STAGECOACH FUNDS INC /AK/, 497, 1996-05-14

STAGECOACH FUNDS INC /AK/
497, 1996-05-14

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<PAGE> 1

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

STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 29, 1996

AGGRESSIVE GROWTH FUND

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

Stagecoach Funds, Inc. (the "Company") is a professionally
managed, 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 April 29, 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.

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

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Custodian and Transfer and Dividend Disbursing Agent . . . . . . . . . . . . . . 23
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

<PAGE> 3

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

<PAGE> 4

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

<PAGE> 5

(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 "The Fund, the Master
Portfolio and Management." The principal occupations during the past five
years of the Directors and principal executive Officer of the Company are
listed below. The address of each, unless otherwise indicated, is 111 Center
Street, Little Rock, Arkansas 72201. Directors deemed to be "interested
persons" of the Company for purposes of the 1940 Act are indicated by an
asterisk.

<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- -------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>

<PAGE> 6

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

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

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

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

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

*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.

Richard H. Blank, Jr., 39 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
</TABLE>

<PAGE> 7

<TABLE>
<S> <C>
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>

COMPENSATION TABLE
For the Fiscal Year Ended December 31, 1995

<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 Stagecoach Inc., and as Trustees and/or Officers of
Stagecoach Trust, Master Investment Portfolio, Life & Annuity Trust, Master
Investment Trust and Managed Series Investment Trust, each of which is a
registered open-end management investment company and each of which is
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. The Directors are compensated by
other Companies and Trusts within the fund complex for their services as
Directors/Trustees to such Companies and Trusts.

<PAGE> 8

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, the Directors and Principal Officer 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 (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".

<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

<PAGE> 10

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 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

<PAGE> 11

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.

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

<PAGE> 12

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 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:

CALCULATION OF YIELD AND TOTAL RETURN

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

As indicated in the 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

<PAGE> 13

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 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 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

<PAGE> 14

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 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

<PAGE> 15

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 ("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 April 1, 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

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

<PAGE> 16

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 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.

Wells Fargo Bank, as the investment adviser of the Master
Portfolio, may, in circumstances in which two or more dealers are in a position
to offer comparable results for the Master Portfolio's portfolio transaction,
give preference to a dealer that has provided statistical or other research
services to Wells Fargo Bank. By allocating transactions in this

<PAGE> 17

manner, Wells Fargo Bank is able to supplement its research and analysis with
the views and information of securities firms. Information so received is in
addition to, and not in lieu of, the services required to be performed by Wells
Fargo Bank under the Advisory Contract, and the expenses of Wells Fargo Bank
are not necessarily reduced as a result of the receipt of this supplemental
research information. Furthermore, research services furnished by dealers
through which Wells Fargo Bank places securities transactions for the Master
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.

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.

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.

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.

<PAGE> 18

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.

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

<PAGE> 19

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 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

<PAGE> 20

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.

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,

<PAGE> 21

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."

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

<PAGE> 22

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 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.

<PAGE> 23

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.

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

<PAGE> 24

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.

<PAGE> 25

STAGECOACH FUNDS, INC.

Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996

CALIFORNIA TAX-FREE INCOME 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
California Tax-Free Income Fund (the "Fund"). The investment objective of the
Fund is described in its Prospectus under the section entitled "How the Fund
Works -- Investment Objectives and Policies."

This SAI is not a prospectus and should be read in conjunction
with the Prospectus of the Fund, dated May 1, 1996. All terms used in this SAI
that are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus 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.

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

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<PAGE> 26

TABLE OF CONTENTS

Statement of Additional Information

Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities. . . . . . . . . . . . . . . . . . . . 5
Special Considerations Affecting California Municipal Obligations . . . . . . . . 7
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . 19
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

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<PAGE> 27

INVESTMENT RESTRICTIONS

Fundamental Investment Policies. The Fund is subject to the
following investment restrictions, all of which are fundamental policies.

(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 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 (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), and (ii) obligations of the United
States Government, its agencies or instrumentalities.

(2) The Fund may not 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).

(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 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) 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 write, purchase or sell puts, calls,
options or any combination thereof, except that the Fund may purchase
securities with put rights in order to maintain liquidity.

