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STAGECOACH FUNDS, INC.
ASSET ALLOCATION FUND
U.S. GOVERNMENT ALLOCATION FUND
CORPORATE STOCK FUND
SUPPLEMENT DATED JANUARY 2, 1996
TO THE PROSPECTUS DATED MAY 1, 1995,
AS PREVIOUSLY SUPPLEMENTED, AND THE
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995
Effective January 1, 1996, BZW Barclays Global Fund Advisors ("BGFA")
replaced Wells Fargo Nikko Investment Advisors ("WFNIA") as sub-investment
adviser to the Asset Allocation, U.S. Government Allocation and Corporate Stock
Funds (the "Funds") of Stagecoach Funds, Inc. BGFA was created by the
reorganization of WFNIA with and into an affiliate of Wells Fargo Institutional
Trust Company, N.A. ("WFITC"). Pursuant to a Sub-Advisory Contract with each
Fund and subject to the overall supervision of Wells Fargo Bank, the investment
adviser to each Fund, BGFA is responsible for the day-to-day portfolio
management of each Fund. BGFA will continue to employ substantially the same
personnel and will continue to use the computer-based investment model
developed and previously used by WFNIA to determine the recommended mix of
assets in each Fund's portfolio. BGFA is entitled to receive from Wells Fargo
Bank as compensation for its sub-advisory services monthly fees at the annual
rate of 0.20%, 0.15% and 0.08% of the average daily net assets of the Asset
Allocation, U.S. Government Allocation and Corporate Stock Funds, respectively.
BGFA is also entitled to receive from Wells Fargo Bank annual fees of $40,000
for its services to the U.S. Government Allocation Fund and $40,000 for its
services to the Corporate Stock Fund. BGFA is an indirect subsidiary of
Barclays Bank PLC and is located at 45 Fremont
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Street, San Francisco, CA 94105. As of January 1, 1996, BGFA and its
affiliates provide investment advisory services for more than $220 billion of
assets under management. As of January 1, 1996, Wells Fargo Bank provides
investment advisory services for approximately $33 billion of assets.
Effective January 1, 1996, WFITC, due to a change in control of its
outstanding voting securities, became a wholly owned subsidiary of BZW Barclays
Global Investors Holdings Inc. (formerly, The Nikko Building U.S.A., Inc.) and
was renamed BZW Barclays Global Investors, N.A. ("BGI"). BGI currently acts as
custodian to each Fund. BGFA is a subsidiary of BGI. BGI will not be entitled
to receive compensation for its custodial services to the Funds so long as BGFA
is entitled to receive fees for providing investment advisory services to such
Funds. The principal business address of BGI is 45 Fremont Street, San
Francisco, California 94105.
Each Fund's Prospectus and Statement of Additional Information are
hereby amended accordingly.
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STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1995
GINNIE MAE FUND
U.S. GOVERNMENT ALLOCATION FUND
VARIABLE RATE GOVERNMENT FUND
GROWTH AND INCOME FUND
CORPORATE STOCK FUND
ASSET ALLOCATION FUND
-----------------------
Stagecoach Funds, Inc. 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 six of
the funds in the Stagecoach Family of Funds -- the GINNIE MAE FUND, the U.S.
GOVERNMENT ALLOCATION FUND, the VARIABLE RATE GOVERNMENT FUND, the GROWTH AND
INCOME FUND, the CORPORATE STOCK FUND and the ASSET ALLOCATION FUND (each, a
"Fund" and collectively, the "Funds"). Each of the Funds, other than the
Corporate Stock Fund and the Variable Rate Government Fund, 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 the shares offered by the
Corporate Stock Fund and the Variable Rate Government Fund and to both Classes
of shares offered by the other Funds. The investment objective of each Fund is
described in its Prospectus under the section entitled See "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, 1995, 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.
