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. Futures contracts will be marked to
market daily at their respective settlement prices determined by the relevant
exchange. These prices are not necessarily final closing prices, but are
intended to represent prices prevailing during the final 30 seconds of the
trading day. 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 NYSE, or, in
the absence of any sale on the valuation date, at latest quoted bid prices.
Options not listed on a 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 Growth
and Income 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, money market
securities, ARMS and CMOs 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

21
<PAGE> 112

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 Growth and Income 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. No Fund will 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 SEC or unless an exemption is otherwise
available.

In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Wells Fargo Bank may cause the Growth and Income Fund to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank. Such
brokerage and research services might consist of reports and statistics relating
to specific companies or industries, general summaries of groups of stocks or
bonds and their comparative earnings and yields, or broad overviews of the
stock, bond, and government securities markets and the economy.

Supplementary research information so received is in addition to,
and not in lieu of, services required to be performed by Wells Fargo Bank and
does not reduce the advisory fees payable by the Fund. The Board of Directors
will periodically review the commissions paid by the Fund to consider whether
the commissions paid over representative periods of time appear to be
reasonable in relation to the benefits inuring to the Fund. It is possible that
certain of the supplementary research or other services received will primarily
benefit one or more other investment companies or other accounts for which
investment discretion is exercised. Conversely, the Fund may be the primary
beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company.

Under Section 28(e) of the Securities Exchange Act of 1934, an
adviser shall not be "deemed to have acted unlawfully or to have breached its
fiduciary duty" solely because under certain circumstances it has caused the
account to pay a higher commission than the lowest available. To obtain the
benefit of Section 28(e), an adviser must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided. . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.

Broker/dealers utilized by Wells Fargo Bank may furnish
statistical, research and other information or services which are deemed by
Wells Fargo Bank to be beneficial to a Fund's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities, markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to Wells Fargo Bank and to the Company's
Directors with respect to the performance, investment activities and fees and
expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.

The outside research assistance is useful to Wells Fargo Bank since
the brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to Wells
Fargo Bank by brokers are available for the benefit of all accounts managed or
advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank that this
material is beneficial in supplementing their research and analysis; and,
therefore, it may benefit the Funds by improving the quality of Wells Fargo
Bank's investment advice. The advisory fees paid by the Funds are not reduced
because Wells Fargo Bank receives such services.

Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995 the Funds paid the following for brokerage commissions:

22
<PAGE> 113
<TABLE>
<CAPTION>
FUND 1993 1994 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ginnie Mae Fund $ 0 $ 0 $ 0
Growth and Income Fund $ 347,779 $ 407,643 $ 607,442
</TABLE>

Securities of Regular Broker/Dealers. As of December 31, 1995,
each Fund owned securities of its "regular brokers or dealers" or their parents
as defined in the Act, as follows:

<TABLE>
<CAPTION>
FUND AMOUNT REGULAR BROKER/DEALER
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Ginnie Mae Fund $ 587,000 Goldman Sachs & Co.
Growth and Income Fund $1,998,000 Goldman Sachs & Co.
</TABLE>

Portfolio Turnover Rate. The higher portfolio turnover rates for
the Ginnie Mae Fund should not adversely affect it because portfolio
transactions ordinarily are made directly with principals on a net basis and,
consequently, the Fund usually does not incur brokerage expenses. Portfolio
turnover rate is not a limiting factor when Wells Fargo Bank deems portfolio
changes appropriate.

FEDERAL INCOME TAXES

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

Qualification 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 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

23
<PAGE> 114
their 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 each Fund to the
extent it does not meet certain minimum distribution requirements by the end of
each calendar year. Each Fund will distribute, or be deemed to distribute,
substantially all of its net investment income and net capital gains and, thus,
does not expect 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 of 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.

Although dividends on the Ginnie Mae Fund 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 a Fund will generally be long-term capital gains or
losses if the securities have been held by it for more than one year. 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 a
capital gain distribution 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
gains distribution. Gain recognized on the disposition of a debt obligation
purchased by the Fund at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the Fund
held the debt obligation.

As of the printing of this SAI, the maximum individual marginal
tax rate applicable to ordinary income is 39.60% (effective 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

24
<PAGE> 115
marginal 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.

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 shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.

Corporate shareholders of the Growth Fund may be eligible for the
dividends-received deduction on the dividends paid out of the Fund's net
investment income attributable to dividends received from domestic corporations
which, if received directly, would qualify for such deduction. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the Fund shares paying the dividends upon which the deduction is based for at
least 46 days.

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

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 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 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

25
<PAGE> 116
Funds, in which case a Fund may distribute cash derived from other sources in
order to meet the minimum distribution requirements described above.

FUND EXPENSES

Except for the expenses borne by Wells Fargo Bank and Stephens,
the Company bears all costs of its operations, including the compensation of
its Directors who are not affiliated with Stephens or Wells Fargo Bank or any
of their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing prospectuses (except the expense of printing and mailing prospectuses
used for promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of
its custodian, including those for keeping books and accounts and calculating
the NAV per share of a Fund; expenses of shareholders' meetings; expenses
relating to the issuance, registration and qualification of Fund shares;
pricing services, and any extraordinary expenses. Expenses attributable to a
Fund are charged against a Fund's assets. General expenses of the Company are
allocated among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.

CAPITAL STOCK

The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth Fund, Asset Allocation Fund,
California Tax-Free Bond Fund, California Tax-Free Income Fund, California
Tax-Free Money Market Mutual Fund, Corporate Stock Fund, Diversified Income
Fund, Ginnie Mae Fund, Growth and Income Fund, Money Market Mutual Fund,
National Tax-Free Money Market Mutual Fund, Short-Intermediate U.S. Government
Income Fund and U.S. Government Allocation Fund -- and the Board of Directors
may, in the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.

Each of the Funds, other than the Corporate Stock Fund, has two
classes of shares -- Class A shares and Class B shares. With respect to
matters affecting one Class but not another, shareholders vote as a Class.
Subject to the foregoing, all shares of a Fund have equal voting rights and
will be voted in the aggregate, and not by series, except where voting by a
series is required by law or where the matter involved only affects one series.
For example, a change in a Fund's fundamental investment policy affects only
one series and would be voted upon only by

26
<PAGE> 117
shareholders of the Fund involved. Additionally, approval of an advisory
contract, since it affects only one Fund, is a matter to be determined
separately by Series. Approval by the shareholders of one Series is effective
as to that Series whether or not sufficient votes are received from the
shareholders of the other Series to approve the proposal as to those Series.
As used in the Prospectus of each Fund and in this SAI, the term "majority,"
when referring to approvals to be obtained from shareholders of a Class of
shares of a Fund, means the vote of the lesser of (i) 67% of the shares of the
Class represented at a meeting if the holders of more than 50% of the
outstanding shares of the Class are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Class of the Fund. As used in the
Prospectus of each Fund and in this SAI, the term "majority," when referring to
approvals to be obtained from shareholders of the Fund, means the vote of the
lesser of (i) 67% of the shares of the Fund represented at a meeting if the
holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The term "majority," when referring to the approvals to be obtained from
shareholders of the 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 an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.

Each share represents an equal proportional interest in the Fund
with each other share in the same Class of shares 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 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.

As of February 29, 1996, no shareholders of the Class A or Class B
Shares of the Funds were known by the Company to own 5% or more of their
respective outstanding Shares.

OTHER

The Registration Statement, including the Prospectus for each
Fund, the SAI and the exhibits filed therewith, may be examined at the office
of the SEC in Washington, D.C. Statements contained in a Prospectus or the SAI
as to the contents of any contract or other document referred to herein or in a
Prospectus are not necessarily complete, and, in each

27
<PAGE> 118
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

FINANCIAL INFORMATION

The portfolio of investments, financial statements and independent
auditors' report for the Funds contained in Post-Effective Amendment No. 21 to
the Company's Registration Statement, as filed with the SEC on Form N-1A on
February 29, 1996, are hereby incorporated by reference into this SAI. The
portfolio of investments, audited financial statements and independent
auditors' report are attached to all SAIs delivered to current or prospective
shareholders.

28
<PAGE> 119
SAI APPENDIX

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

Corporate Bonds

S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.

Corporate Commercial Paper

Moody's: The highest rating for corporate commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.

S&P: The "A-1" rating for corporate commercial paper indicates
that the "degree of safety regarding timely payment is either overwhelming or
very strong." Commercial paper with "overwhelming safety characteristics" will
be rated "A-1+." Commercial paper with a strong capacity for timely payments
on issues will be rated "A-2."

A-1
<PAGE> 120
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 6, 1996

MONEY MARKET MUTUAL FUND
CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND

CLASS A

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

Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about two of the funds in the Stagecoach Family of Funds -- the
MONEY MARKET MUTUAL FUND and the CALIFORNIA TAX-FREE MONEY MARKET MUTUAL FUND
(each a "Fund" and collectively, the "Funds"). This SAI relates to the Class A
shares of the Money Market Mutual Fund and to the shares of the California
Tax-Free Money Market Mutual Fund (collectively, the "Class A shares"). The
investment objective of each Fund is described in its respective Prospectus
under the section entitled "How the Funds Work -- Investment Objectives and
Policies."

This SAI is not a prospectus and should be read in conjunction
with each Fund's Prospectus dated September 6, 1996. All terms used in this
SAI that are defined in the Prospectus for each Fund will have the meanings
assigned in that Fund's 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 calling the Transfer Agent at the telephone number indicated above.

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

<PAGE> 121
TABLE OF CONTENTS

<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 3

Additional Permitted Investment Activities . . . . . . . . . . . . . 5

Special Considerations Affecting

California Municipal Obligations . . . . . . . . . . . . . . . . . 7

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Performance Calculations . . . . . . . . . . . . . . . . . . . . . . 15

Determination of Net Asset Value . . . . . . . . . . . . . . . . . . 19

Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 20

Fund Expenses............................ . . . . . . . . . . . . . . 21

Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . 21

Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 28

Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 28

SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
<PAGE> 122
INVESTMENT RESTRICTIONS

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

Neither Fund 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 such Fund's investments in that industry
would be 25% or more 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), with respect to the California Tax-Free Money Market
Mutual Fund, (ii) obligations of the United States Government, its agencies or
instrumentalities, and (iii) with respect to both Funds, the 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);

(2) purchase or sell real estate or real estate limited
partnerships (other than municipal obligations with respect to the California
Tax-Free Money Market Mutual Fund, or other than money market securities with
respect to the Money Market Mutual Fund, 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
(including futures contracts);

(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions with regard to both Funds and
except for margin payments in connection with options, futures and options on
futures with regard to the California Tax-Free Money Market Mutual Fund) 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) make investments for the purpose of exercising control or
management;

(6) issue senior securities, except that a 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 borrowings exceed 5% of its net
assets); or

3
<PAGE> 123
(7) write, purchase or sell puts, calls, options, warrants or any
combination thereof, except that the Funds may purchase securities with put
rights in order to maintain liquidity.