(8) 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.

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<PAGE> 28

With respect to fundamental investment policy (8), 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.

(1) The Fund 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 own beneficially more than 5% of such securities.

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

(3) The Fund 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.

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

(5) 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.

(6) The Fund will not invest more than 15% 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.

(7) 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 that 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 Fund's 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. Notwithstanding any other investment policy or
limitation (whether or not fundamental), the Fund may invest all of its assets
in the securities of a

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<PAGE> 29

single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund.

ADDITIONAL PERMITTED INVESTMENT ACTIVITIES

Unrated Investments. The Fund 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 the Fund. After purchase by the 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 the Fund's 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
municipal securities, 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.

Pass-Through Obligations. Certain of the debt obligations which
the Fund may purchase 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 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. Certain of the securities in which the
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. 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

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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 involves the
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 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 segregate additional liquid assets on a
daily basis so that the value of the segregated assets is equal to the amount
of such commitments.

Municipal Bonds. The Fund may invest in municipal bonds. As
discussed in the Prospectus of the Fund, 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 Fund 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. Some or all of these bonds may be considered "private activity bonds"
for federal income tax purposes.

Municipal Notes. Municipal notes include, but are not limited to,
tax anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue
anticipation notes ("RANs") and construction loan notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer.

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

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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) the securities would sell at a
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) the securities would sell at
a premium. Changes in the value of municipal securities held in the Fund's
portfolio arising from these or other factors will cause changes in the net
asset value per share of the Fund.

Investments in Warrants. Although it has no present intention to
do so, the Fund may invest up to 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 only may purchase warrants on
securities in which such Funds may invest directly.

SPECIAL CONSIDERATIONS AFFECTING
CALIFORNIA MUNICIPAL OBLIGATIONS

Certain debt obligations held by the 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 service on obligations held by the Funds may be impaired.

Certain of the municipal obligations in which the 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

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municipalities to impose and collect ad valorem taxes on real property, which,
in turn, restricts the ability of municipalities to service their debt
obligations from such taxes.

For example, Article XIIIA of the California Constitution, as
amended, limits ad valorem real property taxes to 1% of the full cash value of
the property, defined as the county tax assessor's valuation as of March 1,
1975, plus adjustments not to exceed 2% per year, adjustments upon purchase,
change of ownership or new construction after that date, and certain other
adjustments. Article XIIIB provides that state and local government
appropriations from certain revenue sources each year may not exceed the
"appropriations limit" related to such revenue sources set forth for the fiscal
year 1978-79, with certain adjustments made for changes in the cost of living
and population and certain limited exemptions. Because of the complex nature
of Articles XIIIA and XIIIB, ambiguities and possible inconsistencies in their
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.

Certain debt obligations held by the Fund may be obligations
payable solely from lease payments on real or personal property leased to the
state, cities, counties or their various public entities. California law
provides that a lessor may not be required to make payments during any period
that it is denied use and occupancy of the property in proportion to such loss.
Moreover, the lessor only agrees to appropriate funding for lease payments in
its annual budget for each fiscal year. In case of a default under the lease,
the only remedy available against the lessor is that of reletting the property;
no acceleration of lease payments is permitted. Each of these factors presents
a risk that the lease financing obligations held by the Fund would not be paid
in a timely manner.

Certain debt obligations held by the Fund may be obligations which
are payable solely from the revenues of health care institutions. The method
of reimbursement for indigent care, California's selective contracting with
health care providers for such care and selective contracting by health
insurers for care of its beneficiaries now in effect under California and
federal law may adversely affect these revenues and, consequently, payment on
those debt obligations.

There can be no assurance that general economic difficulties or
the financial circumstances of California or its towns and cities will not
adversely affect the market value of California municipal securities or the
ability of obligors to continue to make payments on such securities.

* * *

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

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<PAGE> 33

MANAGEMENT

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

<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
--------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.

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

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

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

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

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

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

COMPENSATION TABLE
For the Year Ended December 31, 1995

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<PAGE> 35

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

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 Company's 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

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information concerning interest rate and security market trends, portfolio
composition, credit conditions and average maturities of the Fund's 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 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>
California Tax-Free $38,402 $122,967 -0- $279,496 $236,632 $31,013
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 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 Funds
paid administrative fees to Stephens as follows:

<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
California Tax-Free Income Fund $9,912 $0 $16,793
</TABLE>

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<PAGE> 37

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 2.5% 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.

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 for the fiscal
year ended December 31, 1995 was as follows:

<TABLE>
<CAPTION>
Fund 1995
---- ----
<S> <C>
California Tax-Free Income Fund $0
</TABLE>

Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo
Bank has been retained to act as custodian and transfer and dividend disbursing
agent for the Fund. The custodian, among other things, maintains a custody
account or accounts in the name of the Fund; receives and delivers all assets
for the Fund upon purchase and upon sale or maturity; collects and receives all
income and other payments and distributions on account of the assets of the
Fund and pays all expenses of the Fund. For its services as custodian, Wells
Fargo Bank receives an asset-based fee and transaction charges from the Fund.
For its services as transfer and dividend disbursing agent, it receives a base
fee and per-account fees from the Fund. For the year ended December 31, 1995,
the Fund did not pay any custody or transfer and 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 Company shares. For the
fiscal years ended December 31, 1993 and 1994, Wells Fargo Securities Inc.
("WFSI"), an affiliated broker-dealer of the

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<PAGE> 38

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.

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, has adopted a
distribution plan ("Plan") under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder. The Plan for the Fund was 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 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") on October 21, 1992, and was
approved by the initial shareholder of the Fund on November 16, 1992.

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 Fund 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, the
Plan contemplates that to the extent any fees payable pursuant to the
Shareholder Servicing Agreement are deemed to be for distribution-related
services, rather than shareholder services, such payments are approved and
payable pursuant to the Plan. The Fund may not pay under the applicable Plan
an amount that exceeds the maximum fee payable under the Rules of Fair Practice
of the National Association of Securities Dealers, Inc.

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 agreements related to the Plan also must be
approved by a majority 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 a Plan may be made except by a majority of both the Directors of
the Company and the Qualified Directors.

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

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<PAGE> 39

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 Fund's Plan.

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<PAGE> 40

<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ----- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
California Tax-Free Income Fund $13,063 $10,246 $2,817 N/A
</TABLE>

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

CALCULATION OF YIELD AND TOTAL RETURN

As indicated in the Prospectus, the 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 ("P") over a
period of years ("n") according to the following formula: P(1+T)n = ERV. In
addition, as indicated in the Fund's Prospectus, the Fund, at times, 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 on shares of the Fund for the one
year ended December 31, 1995, assuming a 3.00% sales load, was 5.91%. The
total return for the same period, assuming no sales load, was 9.14%. The
average annual total return on shares of the Fund for the period since
inception (November 18, 1992) to December 31, 1995, assuming a 3.00% sales
load, was 4.01%. The average annual total return for the same period, assuming
no sales load, was 5.03%.

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
by the net asset value per share at the beginning of the period.
Advertisements may include the percentage rate of total return of shares or may
include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.

The cumulative total return on shares of the Fund for the period
since inception (November 18, 1992) to December 31, 1995, assuming a 3.00%
sales load, was 13.07%. The cumulative total return for the same period,
assuming no sales load, was 16.58%.

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<PAGE> 41

As indicated in its Prospectus, the Fund also 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 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
the 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 the Fund's net investment income. For purposes of sales
literature, yield of the Fund 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 on shares of the Fund for the 30-day period ended
December 31, 1995, assuming the maximum 3.00% sales charge and no sales
charge, were 3.55% and 3.66%, respectively.

The tax-equivalent yield for the Fund also will be 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 tax-equivalent yields of the
Fund for the 30-day period ended December 31, 1995, assuming the maximum 3.00%
sales charge and no sales charge, were 6.60% and 6.81%, respectively (based
on a 46.24% assumed federal and state tax rate).

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 Funds.

In addition, investors should recognize that changes in the net
asset value 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 yield
of the Fund in ascertaining the total return of the Fund 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 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.