In addition, neither Fund may 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 public or private offerings.

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

(1) The Funds may not purchase or retain securities of any issuer
if the officers or Directors of the Company 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) The Funds may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or development
programs.

(3) The Money Market Mutual Fund may not purchase or sell real
estate limited partnership interests.

(4) The Funds may not purchase 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.

(5) The Funds may 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.

(6) The California Tax-Free Money Market Mutual Fund may not
invest more than 10% of the current value of their net assets in repurchase
agreements maturing in more than seven days or other illiquid securities
(including restricted securities). The Money Market Mutual Fund may not invest
more than 10% of the current value of its net assets in securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale and fixed time deposits that are subject to
withdrawal penalties and that have maturities of more than seven days.

In addition, 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. However, the
Funds' investment adviser will waive its advisory fees for

4
<PAGE> 124
that portion of the Funds' assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition. In the
case of the California Tax-Free Money Market Mutual Fund these unaffiliated
investment companies must have a fundamental investment policy of investing at
least 80% of their net assets in obligations that are exempt from federal
income taxes and are not subject to the federal alternative minimum tax.

In addition, as provided in Rule 2a-7 under the 1940 Act, the
Money Market Mutual Fund may only purchase "Eligible Securities" (as defined in
Rule 2a-7) and only if, immediately after such purchase: the Money Market
Mutual 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 Money Market Mutual Fund would
own no more than 10% of the voting securities of any one issuer; the Money
Market Mutual Fund would have no more than 5% of its total assets in "Second
Tier Securities" (as defined in Rule 2a-7); and the Money Market Mutual 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

Unrated Investments. The Funds may purchase instruments that are
not rated if, in the opinion of Wells Fargo Bank, such obligations are of
comparable quality to other rated investments that are permitted to be
purchased by such Funds. The Funds may purchase unrated instruments only if
they are purchased in accordance with the procedures of each Fund adopted by
the Company's Board of Directors in accordance with Rule 2a-7 under the 1940
Act. After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by the Fund, provided that when a
security ceases to be rated, the Company's Board of Directors determines that
such security presents minimal credit risks and, 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 such Funds' 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, each Fund will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in the Prospectus of the Fund and in this SAI. The ratings of Moody's and S&P
are more fully described in the SAI Appendix.

Letters of Credit. Certain of the debt obligations (including
municipal securities, certificates of participation, commercial paper and other
short-term obligations) which the Funds may purchase may be backed by an
unconditional and irrevocable letter of credit of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of each such Fund may be used for

5
<PAGE> 125
letter of credit-backed investments, provided that, in the case of the
California Tax-Free Money Market Mutual Fund, the Company's Board approves or
ratifies such investments.

When-Issued Securities. Certain of the securities in which the
California Tax-Free Money Market Mutual Fund may invest will be purchased 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
California Tax-Free Money Market Mutual Fund has no present intention to invest
in when-issued securities during the coming year. The Fund will only 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, or other high-quality debt
instruments in an amount at least equal in value to their respective
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 Money Market Mutual Fund
may invest in municipal bonds. As discussed in the Fund's 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.

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.

6
<PAGE> 126
TANs. An uncertainty in a municipal issuer's capacity to raise
taxes as a result of such things as a decline in its tax base or a rise in
delinquencies could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.

BANs. The ability of a municipal issuer to meet its obligations
on its BANs is primarily dependent on the issuer's adequate access to the
longer term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal of, and interest on, BANs.

RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.

The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values also will
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in a Fund's portfolio,
will decline and (if purchased at par value) sell at a discount. If interests
rates fall, the values of outstanding securities will generally increase and
(if purchased at par value) sell at a premium. 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.

SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS

Certain debt obligations held by the California Tax-Free Money
Market Mutual 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 this Fund may be impaired.

Certain of the municipal obligations in which the California
Tax-Free Money Market Mutual 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

7
<PAGE> 127
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
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 Fund or the ability of state or local government to pay the
interest on, or repay the principal of, such municipal 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 Funds 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.

8
<PAGE> 128
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 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, 54 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, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

9
<PAGE> 129
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 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 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>

10
<PAGE> 130
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, prior to January 1, 1996 and the reorganization of WFNIA, was
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. Effective January 1, 1996,
MasterWorks Funds Inc., Master Investment Portfolio, and Managed Series
Investment Trust are considered to be members of the same fund complex and are
no longer part of the same fund complex as Stagecoach Funds, Inc., Overland
Express Funds, Inc., Stagecoach Trust, Life & Annuity Trust and Master
Investment Trust. 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 Funds are advised by Wells Fargo Bank
pursuant to Advisory Contracts approved by the Board of Directors on October
22, 1991, and by the initial shareholder of each Fund on December 2, 1991. The
Advisory Contract for each Fund 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 Contracts, Wells
Fargo Bank furnishes to the Company's Board of Directors periodic reports on
the investment strategy and performance of each Fund.

Wells Fargo Bank has agreed to provide to each Fund with, 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 each Fund's portfolio.

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 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, 1993, 1994 and 1995, the Funds
paid to Wells Fargo Bank the advisory fees indicated below and Wells Fargo Bank
waived the indicated amounts:

11
<PAGE> 131
<TABLE>
<CAPTION>
1993 1994 1995
- --------------------------------------------------------------------------------------------------
FEES FEES FEES FEES FEES FEES
FUND PAID WAIVED PAID WAIVED PAID WAIVED
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
California Tax-Free -0-
Money MarketMutual $3,406,799 $ 458,784 $ 304,857 $ 3,809,902 $ 4,867,523

Money Market Mutual $1,285,690 -0- $2,073,686 $ 2,008,946 $ 12,729,506 -0-
</TABLE>

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Funds. Each Administration
Agreement between Stephens and the Fund states that Stephens shall provide as
administrative services, among other things: (i) general supervision of the
operation of each Fund, including coordination of the services performed by the
Fund's investment adviser, transfer agent, custodian, shareholder servicing
agent(s), independent public accountants and legal counsel, regulatory
compliance, including the compilation of information for documents such as
reports to, and filings with, the SEC and state securities commissions; and
preparation of proxy statements and shareholder reports for the Fund; and (ii)
general supervision relative to the compilation of data required for the
preparation of periodic reports distributed to the Company's officers and Board
of Directors. Stephens also furnishes office space and certain facilities
required for conducting the business of the Fund 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 fiscal 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>
California Money Market Mutual Fund $ 232,585 $ 247,666 $ 292,095
Money Market Mutual Fund $ 96,535 $ 306,209 $ 954,713
</TABLE>

The Advisory Contract and Administration Agreement for each Fund
provide that if, in any fiscal year, the total expenses of the Fund incurred
by, or allocated to, the Fund (excluding taxes, interest, brokerage commissions
and other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary
expenses and amounts accrued or paid under the Plan but including the fees
provided for in the Advisory Contract and the Administration Agreement) exceed
the most restrictive expense limitation applicable to the Fund imposed by the
securities laws or regulations of the states in which the Fund's shares are
registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Advisory Contract and the Administration Agreement,
respectively, for each Fund for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Advisory Contract and the Administration

12
<PAGE> 132
Agreement for each Fund further provide that the respective Fund's total
expenses shall be reviewed monthly so that, to the extent the annualized
expenses for such month exceed the most restrictive applicable annual expense
limitation, the monthly fees under the contract and the agreement shall be
reduced as necessary. The most stringent applicable restriction limits these
expenses for any fiscal year to 2.50% of the first $30 million of the Fund's
average net assets, 2.00% of the next $70 million of average net assets, and
1.50% of the average net assets in excess of $100 million.

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. The
dollar amount of shareholder servicing fees paid by each of the Funds to Wells
Fargo Bank or its affiliates for the fiscal year ended December 31, 1995 was as
follows:

<TABLE>
<CAPTION>
FUND 1995
------------------------------------------------------------------------
<S> <C>
California Tax-Free Money Market Mutual Fund $ 522,756

Money Market Mutual Fund $ 8,542,616
</TABLE>

Custodian and Transfer and Dividend 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 Funds did not pay any custody fees or transfer or dividend disbursing
agency fees to Wells Fargo Bank.

Underwriting Commissions. For the fiscal years ended December 31,
1993 and 1994, the Company's distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of each Fund's shares. For
the fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of each Fund's
shares.

13
<PAGE> 133
DISTRIBUTION PLAN

Each of the Funds has adopted a distribution plan (a "Plan") under
Section 12(b) of the 1940 Act and Rule 12b-1 thereunder as described in each
Fund's Prospectus. The Plans for the Class A shares of the Funds were adopted
by the Company's Board of Directors, including a majority of the Directors who
were not "interested persons" (as defined in the 1940 Act) of the respective
Fund 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")
on October 22, 1991, and were approved by the initial shareholder of the
respective Funds on December 2, 1991.

Under the Plans in effect for the Class A shares of the Funds,
each 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 Fund shareholders by paying on an annual basis
up to 0.05% of the respective Fund's average daily net assets attributable to
Class A shares. The Plans for the Class A shares of the Funds provide only for
reimbursement of actual expenses. Under the Plan for the Class S shares of the
Money Market Mutual Fund, 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 Fund shareholders by
paying on an annual basis up to 0.75% of the average daily net assets of the
Class S shares. The Class S Plan provides for reimbursement of actual expenses
and payment of compensation to the Distributor and Selling Agents for sales
support services. In addition, each Plan contemplates that to the extent any
fees payable pursuant to a Shareholder Servicing Agreement are deemed to be for
distribution-related services, rather than shareholder services, such payments
are approved and payable pursuant to such Plan.

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. Any Agreements related to the Plans also must be
approved by the Majority vote of the Directors and the Qualified Directors.
Such Agreements will terminate automatically if assigned, and may, in the case
of the California Tax-Free Money Market Mutual Fund, be terminated at any time,
without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the respective Fund. In the case of the Money Market
Mutual Fund, such agreement may be terminated at any time without penalty by a
vote of a majority of the outstanding voting securities of the respective Class
of such Fund affected by the Agreement. The Plans may not be amended to
increase materially the amounts payable thereunder, in the case of the
California Tax- Free Money Market Mutual Fund, without the approval of a
majority of the outstanding voting securities of the Fund and in the case of
the Money Market Mutual Fund, without the approval of a majority of the
outstanding voting securities of the respective Class of such Fund affected by
the proposed increase. No material amendment to the Plans may be made except
by the approval of a majority of both the Directors of the Company and the
Qualified Directors.

Each 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

14
<PAGE> 134
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 & COMPENSATION
MAILING MARKETING TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Tax-Free
Money Market Mutual $326,122 $132,394 $193,728 N/A

Money Market Mutual
Class A $332,859 $122,263 $210,596 -0-
Class S $2,215,338 N/A N/A $2,215,338
</TABLE>

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

PERFORMANCE CALCULATIONS

Yield for the California Tax-Free Money Market Mutual 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. Tax-equivalent yield for the California Tax-Free
Money Market Mutual Fund is computed by dividing that portion of the yield 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 Fund that is not
tax-exempt. The California Tax-Free Money Market Mutual Fund's yield and
tax-equivalent yield for the seven-day period ended December 31, 1995, were
3.81% and (based on a 42.40% assumed federal and state tax rate) 6.61%,
respectively.

Effective yield and effective tax-equivalent yield for the
California Tax-Free Money Market Mutual Fund are 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

15
<PAGE> 135
subtracting one from the result. The California Tax-Free Money Market Mutual
Fund's effective yield and effective tax- equivalent yield for the seven-day
period ended December 31, 1995, were 3.88% and (based on a 42.40% assumed
federal and state tax rate) 6.74% respectively.

In addition, as indicated in its Prospectus, the Money Market
Mutual Fund may advertise certain yield information with respect to each Class
of shares. Current yield with respect to each Class of shares of the Money
Market Mutual Fund 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. The yield for the
Class A shares of the Money Market Mutual Fund for the seven-day period ended
December 31, 1995 was 4.98%. The yield for the Class S shares of the Money
Market Mutual Fund for the seven-day period ended December 31, 1995 was 4.30%.

The yield for the Funds 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.

Yield information for a Fund or Class of shares in a Fund may be
useful in reviewing the performance of such Fund or Class of shares and for
providing a basis for comparison with investment alternatives. The yield of a
Fund and the yield of a Class of shares in a Fund, 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, investors should recognize that changes in the net
asset value of shares of each Class of the Money Market Mutual Fund will affect
the yield of each such Class for any specified period, and such changes should
be considered together with the yield of each Class in ascertaining the total
return to shareholders of each Class of shares for the period. Yield
information for the Funds and each Class may be useful in reviewing the
performance of the Funds and each Class and for providing a basis for
comparison with investment alternatives. The yield of a Fund and the yield of
each Class, however, may not be comparable to the yields from investment
alternatives because of differences in the foregoing variables and differences
in the methods used to value portfolio securities, compute expenses and
calculate yield.

From time to time and only to the extent the comparison is
appropriate for a Fund or a Class of shares, the Company may quote the
performance or price-earning ratio of a Fund or Class in advertising and other
types of literature as compared to the performance of the S&P Index, the Dow
Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the Lehman
Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real Estate
Investment

16
<PAGE> 136
Averages (as reported by the National Association of Real Estate Investment
Trusts), Gold Investment Averages (provided by World Gold Council), Bank
Averages (which are calculated from figures supplied by the U.S. League of
Savings Institutions based on effective annual rates of interest on both
passbook and certificate accounts), average annualized certificate of deposit
rates (from the Federal Reserve G-13 Statistical Releases or the Bank Rate
Monitor), the Salomon One Year Treasury Benchmark Index, the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics), other managed or
unmanaged indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices. The
performance of the Funds or a Class also may be compared to that of other
mutual funds having similar objectives. This comparative performance could be
expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Funds' performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. The Funds' comparative performance will be based on a
comparison of yields, as described above, or total return, as reported by
Lipper, Survey Publications, Donoghue or Morningstar, Inc.

Any such comparisons may be useful to investors who wish to
compare past performance of the Funds or a Class with that of competitors. Of
course, past performance cannot be a guarantee of future results. The 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 the Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in a Fund; (ii) other
government statistics, including, but not limited to, The Survey of Current
Business, may be used to illustrate investment attributes of a Fund or the
general economic, business, investment, or financial environment in which a
Fund operates; (iii) the effect of tax-deferred compounding on the investment
returns of a Fund, or on returns in general, may be illustrated by graphs,
charts, etc., where such graphs or charts would compare, at various points in
time, the return from an investment in a Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis; and (iv)
the sectors or industries in which a Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's
historical performance or current or potential value with respect to the
particular industry or sector.

17
<PAGE> 137
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 discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a 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.

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 the Company's investment adviser. The
Company may also disclose in advertising and other types of sales literature the
assets and categories of assets under management by a fund's 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 also may disclose in advertising
and other types of sales literature the amount of assets and mutual fund assets
managed by Wells Fargo Bank. As of June 30, 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 also may discuss in advertising and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Funds may be made via a "sweep" arrangement,
including, without limitation, the Managed Sweep Account, Money Market Checking
Account, California Tax-Free Money Market Checking Account, Money Market Access
Account and California Tax-Free Money Market Access Account (collectively, the
"Sweep Accounts"). Such advertisements and other literature may include,
without limitation, discussions of such terms and conditions as the minimum
deposit required to open a Sweep Account, a description of the yield earned on
shares of the Funds through a Sweep Account, a description of any monthly or
other service charge on a Sweep Account and any minimum required balance to
waive such service charges, any overdraft protection plan offered in connection
with a Sweep Account, a description of any ATM or check privileges offered in
connection with a Sweep Account and any other terms, conditions, features or
plans offered in connection with a Sweep Account. Such advertising or other
literature may

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also include a discussion of the advantages of establishing and maintaining a
Sweep Account, and may include statements from customers as to the reasons why
such customers have established and maintained a Sweep Account.

DETERMINATION OF NET ASSET VALUE

Net asset value per Fund share is determined by the Custodian on
each Business Day, as described in the Prospectus for each Fund.

As indicated under "Investing In The Funds -- Share Price" in the
Prospectus, each Fund uses the amortized cost method to determine the value of
its portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the
impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation, it may result in periods
during which the value, as determined by amortized cost, is higher or lower
than the price that the Funds would receive if the security were sold. During
these periods the yield to a shareholder may differ somewhat from that which
could be obtained from a similar fund that uses a method of valuation based
upon market prices. Thus, during periods of declining interest rates, if the
use of the amortized cost method resulted in a lower value of the Funds'
portfolio on a particular day, a prospective investor in the Funds would be
able to obtain a somewhat higher yield than would result from investment in a
fund using solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.

Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, a Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities
(as defined in Rule 2a-7) of thirteen months or less and invest only in those
high-quality securities that are determined by the Board of 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, a Fund's price per share as computed for the purpose of
sales and redemptions at $1.00. Such procedures include review of the Fund's
portfolio holdings by the Board of Directors, at such intervals as it may deem
appropriate, to determine whether the Fund's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board of
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

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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.

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 Bank
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.

Purchase and sale orders of the securities held by the Funds may
be combined with those of other accounts that Wells Fargo Bank manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for a Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.

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. The
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not
involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
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 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 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

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<PAGE> 140
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 each 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 such Fund.

Brokerage Commission. The Funds did not pay any brokerage
commissions on portfolio transactions for the year ended December 31, 1995.

Securities of Regular Broker/Dealers. As of December 31, 1995,
the California Tax-Free Money Market Mutual Fund owned no securities of its
"regular brokers or dealers" or their parents, as defined in the Act. As of
December 31, 1995, the Money Market Mutual Fund owned securities of its
"regular brokers or dealers" or their parents, as defined in the Act, as
follows: $125,955,000 of Goldman Sachs & Co. debt securities.

Portfolio Turnover. Because the portfolios of the Funds consist
of securities with relatively short-term maturities, the Funds can expect to
experience high portfolio turnovers. A high portfolio turnover rate should not
adversely affect 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.

FUND EXPENSES

Except for the expenses borne by Wells Fargo Bank and Stephens,
the Company bears all costs of its operations, including the compensation of
its Directors who are not affiliated with Stephens or Wells Fargo Bank or any
of their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing prospectuses (except the expense of printing and mailing prospectuses
used for promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of
its custodian, including those for keeping books and accounts and calculating
the NAV per share of a Fund; expenses of shareholders' meetings; expenses
relating to the issuance, registration and qualification of a Fund's shares;
pricing services, and any extraordinary expenses. Expenses attributable to a
Fund are charged against a Fund assets. General expenses of the Company are
allocated among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.

FEDERAL INCOME TAXES

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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
Internal Revenue Code of 1986, as amended, (the "Code") requires, among other
things, that (a) at least 90% of a 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) a 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) a 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 stockholders at least 90% of its net
investment income and tax-exempt income earned in each year.

In addition, in order to qualify under the Code to pay
exempt-interest dividends, the California Tax-Free Money Market Mutual Fund
intends that at least 50% of the value of its total assets at the close of each
quarter of a taxable year will consist of obligations the interest on which is
exempt from federal income tax. The portion of total dividends paid by the
Fund with respect to any taxable year that constitutes tax-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 Tax Issues" below.

Generally, dividends and distributions of capital gains are
taxable to shareholders when they are received. However, dividends and
distributions of capital gains declared payable as of a record date in October,
November or December of any calendar year are deemed under the Code to have
been received by the shareholders on December 31 of that calendar year if the
dividend is actually paid in the following January. Such dividends will,
accordingly, be taxable to the recipient shareholders in the year in which the
record date falls. In addition, a 4% nondeductible excise tax will be imposed
on each 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 distribute, or be deemed to
distribute, all of its net investment income and net capital gains by the end
of the calendar year and, thus, expects not to be subject to the excise tax.

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Income and dividends received by a Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of any Fund is expected to consist of securities of foreign
issuers, each Fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders. Gains or losses on sales of portfolio securities by
each Fund will generally be long-term capital gains or losses if the securities
sold have been held by it for more than one year, except in certain cases where
the Fund acquires a put thereon. Gain recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Fund at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the Fund
held the debt obligation. 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 a capital gains distributions in a written notice mailed
by the Fund to the 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 and 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 exempt-interest dividends received
thereon by the shareholder. These rules shall not apply, however, to losses
incurred under a periodic redemption plan.

As of the printing of this SAI, the maximum individual marginal
tax rate applicable to ordinary income is 39.60% (marginal rates may be higher
for some individuals due to the 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 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.

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<PAGE> 143
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.

Foreign Shareholders. Under the Code, distributions of net
investment income by each 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 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.