The Company may also disclose in advertising and other types of
literature, information and statements, the distribution rate on the shares of
the Fund. Distribution rate, which may be annualized, is the amount determined
by dividing the dollar amount per Fund share of the most recent dividend by the
most recent NAV or maximum offering

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<PAGE> 42

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 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.

From time to time and only to the extent the comparison is
appropriate to the Fund, the Company may quote the performance or price-earning
ratio of the Fund in advertising and other types of literature as compared to
the performance of the Lehman Brothers Municipal Bond Index, 1-Year Treasury
Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money
Fund Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold 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 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. Comparative performance of the California Tax-Free Income Fund
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 the past performance of the Fund with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
may also 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.

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<PAGE> 43
The Company may also 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 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.

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 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
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.

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<PAGE> 44

Company account statements." The Company may also disclose in advertisements
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 advertisements 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. As of December 31, 1995, IMG had $30.1 billion in assets
under management. The Company may disclose in advertising, statements and
other literature the amount of assets and mutual fund assets managed by Wells
Fargo Bank. As of April 1, 1996, Wells Fargo Bank 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 the Fund is determined by the Custodian
on each Business Day.

The assets of the Fund, other than debt securities maturing in 60
days or less, are valued at latest quoted bid prices. Debt securities 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.

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 Funds will
not necessarily be paying the lowest spread or commission available.

Purchase and sale orders of the securities held by the Fund 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 Fund and other

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<PAGE> 45

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
Fund 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 the Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.

The Fund may purchase 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 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 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 the Fund.

Brokerage Commissions. For the years ended December 31, 1993,
1994 and 1995, the Fund did not pay any brokerage commissions on portfolio
transactions.

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

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 300%. The portfolio turnover rate is not a limiting factor
when Wells Fargo Bank deems portfolio changes appropriate.

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<PAGE> 46

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 options thereon; (b) the Fund
derives less than 30% of its gross income from gains from the sale or other
disposition of securities or options thereon held for less than three months;
and (c) the Fund diversifies its holdings so that, at the end of each quarter
of the taxable year, (i) at least 50% of the market value of the Fund's assets
is represented by cash, government securities and other securities limited in
respect of any one issuer to an amount not greater than 5% of the Fund's assets
and 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of other
regulated investment companies), or of two or more issuers which the Fund
controls and which are determined to be engaged in the same or similar trades
or businesses or related trades or businesses. As a regulated investment
company, the Fund will not be subject to federal income tax on its net
investment income and net capital gains distributed to its shareholders,
provided that it distributes to its stockholders at least 90% of its net
investment income and tax-exempt income earned in each year.

In order to qualify under the Code to pay exempt-interest
dividends, the 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
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.

Any income or gain retained by the Fund that is subject to income
tax will be considered to have been distributed by year-end. Generally,
dividends and distributions of capital gain are taxable to shareholders when
they are received. However, such dividends and distributions declared payable
as of a record date in October, November or December of any calendar year are
deemed under the Code to have been paid by the Fund and received by the
shareholders on December 31 of that calendar year if the dividend and
distributions are actually paid in the following January. Such dividends and
distributions will, accordingly, be taxable to the recipient shareholders in
the year in which the record date falls. 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. In addition, a 4% nondeductible excise tax will be imposed on
the Fund (other than to the

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<PAGE> 47

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.

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. The Fund will have no tax liability with respect to such
gains, and the 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. 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.

If a shareholder receives a designated capital gain distribution
(to be treated by the shareholder as a long-term capital gain) with respect to
any Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the designated capital
gain distribution. In addition, any loss realized by a shareholder upon the
sale or redemption of Fund shares held less than six months in 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 exemption 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% (however, to eliminate the benefit of lower marginal
corporate income tax rates, corporations which have taxable income in excess of
$100,000 for a taxable year will be required to pay an additional amount of
income tax of up to $11,750 and corporations which have taxable income in
excess of $15,000,000 for a taxable year will be required to pay an additional
amount of tax of up to $100,000).

If a shareholder exchanges or otherwise disposes of shares of the
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.

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<PAGE> 48

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.

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 advisors 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.