It is expected that the net income of each Fund will be a positive
amount at the time of each determination thereof. If, however, the net income
of a Fund determined at any time is a negative amount (which could occur, for
instance, upon nonpayment of interest and/or principal by an issuer of a
security held by a Fund), the Fund would, pursuant to SEC rules, 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 contributed to the capital of 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 contribution in these
circumstances by investing in a Fund.

Although dividends will be declared daily with respect to each of
the Funds 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. If during the year, the Fund had reduced the number of shares, as
described above, due to such a shortfall, shareholders who had redeemed shares
prior to such reduction could be deemed to have realized a capital gain to the
extent of the reduction, while shareholders redeeming shares after the
reduction could be deemed to have realized a

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<PAGE> 144
capital loss to the extent of the reduction. It is expected that the Fund's
net income, on an annual basis, will equal the dividends declared during the
year.

Special Tax Considerations for the California Tax-Free Money Market Mutual
Fund.

Federal -- The California Tax-Free Money Market Mutual Fund does
not expect to earn any significant investment company taxable income. If the
Fund does earn any taxable income, such income, when distributed, will be
taxable to shareholders. 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 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.

Shareholders who may be "substantial users" (or related persons of
substantial users) with respect to municipal securities held by the Fund should
consult their tax advisers to determine whether exempt-interest dividends and
California exempt-interest dividends (as defined below) paid by the Fund with
respect to such obligations retain their federal and California tax exclusions.
In this connection, the rules regarding the possible unavailability of exempt
dividend treatment to substantial users are similar for federal and California
state tax purposes.

Interest on indebtedness incurred or continued to purchase or
carry shares of the Funds will not be deductible to the extent that the Fund's
distributions are exempt from federal and California income tax.

California Tax Issues -- The California Tax-Free Money Market
Mutual Fund expects to be exempt from tax in California on the same basis as
under Subchapter M of the Code as described above. Moreover, if at the close
of each quarter of the 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 Fund will
invest primarily in municipal securities of the State of California, its
cities, municipalities and other political authorities. The 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 Mutual Fund will notify its shareholders 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 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

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tax exempt, less any expenses or expenditures (including any expenditures
attributable to the acquisition of securities of other investment companies).
Dividends paid by the 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
gains and ordinary income dividends, respectively. Moreover, interest on
indebtedness incurred by a shareholder to purchase or carry shares of the
California Tax-Free Money Market Mutual Fund 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. 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 Funds would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and IRAs since such plans and
accounts are generally tax-exempt and, therefore, would not benefit from the
exempt status of dividends from such Fund. Such dividends would be ultimately
taxable to the beneficiaries when distributed to them.

CAPITAL STOCK

The Funds are two funds of the Stagecoach Family of Funds. The
Company was organized as a Maryland corporation on September 9, 1991 and
currently offers shares of the following funds: Aggressive Growth, Arizona
Tax-Free, Asset Allocation, Balanced, California Tax-Free Bond, California
Tax-Free Income, California Tax-Free Money Market Mutual, Corporate Stock,
Diversified Income, Equity Value, Intermediate Bond, Ginnie Mae, Government
Money Market Mutual, Growth and Income, Money Market Mutual, Money Market
Trust, National Tax-Free, National Tax-Free Money Market Mutual, Oregon
Tax-Free, Prime Money Market Mutual, Short-Intermediate U.S. Government Income,
Small Cap, Treasury Money Market Mutual, and U.S. Government Allocation Funds.
The Arizona Tax-Free, Balanced, California Tax-Free Bond, Equity Value, Ginnie
Mae, Growth and Income, Intermediate Bond, Money Market Mutual, National
Tax-Free, Oregon Tax-Free, Prime Money Market Mutual, Small Cap and Treasury
Money Market Mutual Funds each offer three classes of shares. The Aggressive
Growth, Asset Allocation, California Tax-Free Income, Diversified Income,
Short-Intermediate U.S. Government Income and U.S. Government Allocation Funds
each offer two classes of shares. The California Tax-Free Money Market Mutual,
Corporate Stock, Government Money Market Mutual, Money Market Trust, and
National Tax-Free Money Market Mutual Funds each offer one class of shares.
Most of the Company's funds are authorized to issue multiple classes of
shares, one class generally subject to a front-end sales charge and, in some
cases, a class subject to a contingent-deferred sales charge, that are offered
to retail investors. Certain of the Company's funds also are authorized to
issue other classes of shares, which are sold primarily to institutional
investors. Each class of shares in a fund represents an equal, proportionate
interest in a fund with other shares of the same class. Shareholders of each
class bear their pro rata portion of the fund's operating expenses,

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<PAGE> 146
except for certain class-specific expenses (e.g., any state securities
registration fees, shareholder servicing fees or distribution fees that may be
paid under Rule 12b-1) that are allocated to a particular class. Please
contact Stagecoach Shareholder Services at 1-800-222-8222 if you would like
additional information about other funds or classes of shares offered.

The Money Market Mutual Fund is comprised of two Classes of
shares, Class A shares and Class S shares. With respect to matters affecting
one Class, but not another, shareholders of the Money Market Mutual Fund vote
as a Class. For example, approval of a distribution plan is voted on only by
members of the Class affected by the plan. Subject to the foregoing, all
shares of a Fund have equal voting rights. In situations where voting by
series is required by law or where the matter involved only affects one series,
shares of each Fund will be voted by series. For example, a change in a Fund's
fundamental investment policy would be voted upon only by shareholders of the
Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
shareholders of the other investment portfolios to approve the proposal as to
those investment portfolios. As used in the Prospectus of the Bond Fund and
Money Market Mutual Fund, and in this SAI, the term "majority," when referring
to approvals to be obtained from shareholders of a Class of shares of each of
the Funds means the vote of the lesser of (i) 67% of the shares of the
respective Class of the Fund represented at a meeting if the holders of more
than 50% of the outstanding shares of such Class of the Fund are present in
person or by proxy, or (ii) more than 50% of the outstanding shares of such
Class of the Fund. As used in the Prospectus of each Fund 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 a 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 a 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 an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.

Each share 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

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<PAGE> 147
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 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.

As of February 29, 1996, no shareholders were known by the Company
to own 5% or more of the outstanding Class A shares or Class B shares of the
Funds.

OTHER

The Registration Statement, including the Prospectus of each Fund,
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 of
each Fund as to the contents of any contract or other document 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 auditor
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 Funds 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 into 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.

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SAI APPENDIX

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

Corporate and Municipal Bonds

Moody's: The four highest ratings for corporate and municipal
bonds are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of
the "best quality" and carry the smallest amount of investment risk. Bonds
rated "Aa" are of "high quality by all standards," but margins of protection or
other elements make long-term risks appear somewhat greater than "Aaa" rated
bonds. Bonds rated "A" possess many favorable investment attributes and are
considered to be upper medium grade obligations. Bonds rated "Baa" are
considered to be medium grade obligations; interest payments and principal
security appear adequate for the present, but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds have speculative characteristics as well. Moody's applies
numerical modifiers: 1, 2 and 3 in each rating category from "Aa" through
"Baa" in its rating system. The modifier 1 indicates that the security ranks
in the higher end of its category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end.

S&P: The four highest ratings for corporate and municipal bonds
are "AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings
assigned by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the category.

Municipal Notes

Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding group." Notes rated "MIG 3" or "VMIG
3" are of "favorable quality," with all security elements accounted for, but
lacking the strength of the preceding grades.

A-1
<PAGE> 149
S&P: The "SP-1" rating reflects a "very strong or strong capacity
to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.

Corporate and Municipal Commercial Paper

Moody's: The highest rating for corporate and municipal
commercial paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior
capacity for repayment of short-term promissory obligations." Issuers rated
"P-2" (Prime- 2) "have a strong capacity for repayment of short-term promissory
obligations," but earnings trends, while sound, will be subject to more
variation.

S&P: The "A-1" rating for corporate and municipal commercial
paper indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."

Corporate Notes

S&P: The two highest ratings for corporate notes are "SP-1" and
"SP-2." The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.

A-2
<PAGE> 150
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1996
as Amended on September 6, 1996

SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND

CLASS A

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

Stagecoach Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the funds in the Stagecoach Family of Funds -- the
SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME FUND (the "Fund"). The investment
objective of the Fund is described in its Prospectus under the section entitled
"How the Funds Work -- Investment Objectives and Policies."

This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus dated September 6, 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 for the 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 calling the
Transfer Agent at the telephone number indicated above.

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

1
<PAGE> 151
TABLE OF CONTENTS

<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . 4
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . 10
Performance Calculations. . . . . . . . . . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . 16
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . 21
Financial Information . . . . . . . . . . . . . . . . . . . . . . . 21
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

2
<PAGE> 152
INVESTMENT RESTRICTIONS

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 be 25% or more of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in U.S.
Government Obligations;

(3) purchase commodities or commodity contracts (including
futures contracts), except that the Fund may purchase securities of an issuer
which invests or deals in commodities or commodity contracts;

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

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

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

(8) borrow money or issue senior securities as defined in the
1940 Act, 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 borrowings exceed 5% of its net assets), and except that
the Fund may issue multiple Classes of shares in accordance with applicable
laws, rules, regulations or orders;

(9) write, purchase or sell straddles, spreads, warrants, or
any combination thereof;

3
<PAGE> 153
(10) purchase securities of any issuer (except U.S. Government
Obligations) if, as a result, with respect to 75% of its total assets, 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 its total assets the
Fund's ownership would be more than 10% of the outstanding voting securities of
such issuer; or

(11) make loans, except that the Fund may purchase or hold debt
instruments or lend its portfolio securities in accordance with its investment
policies, and may enter into repurchase agreements.

(1) The Fund may not:

(a) purchase or retain securities of any issuer if the
officers or Directors of the Company or of 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;

(b) purchase 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.

(2) The Fund reserves the right to invest up to 15% 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,
repurchase agreements maturing in more than seven days or other illiquid
securities. However, as long as the Fund's shares are registered for sale in a
state that imposes a lower limit on the percentage of a fund's assets that may
be so invested, the Fund will comply with such lower limit. The Fund presently
is limited to investing 10% of its net assets in such securities due to limits
applicable in several states.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Pass-Through Obligations. The 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

4
<PAGE> 154
average maturity of a particular pass-through obligation. Variations in the
maturities of pass-through obligations will affect the yield of the Fund.
Furthermore, as with any debt obligation, fluctuations in interest rates will
inversely affect the market value of pass-through obligations. The 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. 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 will only 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.

MANAGEMENT

5
<PAGE> 155
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

6
<PAGE> 156
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.

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>

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.

7
<PAGE> 157
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.

As of December 31, 1995, mutual funds advised by Wells Fargo had in
excess of $10 billion in total assets.

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
portfolio 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
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 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
FUND PAID WAIVED PAID WAIVED PAID WAIVED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-Inter. U.S. -0- $ 3,704 -0- $ 58,270 $ 56,387 $ 60,241
Gov't Income
</TABLE>

Administrator and Distributor. The Company has retained Stephens as
administrator and distributor on behalf of the Fund. The Administration
Agreement between Stephens and the Fund states that Stephens shall provide as
administrative services, among other things: (i) general supervision of the
operation of the Fund, including coordination of the services performed by the
Fund's investment adviser, transfer and dividend disbursing agent, custodian,
shareholder servicing agent(s), independent public accountants and legal
counsel, regulatory compliance, including the compilation of information for
documents such as reports to, and filings with, the SEC and state securities
commissions; and preparation of proxy statements and shareholder reports for
the Fund; and (ii) general supervision relative to the compilation of data
required for the preparation of periodic reports distributed to the Company's
Officers and Board of Directors. Stephens also furnishes office space and
certain facilities required for conducting

8
<PAGE> 158
the business of the Fund 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.

The Advisory Contract and Administration Agreement for the Fund provide
that if, in any fiscal year, the total expenses of the Fund incurred by, or
allocated to, the Fund (excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under the Plan but including the fees provided for
in the Advisory Contract and the Administration Agreement) exceed the most
restrictive expense limitation applicable to the Fund imposed by the securities
laws or regulations of the states in which the Fund's shares are registered for
sale, Wells Fargo Bank and Stephens shall waive their fees proportionately under
the Advisory Contract and the Administration Agreement, respectively, for the
Fund for the fiscal year to the extent of the excess or reimburse the excess,
but only to the extent of their respective fees. The Advisory Contract and the
Administration Agreement for the Fund further provide that the Fund's total
expenses shall be reviewed monthly so that, to the extent the annualized
expenses for such month exceed the most restrictive applicable annual expense
limitation, the monthly fees under the contract and the agreement shall be
reduced as necessary. The most stringent applicable restriction limits these
expenses for any fiscal year to 2.50% of the first $30 million of the Fund's
average net assets, 2.00% of the next $70 million of average net assets, and
1.50% of the average net assets in excess of $100 million.

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

<TABLE>
<CAPTION>
FUND 1993 1994 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Short Intermediate U.S. Government $3,522 $3,522 $6,998
Income Fund
</TABLE>

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. The Fund did not pay any
shareholder servicing fees to Wells Fargo Bank for the fiscal year ended
December 31, 1995.R

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo Bank
has been retained to act as custodian 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 charge from the Fund. Wells Fargo Bank also has been retained to
act as the transfer and dividend disbursing

9
<PAGE> 159
agent for the Fund, and receives for its services a base fee and per-account
fees from the Fund. For the year ended December 31, 1995, the Fund did not pay
any custody fees or transfer and dividend disbursing agency fees to Wells Fargo
Bank for such services.

Underwriting Commissions. For the fiscal years ended December 31,
1993 and 1994, the Funds' distributor retained $26,215,173 and $5,415,227,
respectively in underwriting commissions (front-end sales loads and CDSCs, if
any) in connection with the purchase or redemption of Fund shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the Company, and its registered
representatives received $378,895 and $904,274, respectively, in underwriting
commissions in connection with the purchase or redemption of Fund shares.

DISTRIBUTION PLAN

As indicated in the Prospectus, the Fund has adopted a
distribution plan (a "Plan") under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder (the "Rule"). The Plan was adopted by the 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") and approved by the initial shareholder of
the Fund.

Under the 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 by
paying on an annual basis up to 0.05% of the Fund's average daily net assets.
The Plan provides only for reimbursement of actual expenses. In addition, each
Plan contemplates that to the extent any fees payable pursuant to a Shareholder
Servicing Agreement are deemed to be for distribution-related services, rather
than shareholder services, such payments are approved and payable pursuant to
such Plan.

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 Agreements related to the Plan
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 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 Plans may be made except by a majority of both the
Directors of the Company and the Qualified Directors.

10
<PAGE> 160
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 Fund's distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under the Fund's Plan.

<TABLE>
<CAPTION>
PRINTING & COMPENSATION
MAILING MARKETING TO
FUND TOTAL PROSPECTUS BROCHURES UNDERWRITERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short Intermediate U.S.
Government Income Fund
$7,200 $6,422 $778 N/A
</TABLE>

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

PERFORMANCE CALCULATIONS

As indicated in the Prospectus, the Fund 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") will be computed by using the redeemable value at the end of a
specified period ("ERV") of a hypothetical initial investment ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Prospectus, if the Fund assesses a sales charge,
at times, it also may 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 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 for the Fund for the period since
inception (October 27, 1993) to December 31, 1995, assuming a 3.00% sales load,
was 3.72%. The average annual total return for the same period, assuming no
sales load, was 5.20%. The annual total return for the one year ended December
31, 1995, assuming a 3.00% sales load, was 9.30%. The annual total return for
the same period, assuming no sales load, was 12.67%.

The Fund may advertise the cumulative total return of 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

11
<PAGE> 161
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 for the Fund for the period since
inception (October 27, 1993) to December 31, 1995, assuming a 3.00% sales load,
was 8.24%. The cumulative total return for the same period, assuming no sales
load, was 11.60%.

As indicated in the Prospectus, the Fund may advertise certain
yield information. As and to the extent required by the SEC, yield will be
calculated based on a 30-day (or one month) period, computed by dividing the
net investment income share earned during the period by the maximum offering
price per share 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 outstanding during the period that were
entitled to receive dividends; and d = the maximum offering price per share on
the last day of the period. The net investment income 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 Fund's 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.

The yield of the Fund for the 30-day period ended December 31,
1995, assuming a 3.00% sales load, was 4.95%. The yield of such Fund for the
same period, assuming no sales load, was 5.10%.

The yield for the 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 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.

In addition, investors should recognize that changes in the net
asset values of shares of the Fund will affect the yield of the Fund for any
specified period, and such changes should be considered together with the
Fund's yield in ascertaining the total return to shareholders for the

12
<PAGE> 162
period. 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 yield of the Fund, 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 Fund, the Company may quote performance or price-earning
ratios for 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 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 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 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 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
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.

13
<PAGE> 163
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 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 historical performance of the Fund 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 Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare the Fund's performance with other investments which are assigned

14
<PAGE> 164
ratings by NRSROs. Any such comparisons may be useful to investors who wish to
compare the Fund's past performance with other rated investments.

From time to time, the Fund may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the 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 the Company's
investment adviser. The Company may also disclose in advertising and other
types of sales literature the assets and categories of assets under management
by a fund's 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 June 30,
1996, Wells Fargo Bank 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 NYSE is open for trading.

Securities of the Fund for which market quotations are available
are valued at latest prices. Securities of the 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. Futures
contracts will be marked to market daily at their respective settlement prices
determined by the relevant exchange. These prices are not necessarily final
closing prices, but are intended to represent prices prevailing during the
final 30 seconds of the trading day. 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 NYSE, or, in the absence of any sale on the valuation date, at
latest quoted bid prices. Options not listed on a 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

15
<PAGE> 165
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 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
Fund also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, money market
securities, 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.

Wells Fargo Bank, as the investment adviser of the Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for the 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 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 years ended December 31, 1993,
1994 and 1995 the Fund did not pay any brokerage commissions.

16
<PAGE> 166
Securities of Regular Broker/Dealers. On December 31, 1995 the
Short Intermediate U.S. Government Income Fund owned securities of its "regular
brokers or dealers," or their parents, as defined in the 1940 Act, as follows:

<TABLE>
<CAPTION>
FUND REGULAR BROKER/DEALER AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C>
Short Intermediate
U.S. Government Income Fund Goldman Sachs & Co. $1,119,000
</TABLE>

Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover can generate short-term capital gain tax
consequences. The portfolio turnover rate for the Fund generally is not
expected to exceed 100%. The portfolio turnover rate is not a limiting factor
when Wells Fargo Bank deems portfolio changes appropriate.

FEDERAL INCOME TAXES

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

Qualification 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 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 the Fund 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

17
<PAGE> 167
either distribute 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.

Income and dividends received by the 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 the Fund is
expected to consist of securities of foreign issuers, the Fund will not be
eligible to elect to "pass through" foreign tax credits to shareholders.

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 Fund will
generally be long-term capital gains or losses if the securities sold have been
held by it for more than one year. 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 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 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. Gains recognized on
the disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation.

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 capital
realized 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.

18
<PAGE> 168
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.

Other Matters. Investors should be aware that the investments to
be made by the Fund may involve sophisticated tax rules such as original issue
discount, mark 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

19
<PAGE> 169
California Tax-Free Bond Fund, California Tax-Free Income Fund, California
Tax-Free Money Market Mutual Fund, Corporate Stock Fund, Diversified Income
Fund, Ginnie Mae Fund, Growth and Income Fund, Money Market Mutual Fund,
National Tax- Free Money Market Fund, Short-Intermediate U.S. Government Income
Fund and U.S. Government Allocation Fund -- and the Board of Directors may, in
the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.

All shares of the Company have equal voting rights and will be
voted in the aggregate, and not by series, except where voting by a series is
required by law or where the matter involved only affects one series. For
example, a change in a Fund's fundamental investment policy affects only one
series and would be voted upon only by shareholders of the Fund affected.
Additionally, approval of an advisory contract is a matter to be determined
separately by Fund. Approval by the shareholders of one Fund is effective as
to that Fund whether or not sufficient votes are received from the shareholders
of the other investment portfolios to approve the proposal as to those
investment portfolios. As used in the Prospectus of the Fund and in this SAI,
the term "majority," when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares
of the Fund represented at a meeting if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the 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 an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 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 for the consideration described in the Prospectus, will be
fully paid and non-assessable by the Company.

As of February 29, 1996, no shareholders were known by the Company
to own more than 5% of the outstanding shares of the Fund.

20
<PAGE> 170
OTHER

The Registration Statement, including the Prospectus for the Fund,
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

FINANCIAL INFORMATION

The portfolio of investments, financial statements and independent
auditors' report for the Fund contained in Post-Effective Amendment No. 21 to
the Company's Registration Statement, as filed on Form N-1A with the SEC on
February 29, 1996, are hereby incorporated by reference into this SAI. The
portfolio of investments, audited financial statements and independent
auditors' reports are attached to all SAIs delivered to current or prospective
shareholders.

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<PAGE> 171
SAI APPENDIX

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

Corporate Bonds

S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.