Although dividends will be declared daily with respect to the
Fund based on the Fund's daily earnings, for federal income tax purposes, the
Fund's earnings and profits will be determined at the end of each taxable year
and will be allocated pro rata over the entire year. For federal income tax
purposes, only amounts paid out of earnings and profits will qualify as
dividends. Thus, if during a taxable year the Fund's declared dividends (as
declared daily throughout the year) exceed the Fund's net income (as determined
at the end of the year), only that portion of the year's distributions which
equals the year's earnings and profits will be deemed to have constituted a
dividend. It is expected that the Fund's net income, on an annual basis, will
equal the dividends declared during the year.

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

California Tax Issues -- The Fund is expected 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

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<PAGE> 49

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

Shares of the Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from the Fund. Such dividends would be ultimately taxable
to the beneficiaries when distributed to them.

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

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<PAGE> 50

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 fund -- 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 -- 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 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 would affect only
one series and 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 each 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 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 such Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of such 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 Fund represents an equal proportional interest in
the Fund with each other share and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Directors. In the event of the
liquidation or dissolution of the Company, shareholders of a Fund are entitled
to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general 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.

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<PAGE> 51

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, there were no shareholders known by the
Company to own 5% or more of the outstanding shares of the Fund.

OTHER

The Registration Statement, including the Prospectus of 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

KPMG Peat Marwick LLP has been selected as the independent public
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 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' reports are attached to all SAIs delivered to current or
prospective shareholders.

-27-

<PAGE> 52

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

-28-

<PAGE> 53

group." Notes rated "MIG 3" or "VMIG 3" are of "favorable quality," with all
security elements accounted for, but lacking the strength of the preceding
grades.

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

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."

-29-

<PAGE> 54

STAGECOACH FUNDS, INC.

Telephone: 1-800-222-8222

STATEMENT OF ADDITIONAL INFORMATION
DATED APRIL 29, 1996

DIVERSIFIED INCOME 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 Company's investment portfolios -- the
Diversified Income Fund (the "Fund"). The Fund offers two classes of shares
(each a "Class") -- Class A and Class B shares. It formerly offered only Class
A Shares which were not designated as a Class. This SAI relates to both
Classes of 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 April 29, 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.

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

<PAGE> 55

TABLE OF CONTENTS

Statement of Additional Information

Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Additional Permitted Investment Activities. . . . . . . . . . . . . . . . . 5
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . 14
Determination of Net Asset Value. . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

<PAGE> 56

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":

(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.

(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.

<PAGE> 57

(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.

<PAGE> 58

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.

<PAGE> 59

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.

<PAGE> 60

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

<TABLE>
<CAPTION>
Principal Occupations
Name, Address and Age Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 73 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
</TABLE>

<PAGE> 61

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

Thomas S. Goho, 53 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School of

Business and

Accountancy;Associate Professor of Finance
of the School of Business and Accounting at
Wake Forest University since 1983.

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

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

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

<PAGE> 62

<TABLE>
<S> <C> <C>
*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.

COMPENSATION TABLE
For the 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>

<PAGE> 63

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

Directors of the Company are compensated by the Company 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, except for Mr. Jeffries, of the Company serves in the identical
capacity as Directors and Officers of Overland Express Funds, Inc. and
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 are registered open-end management
investment companies and each of which is considered to be in the same "fund
complex", as such term is defined in Form N-1A under the 1940 Act, as the
Company. The Directors are compensated by other Companies and Trusts within
the fund complex for their services as Directors/Trustees to such Companies and
Trusts. Currently the Directors do not receive any retirement benefits or
deferred compensation from the Company or any other member of the fund complex.

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

Investment Adviser. The Fund is advised by Wells Fargo Bank
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:

<PAGE> 64

<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>
Diversified Income $ 0 $63,535 $192,033 $ 0 $312,512 $ 0
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>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
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

<PAGE> 65

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:

<TABLE>
<CAPTION>
Fund 1995
- ---- ----
<S> <C>
Diversified Income Fund $174,644
</TABLE>

Custodian And Transfer And Dividend Disbursing Agent. Wells
Fargo Bank has been retained to act as custodian and transfer and dividend
disbursing agent for 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.