Corporate Commercial Paper

Moody's: The highest rating for corporate commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.

A-1
<PAGE> 172

STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated April 1, 1996
as Amended on September 6, 1996

NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND

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

Stagecoach Funds, Inc. (the "Company") is an open-end series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the funds in the Stagecoach Family of Funds -- the
NATIONAL TAX-FREE MONEY MARKET MUTUAL FUND (the "Fund"). The Fund seeks to
achieve its investment objective by investing all of its assets in the Tax-Free
Money Market Master Portfolio (the "Master Portfolio") of Master Investment
Trust (the "Master Trust"). The Master Portfolio has the same investment
objective as the Fund.

The Fund may withdraw its investment in the 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 of Directors 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 Fund's then current Prospectus and SAI.

This SAI is not a prospectus and should be read in conjunction
with the Fund's Prospectus dated September 6, 1996. All terms used in this SAI
that are defined in the Fund's Prospectus have the meanings assigned in such
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 by calling Wells Fargo Bank,
N.A. ("Wells Fargo Bank") at 1-800-222-8222.

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<PAGE> 173

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Restrictions . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment
Activities . . . . . . . . . . . . . . . . . . . . . . . . 6
Management. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . 13
Performance Calculations. . . . . . . . . . . . . . . . . . . 14
Determination of Net Asset Value . . . . . . . . . . . . . . 17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . 18
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . 19
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors . . . . . . . . . . . . . . . . . . . . 25
Financial Information . . . . . . . . . . . . . . . . . . . . 26
SAI Appendix. . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

2
<PAGE> 174

INTRODUCTION

The Master Trust is a registered, open-end, management investment
company. The Master Trust is a "series fund," which is a mutual fund divided
into separate portfolios. The Master Trust currently offers eight diversified
portfolios: the Asset Allocation, Capital Appreciation, Cash Investment Trust,
Corporate Stock, Short-Term Municipal Income, Short-Term Government-Corporate
Income, Tax-Free Money Market and U.S. Government Allocation Master Portfolios.
The Fund invests substantially all of its assets in the Tax-Free Money Market
Master Portfolio, which has the same investment objective as the Fund.

INVESTMENT RESTRICTIONS

The Fund and the Master Portfolio are subject to the following
investment restrictions, all of which are fundamental policies.

The Fund and the Master Portfolio 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 or the Master Portfolio's
investments in that industry would be 25% or more of the current value of the
Fund's or the Master Portfolio'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 entities);
(ii) obligations of the U.S. Government, its agencies or instrumentalities
(including government-sponsored enterprises); and (iii) the 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 further provided that this investment
restriction does not affect the Fund's ability to invest all or a portion of
its assets in the Master Portfolio;

(2) purchase or sell real estate or real estate limited
partnerships (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
(including futures contracts) except that the Fund and Master Portfolio may
purchase securities of an issuer which invests or deals in commodities and
commodity contracts and except that the Fund and Master Portfolio may enter
into futures and options contracts in accordance with their respective
investment policies;

(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 municipal securities or other permitted investments
directly from the issuer thereof or from an

3
<PAGE> 175

underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's or Master Portfolio's investment program (including
the Fund's investments in the Master Portfolio) 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 all or a portion of its assets in the Master Portfolio;

(6) issue senior securities, except that the Fund and Master
Portfolio may each 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 its net assets exists);

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

(8) purchase securities of any issuer (except securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities,
including government-sponsored enterprises) if, as a result, with respect to
75% of its total assets, more than 5% of the value of the Fund's or Master
Portfolio's total assets would be invested in the securities of any one issuer
or, with respect to 100% of its total assets the Fund's or Master Portfolio's
ownership would be more than 10% of the outstanding voting securities of such
issuer, provided that this restriction does not affect the Fund's ability to
invest all or a portion of its assets in the Master Portfolio; or

(9) make loans, except that the Fund and Master Portfolio may
each purchase or hold debt instruments, lend its portfolio securities or enter
into repurchase agreement transactions in accordance with its investment
policies; loans for purposes of this restriction will not include the Fund's
purchase of interests in the Master Portfolio.

With regard to fundamental investment restriction number (1)
above, the Fund and Master Portfolio intend to reserve freedom of action to
have in excess of 25% of the value of the respective total assets invested in
obligations of the banking industry. Regarding this fundamental concentration
policy, the Fund or Master Portfolio may hold in excess of 25% of the value of
the assets in obligations of the banking industry to the extent that the Fund
or Master Portfolio holds obligations with such credit enhancements as letters
of credit issued by domestic bank issuers, which will be considered to be
obligations of domestic banks. The SEC staff's position is that the exclusion
with respect to banks may only be applied to domestic banks. For this purpose,
the staff also takes the position that U.S. branches of foreign banks and
foreign branches of domestic banks may, if certain conditions are met, be
treated as "domestic banks". The Company and Trust currently intend to
consider only obligations of "domestic banks" to be within the exclusion with
respect to bank obligations.

4
<PAGE> 176

Fundamental investment restriction number (8), above, is less
restrictive than Rule 2a-7 of the 1940 Act. Nonetheless, it is the operating
policy of the Fund and the Master Portfolio to comply with Rule 2a-7's
diversification requirements.

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

Neither the Fund nor the Master Portfolio may:

(1) purchase or retain securities of any issuer if the Officers
or Directors/Trustees of the Company, the Master 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;

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

(3) purchase 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 all or a
portion of its assets in the Master Portfolio; and

(4) 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 the Fund's or Master Portfolio's aggregate investment in
such classes of securities will exceed 5% of its total assets.

The Fund and the Master Portfolio may each 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. However, the investment adviser will waive its advisory fees for
that portion of the Fund's or the Master Portfolio's assets so invested, except
when such purchase is part of a plan of merger, consolidation, reorganization
or acquisition. In addition, these unaffiliated investment companies must have
a fundamental investment policy of investing at least 80% of their net assets
in obligations that are exempt from federal income taxes and are not subject to
the federal alternative minimum tax. However, the above restrictions do not
affect the Fund's ability to invest all or a portion of its assets in the
Master Portfolio.

In addition, the Fund and the Master Portfolio each reserves the
right to invest up to 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, repurchase agreements maturing in more than seven days,
illiquid securities and restricted securities. However, as long as the

5
<PAGE> 177

Fund's shares are registered for sale in a state that imposes a lower limit on
the percentage of a fund's assets that may be so invested, the Fund and the
Master Portfolio will comply with such lower limit. The Fund presently is
limited to investing 10% of its net assets in such securities due to limits
applicable in several states.

Furthermore, the Fund and the Master Portfolio may not purchase or
sell real estate limited partnership interests. The Fund and the Master
Portfolio do not currently intend to make loans of their portfolio securities.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Unrated and Downgraded Investments. The Master Portfolio may
purchase instruments that are not rated if, in the opinion of Wells Fargo Bank
the investment adviser, such obligations are of comparable quality to other
rated investments that are permitted to be purchased by the Master Portfolio.
The Master Portfolio may purchase unrated instruments only if they are
purchased in accordance with the Master Portfolio's procedures adopted by the
Master Trust's Board of Trustees in accordance with Rule 2a-7 under the 1940
Act. After purchase by the Master Portfolio, a security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Master Portfolio. In the event that a portfolio security ceases to be an
"Eligible Security" or no longer "presents minimal credit risks", immediate
sale of such security is not required, provided that the Board of Trustees has
determined that disposal of the portfolio security would not be in the best
interests of the Master Portfolio. 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 Master Portfolio will attempt to use comparable ratings as
standards for investments in accordance with the investment policies contained
in its Part A and in this SAI. The ratings of Moody's and S&P are more fully
described in the SAI Appendix.

Letters of Credit. Certain of the debt obligations (including
municipal securities, certificates of participation, commercial paper and other
short-term obligations) which the Master Portfolio may purchase may be backed
by an unconditional and irrevocable letter of credit of a bank, savings and
loan association or insurance company which assumes the obligation for payment
of principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Wells Fargo Bank, are of comparable quality to issuers of other permitted
investments of the Master Portfolio may be used for letter of credit-backed
investments, provided that the Master Trust's Board of Trustees approves or
ratifies such investments.

Loans of Portfolio Securities. The Master Portfolio may lend
securities from its portfolio to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government obligations or other
high-quality debt obligations equal to at least 100% of the current market
value of the securities loaned (including accrued interest thereon) plus the
interest payable to the Master Portfolio with respect to the loan is maintained
with the Master Portfolio. In determining whether or not to lend a security to
a particular broker, dealer or financial institution, the Master Portfolio's
investment adviser considers all relevant facts and

6
<PAGE> 178

circumstances, including the size, creditworthiness and reputation of the
broker, dealer, or financial institution. Any loans of portfolio securities
are fully collateralized based on values that are marked to market daily. The
Master Portfolio will not enter into any portfolio security lending arrangement
having a duration longer than one year. Any securities that the Master
Portfolio receives as collateral do not become part of the Master Portfolio's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Master Portfolio will, if permitted by law, dispose of such
collateral except for such part thereof that is a security in which the Master
Portfolio is permitted to invest. During the time securities are on loan, the
borrower will pay the Master Portfolio any accrued income on those securities,
and the Master Portfolio may invest the cash collateral and earn additional
income or receive an agreed-upon fee from a borrower that has delivered
cash-equivalent collateral. The Master Portfolio will not lend securities
having a value that exceeds one-third of the current value of its total assets.
Loans of securities by the Master Portfolio are subject to termination at the
Master Portfolio's or the borrower's option. The Master Portfolio may pay
reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with
respect to the collateral to the borrower or the placing broker. Borrowers and
placing brokers are not permitted to be affiliated, directly or indirectly,
with the Master Trust, the Company, the investment adviser, or the distributor.

Foreign Obligations. 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
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
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. The Master
Portfolio may not invest 25% or more of its assets in foreign obligations.

Obligations of foreign banks and foreign branches of U.S. banks
involve somewhat different investment risks from those affecting obligations of
U.S. banks, including the possibilities that liquidity could be impaired
because of future political and economic developments, that the obligations may
be less marketable than comparable obligations of U.S. banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions (such as foreign exchange controls) may be adopted
which might adversely affect the payment of principal and interest on those
obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable
to U.S. banks. In that connection, foreign banks are not subject to
examination by any U.S. Government agency or instrumentality.