<PAGE> 66

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 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.

<PAGE> 67

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.

<TABLE>
<CAPTION>
Printing & Mailing Marketing Compensation to
Fund Total Prospectus Brochures Underwriters
---- ---- ------------------ --------- ----------------
<S> <C> <C> <C> <C>
Diversified Income Fund
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.

CALCULATION OF YIELD AND TOTAL RETURN

As indicated in the Prospectus, the Fund may advertise certain
total return information for a Class of shares computed in the manner described
in the Prospectus. As and to the extent required by the 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

<PAGE> 68

include the value of a hypothetical investment in shares at the end of the
period which assumes the application of the percentage rate of total return.

The cumulative total return on the Class A Shares of the Fund for
the period from inception (November 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

<PAGE> 69

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.

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

<PAGE> 70

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 April 1,
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 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.

PORTFOLIO TRANSACTIONS

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,

<PAGE> 71

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.

Debt 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, debt obligations 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 Commission or an exemption is
otherwise available. The Fund may purchase securities from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 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 Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders for portfolio securities of the Fund, Wells
Fargo Bank is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Wells Fargo Bank will
seek to execute each transaction at a price and commission, if any, that
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. While Wells Fargo Bank will generally seek reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available.

Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. Furthermore, Wells Fargo
Bank may, in circumstances in which two or more brokers are in a position to
offer comparable results for a Fund portfolio transaction, give preference to a
broker that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contract, and the expenses of Wells Fargo Bank will not necessarily be
reduced as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for the Fund may be used by Wells Fargo
Bank in servicing its other accounts, and not all of these services may be used
by Wells Fargo Bank in connection with advising the Fund.

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

<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Diversified Income Fund $68,477 $134,777 $193,078
</TABLE>

<PAGE> 72

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:

<TABLE>
<CAPTION>
Fund Regular Broker/Dealer Amount
- ---- --------------------- ------
<S> <C> <C>
Diversified Income Fund Goldman Sachs & Co. $2,373,000
</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 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 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.

<PAGE> 73

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 $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

<PAGE> 74

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
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.

<PAGE> 75

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.

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.

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.

<PAGE> 76

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

<PAGE> 77

financial statements and independent auditors' reports are attached to all SAIs
delivered to current or prospective shareholders.

<PAGE> 78

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

A-1

<PAGE> 79

"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> 80

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

STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996

GINNIE MAE FUND
GROWTH AND INCOME FUND

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

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").
Each of the Funds offers two classes (each a "Class") of shares -- Class A
Shares and Class B Shares. The shares currently designated Class A Shares were
previously the only shares offered and were not designated as a Class. This
SAI relates to both Classes of 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 May 1, 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.

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

<PAGE> 81

TABLE OF CONTENTS

Statement of Additional Information

Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Calculation of Yield and
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fund Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

<PAGE> 82

INVESTMENT RESTRICTIONS

Fundmental 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:

(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;

(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;

(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 by

<PAGE> 83

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

(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.

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;

(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 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 that any such

<PAGE> 84

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.

<PAGE> 85

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 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.

<PAGE> 86

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 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

<PAGE> 87

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 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.

<PAGE> 88

MANAGEMENT

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

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

<PAGE> 89

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

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

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

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
</TABLE>

<PAGE> 90

<TABLE>
<S> <C> <C>
*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 Stagecoach Inc., and as Trustees and/or Officers of Stagecoach
Trust, Master Investment Portfolio, Life & Annuity Trust, Master Investment
Trust and Managed Series Investment Trust, each of which is a registered
open-end management investment company and each of which is considered to be in
the same "fund complex," as such term is defined in Form N-1A under the 1940
Act, as the Company. The Directors are compensated by other Companies and
Trusts within the fund complex for their services as Directors/Trustees to such
Companies and Trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of the
fund complex.

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

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 .

<PAGE> 91

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>

<PAGE> 92

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:

<PAGE> 93

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

<PAGE> 94

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 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.

<PAGE> 95

CALCULATION OF YIELD AND TOTAL RETURN

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.

In addition to the above performance information, the Funds may
also advertise the cumulative total return of a Fund for one-month, three-month,
six-month, and year-to-date periods. The cumulative total return for such
periods is based on the overall percentage change in value of a hypothetical
investment in a Fund, assuming all Fund dividends and capital gain distributions
are reinvested, without reflecting the effect of any sales charge that would
be paid by an investor, and is not annualized.

The average annual total return 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%.

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%.

<PAGE> 96

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 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%.

<PAGE> 97

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, 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

<PAGE> 98

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.

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 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.

<PAGE> 99

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 April 1,
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 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

<PAGE> 100

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 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 each of the Funds,
may, in circumstances in which two or more dealers are in a position to offer
comparable results for a Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities

<PAGE> 101

firms. Information so received will be in addition to, and not in lieu of, the
services required to be performed by Wells Fargo Bank under the Advisory
Contracts, and the expenses of Wells Fargo Bank will not necessarily be reduced
as a result of the receipt of this supplemental research information.
Furthermore, research services furnished by dealers through which Wells Fargo
Bank places securities transactions for a Fund may be used by Wells Fargo Bank
in servicing its other accounts, and not all of these services may be used by
Wells Fargo Bank in connection with advising the Funds.

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 placing orders for portfolio securities of the Growth and
Income Fund, Wells Fargo Bank is required to give primary consideration to
obtaining the most favorable price and efficient execution. This means that
Wells Fargo Bank will seek to execute each transaction at a price and
commission, if any, that provide the most favorable total cost or proceeds
reasonably attainable in the circumstances. While Wells Fargo Bank will
generally seek reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in the
light of generally prevailing rates. The allocation of orders among brokers
and the commission rates paid are reviewed periodically by the Board of
Directors.

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

<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:

<PAGE> 102

<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 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

<PAGE> 103

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 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.

<PAGE> 104

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.

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 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

<PAGE> 105

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

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 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

<PAGE> 106

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 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

<PAGE> 107

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 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.

<PAGE> 108

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.

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> 109

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

STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996

SHORT-INTERMEDIATE U.S. GOVERNMENT INCOME 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
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 May 1, 1996. All terms used in this SAI that
are defined in the Prospectus will have the meanings assigned in the
Prospectus. A copy of the Prospectus 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.

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

<PAGE> 110

TABLE OF CONTENTS

<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment Activities . . . . . . . . . . . . . . . . . . . 4
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Calculation of Yield and Total Return . . . . . . . . . . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 15
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

<PAGE> 111

INVESTMENT RESTRICTIONS

The Fund may not:

(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;

<PAGE> 112

(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 average maturity of a particular pass-through
obligation. Variations in the maturities of pass-through

<PAGE> 113

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

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

<PAGE> 114

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

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

<PAGE> 115

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

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

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

*J. Tucker Morse, 51 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation; and
Co-Managing Partner of
Main Street Ventures.

<PAGE> 116

COMPENSATION TABLE
For the Year Ended December 31, 1995

*R. Greg Feltus 0 0
Director

Thomas S. Goho 10,188 39,750
Director

*Zoe Ann Hines 0 0
Director

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

Robert M. Joses 9,938 39,000
Director

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

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

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

<PAGE> 117

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.

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>

<PAGE> 118

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.

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:

<PAGE> 119

<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.

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 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.

<PAGE> 120

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.

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

<PAGE> 121

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 & Mailing Marketing Compensation 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.

CALCULATION OF YIELD AND TOTAL RETURN

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%.

<PAGE> 122

shares at the end of the period which assumes the application of the percentage
rate of total return.

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 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%.

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 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.

<PAGE> 123

the sales literature. Distribution rate will be accompanied by the standard
30-day yield as required by the SEC.

From time to time and only to the extent the comparison is
appropriate for 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.

<PAGE> 124
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 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
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.

<PAGE> 125

As of April 1, 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 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.

<PAGE> 126

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.

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.

<PAGE> 127

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 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.

<PAGE> 128

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.

<PAGE> 129

<PAGE> 130

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

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 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.

<PAGE> 131

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.

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.

<PAGE> 132

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.

<PAGE> 133

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.

Corporate Commercial Paper

A-1