7
<PAGE> 179

Municipal Bonds. The Master Portfolio may invest in municipal
bonds. The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Municipal bonds are debt obligations issued
to obtain funds for various public purposes, including the construction of a
wide range of public facilities such as bridges, highways, housing, hospitals,
mass transportation, schools, streets, and water and sewer works. Other
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations and obtaining funds for general operating expenses or
to loan to other public institutions and facilities. Industrial development
bonds are a specific type of revenue bond backed by the credit and security of
a private user. Certain types of industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide privately-operated
housing facilities, sports facilities, convention or trade show facilities,
airport, mass transit, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. The Master Portfolio may not
invest 25% or more of its assets in industrial development bonds. 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.

TANs. Uncertainty concerning 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.

The values of outstanding municipal securities 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 change
in response to changes in the interest rates payable on new issues

8
<PAGE> 180

of municipal securities (i.e., market risk). Should such interest rates rise,
the values of outstanding securities, including those held in the Master
Portfolio's portfolio, will decline and (if purchased at par value) sell at a
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) would sell at a premium.
Changes in the value of municipal securities held in the Master Portfolio's
portfolio arising from these or other factors will cause changes in the net
asset value per share of the Master Portfolio.

MANAGEMENT

9
<PAGE> 181
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.

*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901

Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>

10
<PAGE> 182
<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.

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

</TABLE>

11
<PAGE> 183

<TABLE>
<S> <C> <C>
*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.

Investment Adviser. The Fund has not engaged an investment
adviser. The Master Portfolio is advised by Wells Fargo Bank pursuant to an
Investment Advisory Contract approved by the Board of Trustees of the Master
Trust. The Investment Advisory Contract for the 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 Investment Advisory Contract, Wells Fargo
Bank also furnishes to the Master Trust's Board of Trustees periodic reports on
the investment strategy and performance of the Master Portfolio.

Wells Fargo Bank has agreed to provide to the 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 Master Portfolio's portfolio.

The Investment 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 Master Portfolio's outstanding voting securities or by the
Master Trust's Board of Trustees and (ii) by a majority of the Trustees of the
Master Trust who are not parties to the Investment Advisory Contract or
"interested persons" (as defined in the 1940 Act) of any such party. The
Investment Advisory Contract may be terminated on 60 days' written notice by
either party and will terminate automatically if assigned.

Administrator and Distributor. The Company has retained Stephens
as administrator and distributor on behalf of the Fund. In addition, the
Master Trust has retained Stephens as administrator on behalf of the Master
Portfolio. Under the respective Administration Agreements between Stephens and
the Company and the Master Trust, Stephens shall provide as administrative
services, among other things: (i) general supervision of the Fund's and the
Master Portfolio's operations, including coordination of the services performed
by the investment adviser (in the case of the Master Portfolio), transfer
agent, custodian, shareholder servicing agent(s), independent auditors and
legal counsel, regulatory compliance, including the compilation of information
for documents such as reports to, and filings with, the SEC and state
securities commissions; and preparation of proxy statements and shareholder
reports for the Fund and the Master Portfolio; and (ii) general supervision
relative to the compilation of data required for the preparation of periodic
reports distributed to the Company's and Master Trust's Officers, Directors and
Trustees. Stephens also furnishes office space and certain facilities required
for conducting the Fund's and the Master Portfolio's business together with
those ordinary clerical and bookkeeping services that are not being furnished
by Wells Fargo Bank. Stephens also pays the compensation of the Master Trust's
and Company's Directors/Trustees, Officers and employees who are affiliated
with Stephens.

12
<PAGE> 184

The Investment Advisory Contract and Administration Agreements for
the Master Portfolio or the Fund, respectively, provide that if, in any fiscal
year, the total expenses of the Fund (including expenses relating to the Master
Portfolio) incurred by, or allocated to, the Fund and the Master Portfolio
(excluding taxes, interest, brokerage commissions and other portfolio
transaction expenses, expenditures that are capitalized in accordance with
generally accepted accounting principles, extraordinary expenses and amounts
accrued or paid under the Distribution Plan, but including the fees provided
for in the Investment Advisory Contract and the Administration Agreements)
exceed the most restrictive expense limitation applicable to the Fund imposed
by the securities laws or regulations of the states in which the Fund's shares
are registered for sale, Wells Fargo Bank and Stephens shall waive their fees
proportionately under the Investment Advisory Contract and the Administration
Agreements, respectively, for the fiscal year to the extent of the excess or
reimburse the excess, but only to the extent of their respective fees. The
Investment Advisory Contract and the Administration Agreements for the Master
Portfolio and the Fund, respectively, further provide that the Master
Portfolio's and the Fund's total expenses shall be reviewed monthly so that, to
the extent the annualized expenses for such month exceed the most restrictive
applicable annual expense limitation, the monthly fees under the contract and
the agreement shall be reduced as necessary. The most stringent applicable
restriction limits these expenses for any fiscal year to 2.5% of the first $30
million of the Fund's average net assets, 2% of the next $70 million of average
net assets, and 1.5% of the average net assets in excess of $100 million.

Custodian And Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian for both the Fund and the Master
Portfolio. The custodian, among other things, maintains separate custody
accounts in the names of the Fund and the Master Portfolio; receives and
delivers all assets for the Fund and the 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 Master Portfolio and
pays all expenses of the Fund and the Master Portfolio. Wells Fargo Bank is
not entitled to receive a fee for its services as transfer and dividend
disbursing agent and custodian for both the Fund and the Master Portfolio.

DISTRIBUTION PLAN

The Fund has adopted a Distribution Plan (the "Distribution Plan")
under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. The
Distribution Plan for the Fund was adopted by the Company's Board of Directors
on October 10, 1995, including a majority of 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 Distribution Plan (the
"Qualified Directors").

The Distribution Plan permits the Fund to pay Stephens, for
distribution-related activities provided and related expenses incurred, a
monthly fee at the annual rate of up to 0.05% of the average daily net assets
of the Fund. The Distribution Plan authorizes Stephens to compensate
broker/dealers or financial institutions that have entered into Selling Group
Agreements with Stephens for distribution-related series.

13
<PAGE> 185

The Distribution Plan continues 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 Agreements related to the
Distribution Plan also must be approved by such vote of the Directors and the
Qualified Directors. Such Agreements 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 Distribution
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 Distribution Plan may be made except by
a majority of both the Directors of the Company and the Qualified Directors.

The Distribution Plan requires the Company to provide to the
Directors, and the Directors to review, at least quarterly, a written report of
the amounts expended (and purposes therefor) under the Distribution Plan and
any related agreements. 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.

PERFORMANCE CALCULATIONS

The Fund may advertise certain yield information. Yield for the
Fund is calculated based on the net changes, exclusive of capital changes, over
a seven- or thirty-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 or 365/30, as applicable) with the
resulting yield figure carried to at least the nearest hundredth of one
percent.

Tax-equivalent yield for the Fund is computed by dividing that
portion of the yield of the Fund which is tax-exempt by one minus a stated
income tax rate and then adding the product to that portion, if any, of the
Fund's yield that is not tax-exempt.

Effective yield and effective tax-equivalent yield for the Fund
are 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 or thirty, as applicable, and subtracting one
from the result.

The yield for the Fund fluctuates 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

14
<PAGE> 186

quality, composition, maturity and market conditions as well as the expenses
allocated to the Fund.

In addition, investors should recognize that changes in the net
asset value of shares of the Fund will affect the Fund's yield for any
specified period, and such changes should be considered together with the
Fund's yield in ascertaining the Fund's total return to shareholders for the
period. 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.

Performance Comparisons. 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 91-Day Treasury Bill Average (Federal
Reserve), Lipper Money Market Fund Average, Donoghue Taxable Money Market Fund
Average, Salomon Three-Month Treasury Bill Index, Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), Dow Jones Industrial Average, Lehman Brothers 20+ Treasury Index,
Lehman Brother 5-7 Year Treasury Index, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), the Consumer Price
Index (as published by the U.S. Bureau of Labor Statistics and which is an
established measure of change over time in the prices of goods and services in
major expenditure groups), average annualized certificate of deposit rates
(from the Federal Reserve G-13 Statistical Releases or the Bank Rate Monitor),
the Salomon One Year Treasury Benchmark Index, the Consumer Price Index (as
published by the U.S. Bureau of Labor Statistics), other managed or unmanaged
indices or performance data of bonds, municipal securities, stocks or
government securities (including data provided by Ibbotson Associates), or by
other services, companies, publications or persons who monitor mutual funds on
overall performance or other criteria. The S&P Index and the Dow Jones
Industrial Average are unmanaged indices of selected common stock prices.

The Fund's performance 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.
(including the Lipper General Bond Fund Average, the Lipper Intermediate
Investment Grade Debt Fund Average, the Lipper Bond Fund Average, the Lipper
Growth Fund Average, the Lipper Flexible Fund Average), Donoghue's Money Fund
Report, including Donoghue's Taxable Money Market Fund Average, Morningstar,
Inc., or other 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

15
<PAGE> 187

cannot be a guarantee of future results. The Company also may include in
advertisements and other types of literature references to certain marketing
approaches of the Distributor and may also refer to general mutual fund
statistics provided by the Investment Company Institute.

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 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 some 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 disclose in sales literature the assets and
categories of assets under management by the Fund's or Master Portfolio's
investment adviser and its affiliates. The Company may also disclose in
advertising and other types of sales literature the assets and categories of
assets under management by a fund's 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 June 30, 1996, Wells Fargo Bank 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 also may discuss in advertisements and other types of
literature that the Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poors
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The 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.

16
<PAGE> 188

The Company also may discuss in advertisements and other types of
literature the features, terms and conditions of Wells Fargo Bank accounts
through which investments in the Fund may be made via a "sweep" arrangement,
including, without limitation, through investments in a Managed Sweep Account,
National Tax-Free Money Market Checking Account or National Tax-Free Money
Market Access Account (collectively, the "Sweep Accounts"). Such
advertisements and other literature may include, without limitation,
discussions of such terms and conditions as the minimum deposit required to
open a Sweep Account, a description of the yield earned on shares of the Fund
through a Sweep Account, a description of any monthly or other service charge
on a Sweep Account and any minimum required balance to waive such service
charges, any overdraft protection plan offered in connection with a Sweep
Account, a description of any express transfer or "AutoSaver" plan offered in
connection with a Sweep Account, a description of any automated teller machine
("ATM") or check privileges offered in connection with a Sweep Account and any
other terms, conditions, features or plans offered in connection with a Sweep
Account. Such advertising or other literature may also include a discussion of
the advantages of establishing and maintaining a Sweep Account, and may include
statements from customers as to the reasons why such customers have established
and maintained a Sweep Account.

DETERMINATION OF NET ASSET VALUE

Net asset value per share of the Fund is determined by the
Custodian on each day the Fund is open for trading. The Fund's investments in
the Master Portfolio are valued at the net asset value of the Master
Portfolio's shares.

As indicated in the Fund's Prospectus, the Master Portfolio uses
the amortized cost method to determine the value of its portfolio securities
pursuant to Rule 2a-7 under the 1940 Act. The amortized cost method involves
valuing a security at its cost and amortizing any discount or premium over the
period until maturity, regardless of the impact of fluctuating interest rates
on the market value of the security. While this method provides 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 Master Portfolio
would receive if the security were sold. During these periods the yield to a
shareholder may differ somewhat from that which could be obtained from a
similar fund that uses a method of valuation based upon market prices. Thus,
during periods of declining interest rates, if the use of the amortized cost
method resulted in a lower value of the Master Portfolio's portfolio on a
particular day, a prospective investor in the 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 Master Portfolio 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, the 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

17
<PAGE> 189

thirteen months or less and invest only in those high-quality securities that
are determined by the Master 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 Master Trust's Board of Trustees
is required to establish procedures designed to stabilize, to the extent
reasonably possible, the Master Portfolio's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
the Master Portfolio's portfolio holdings by the Master Trust's Board of
Trustees, at such intervals as it may deem appropriate, to determine whether or
not the Master Portfolio's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent
of any deviation will be examined by said Board of Trustees. If such deviation
exceeds 1/2 of 1%, said 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.

PORTFOLIO TRANSACTIONS

The Master 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 Master Trust's Board of Trustees, Wells
Fargo Bank is responsible for the Master Portfolio's portfolio decisions and
the placing of portfolio transactions. In placing orders, it is the policy of
the Master Trust to obtain the best results taking into account the dealer's
general execution and operational facilities, the type of transaction involved
and other factors such as the dealer's risk in positioning the securities
involved. While Wells Fargo Bank generally seeks reasonably competitive
spreads or commissions, the Master Portfolio will not necessarily be paying the
lowest spread or commission available.

Purchase and sale orders of the securities held by the Master
Portfolio may be combined with those of other accounts that Wells Fargo Bank
manages, and for which it has brokerage placement authority, in the interest of
seeking the most favorable overall net results. When Wells Fargo Bank
determines that a particular security should be bought or sold for the Master
Portfolio and other accounts managed by Wells Fargo Bank, Wells Fargo Bank
undertakes to allocate those transactions among the participants equitably.

18
<PAGE> 190

obligations are traded on a net basis and do not involve brokerage commissions.
The cost of executing the Master Portfolio's portfolio securities transactions
consists primarily of dealer spreads and underwriting commissions. Under the
1940 Act, persons affiliated with the Master Portfolio are prohibited from
dealing with the Master Portfolio 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 Master Portfolio may purchase municipal 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 Master Trust's
Board of Trustees.

Wells Fargo Bank, as the Master Portfolio's investment adviser,
may, in circumstances in which two or more dealers are in a position to offer
comparable results for a Master 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
Investment 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 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 Master
Portfolio.

Portfolio Turnover. Because the Master Portfolio's portfolio
consists of securities with relatively short-term maturities, the Master
Portfolio can expect to experience high portfolio turnover. A high portfolio
turnover rate should not adversely affect the Master Portfolio (or the Fund),
however, because portfolio transactions ordinarily will be made directly with
principals on a net basis and, consequently, the Master Portfolio (and,
accordingly, the Fund) usually will not incur excessive transaction costs.

FEDERAL INCOME TAXES

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

19
<PAGE> 191

holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of
its assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or 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 Master Portfolio's
investments. 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 its net investment income and tax-exempt income
earned in each year.

In addition, 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. The Fund will either distribute, 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.

Income and dividends received by the Fund from sources within
foreign countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Because not more than 50% of the value of the
total assets of the Fund is expected to consist of securities of foreign
issuers, the Fund will not be eligible to elect to "pass through" foreign tax
credits to shareholders.

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 Fund's net
income 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 Master Portfolio), the Fund would, pursuant to a decision
of the Board of Directors as provided by SEC rules, 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 from 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

20
<PAGE> 192

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. If during the year, the
Fund had reduced the number of shares, as described above, due to such a
shortfall, shareholders who had redeemed shares prior to such reduction could
be deemed to have realized a capital gain to the extent of the reduction, while
shareholders redeeming shares after the reduction could be deemed to have
realized a capital loss to the extent of the reduction. 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 will generally be long-term capital gains or losses except in certain
cases where the Master Portfolio acquires a put thereon. Gain recognized on
the disposition of a debt obligation (including, tax-exempt obligations
purchased after April 30, 1993) purchased by the Master Portfolio at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Master Portfolio held the debt
obligation. Market discount earned on tax-exempt obligations will qualify as
tax-exempt income. 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 shareholder 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 gain 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 printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (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% and the
maximum corporate tax rate applicable to ordinary income and net realized
capital gains is 35%.

21
<PAGE> 193

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.

Any loss realized on a redemption or exchange 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. In addition, if a shareholder exchanges or otherwise disposes of
Fund shares within 90 days of having acquired such shares, and if, as a result
of having acquired those shares, the shareholder subsequently pays a reduced
sales charge 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.

Foreign Shareholders. Under the Code, distributions of net
investment income by the Fund to a nonresident alien individual, non-resident
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. resident 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.

Special Tax Considerations -- Federal. The portion of total
dividends paid by the 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 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 securities. 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 its shareholders of the portion of the dividends paid with
respect to such taxable year which constitutes exempt-interest dividends. The
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross

22
<PAGE> 194

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.

Shareholders who may be "substantial users" (or related persons of
substantial users) with respect to municipal securities held by the Fund should
consult their tax advisers to determine whether exempt-interest dividends paid
by the Fund with respect to such obligations retain their federal and
California tax exclusions.

Long-term and/or short-term capital gain distributions will not
constitute exempt-interest dividends and will be taxed as capital gains and
ordinary income dividends, respectively. Moreover, interest on indebtedness
incurred by a shareholder to purchase or carry shares of the Fund is not
deductible for personal 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 personal income
tax.

Other Matters. Fund shares 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.

CAPITAL STOCK

The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 17,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of thirteen series of shares, each representing an
interest in one portfolio -- the Aggressive Growth Fund, the Asset Allocation
Fund, California Tax-Free Bond Fund, the California Tax-Free Income Fund, the
California Tax-Free Money Market Mutual Fund, the Corporate Stock Fund, the
Diversified Income Fund, the Ginnie Mae Fund, the Growth and Income Fund, the
Money Market Mutual Fund, the National Tax-Free Money Market Mutual Fund, the
Short-Intermediate U.S. Government Income Fund, and the U.S. Government
Allocation Fund. The Board of Directors may, in the future, authorize the
issuance of other series of capital stock representing shares of additional
investment portfolios or funds.

All shares of the Fund have equal voting rights and will be voted
in the aggregate, and not by series, except where voting by series is required
by law or where the matter involved only affects one series. For example, a
change in the Fund's fundamental investment policy would be voted upon only by
shareholders of the Fund. Additionally, approval of an advisory contract is a
matter to be determined separately by Fund. As used in the Fund's Prospectus
and in this SAI, the term "majority," when referring to approvals to be
obtained from shareholders of the Fund, means the vote of the lesser of (i) 67%
of the shares of the Fund represented at a meeting if the holders of more than
50% of the outstanding shares of the Fund are present in person or by

23
<PAGE> 195

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 an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 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 Master Trust, a no-load, diversified, open-end management
investment company, was organized as a Delaware business trust on August 15,
1991. In accordance with Delaware law and in connection with the tax
treatment sought by the Master Trust, the Master Trust's Declaration of Trust
provides that its investors would be personally responsible for Master Trust
liabilities and obligations, but only to the extent the Master Trust's property
is insufficient to satisfy such liabilities and obligations. The Declaration
of Trust also provides that the Master Trust shall maintain appropriate
insurance (for example, fidelity bonding and errors and omissions insurance)
for the protection of the Master 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 Master 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 exists and the Master Trust
itself is unable to meet its obligations.

The Declaration of Trust further provides that obligations of the
Master Trust are not binding upon the Trustees individually but only upon the
property of the Master 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.

24
<PAGE> 196

The interests in the Master Portfolio have substantially identical
voting and other rights as those rights enumerated above for shares of the
Fund. The Master Trust also intends 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 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
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 April 1, 1996, the shareholder identified below was known by
the Company to own 25% or more of the Fund's outstanding shares:

<TABLE>
<CAPTION>
Name and Address Percentage Capacity
Name of Fund of Shareholder of Fund Owned
- ------------ --------------------- ---------- --------
<S> <C> <C> <C>
National Tax-Free Stephens Inc. 100% Record
Money Market 111 Center Street
Mutual Fund Little Rock, AR 72201
</TABLE>

Upon commencement of the public offering of the Funds shares, and
thereafter, it is anticipated that Stephens Inc. will own a significantly
smaller percentage of the Fund's shares and will no longer be considered a
controlling person.

OTHER

The Registration Statements of the Company and the Master Trust,
including the Fund's 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 Statements, each such
statement being qualified in all respects by such reference.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP have been selected as the independent
auditors for the Company and the Master Trust. KPMG Peat Marwick LLP provides
audit services, tax return preparation and assistance and consultation in
connection with review of certain SEC filings.

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<PAGE> 197

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 contained in the Company's Annual Report for the
year ended December 31, 1995, as filed with the SEC on March 8, 1996, are
incorporated by reference into this SAI. The Company's Annual Report and the
SAI will be sent free of charge to any shareholder who requests these
documents.

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<PAGE> 198
SAI APPENDIX

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

Corporate and Municipal Bonds

Moody's: The four highest ratings for corporate and municipal
bonds are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of
the "best quality" and carry the smallest amount of investment risk. Bonds
rated "Aa" are of "high quality by all standards," but margins of protection or
other elements make long-term risks appear somewhat greater than "Aaa" rated
bonds. Bonds rated "A" possess many favorable investment attributes and are
considered to be upper medium grade obligations. Bonds rated "Baa" are
considered to be medium grade obligations; interest payments and principal
security appear adequate for the present, but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds have speculative characteristics as well. Moody's also
applies numerical modifiers in its rating system: 1, 2 and 3 in each rating
category from "Aa" through "Baa" in its rating system. The modifier 1
indicates that the security ranks in the higher end of its category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end.

Municipal Notes

A-1
<PAGE> 199

S&P: The "SP-1" rating reflects a "very strong or strong capacity
to pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.

Corporate and Municipal Commercial Paper

Corporate Notes

A-2