-----------------------
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TABLE OF CONTENTS
Statement of Additional Information
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Additional Permitted Investment
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Calculation of Yield and
Total Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . 23
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Federal Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fund Expenses........................ . . . . . . . . . . . . . . . . . . . . . . 30
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Custodians and Transfer and
Dividend Disbursing Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SAI Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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INVESTMENT RESTRICTIONS
The Funds are subject to the following investment restrictions,
all of which are fundamental policies; that is, they may not be changed without
approval by the vote of the holders of a majority of the Funds' outstanding
voting securities, as described under "Capital Stock":
None of the Funds may:
(1) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of any Fund's investments in that
industry would be 25% or more of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in (i)
obligations of the United States Government, its agencies or instrumentalities,
(ii) in the case of the Corporate Stock Fund and the Asset Allocation Fund, any
industry in which the S&P 500 Index becomes concentrated to the same degree
during the same period, and (iii) in the case of the Asset Allocation Fund,
money market instruments invested in the banking industry (but the Fund will
not do so unless the SEC staff confirms that it does not object to the Fund
reserving freedom of action to concentrate investments in the banking
industry);
(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);
(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, and except that
the U.S. Government Allocation Fund may enter into futures and options
contracts only for hedging purposes (although it has no present intention of
doing so);
(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;
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(8) issue senior securities, except that each of the Variable
Rate Government Fund and 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 each of the Ginnie Mae
Fund, the U.S. Government Allocation Fund, the Corporate Stock Fund and the
Asset Allocation Fund may each borrow up to 20% of the current value of each
such Fund's net assets for temporary purposes only in order to meet
redemptions, and these borrowings may be secured by the pledge of up to 20% of
the current value of each such Fund's net assets (but investments may not be
purchased by such Funds while any such outstanding borrowings exceed 5% of the
respective Fund's net assets);
(9) write, purchase or sell puts, calls, straddles, spreads,
warrants, options or any combination thereof, except that the U.S. Government
Allocation Fund may enter into futures and options contracts only for hedging
purposes (although it has no present intention of doing so), and except that
the Variable Rate Government Fund, the Growth and Income Fund and the Asset
Allocation Fund may purchase securities with put rights in order to maintain
liquidity, and except that the Growth and Income Fund and the Variable Rate
Government Fund may each 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.
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;
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(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 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
Asset Allocation Model. A key component of the Asset Allocation
Model is a set of assumptions concerning expected risk and return and investor
attitudes toward risk which are incorporated into the asset allocation
decision. The principal inputs of financial data to the Asset Allocation Model
currently are (i) consensus estimates of the earnings, dividends and payout
ratios on a broad cross-section of common stocks as reported by independent
financial reporting services which survey a broad cross-section of Wall Street
analysts, (ii) the estimated current yield to maturity on new long-term
corporate bonds rated "AA" by S&P, (iii) the present yield on money market
instruments, (iv) the historical statistical standard deviation in investment
return for each Class of asset, and (v) the historical statistical correlation
of investment returns among the various asset Classes in which the Asset
Allocation Fund invests. Using these data, the Asset Allocation Model is run
daily to determine the recommended asset allocation. The model's
recommendations are presently made in 10% increments.
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
5
<PAGE> 8
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 and the Variable Rate Government 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 these Funds. Furthermore, as with any
debt obligation, fluctuations in interest rates will inversely affect the
market value of pass-through obligations. The Funds may invest in
pass-through obligations that are supported by the full faith and credit of the
U.S. Government (such as those issued by the Government National Mortgage
Association) or those that are guaranteed by an agency or instrumentality of
the U.S. Government or government-sponsored enterprise (such as the Federal
National Mortgage Association or the Federal Home Loan Mortgage Corporation) or
bonds collateralized by any of the foregoing.
When-Issued Securities. Certain of the securities in which the
U.S. Government Allocation Fund, the Ginnie Mae Fund, the Growth and Income
Fund, the Variable Rate Government Fund and the Asset Allocation Fund may
invest will be purchased on a when-issued basis, in which case delivery and
payment normally take place within 45 days (120 days with respect to the Ginnie
Mae Fund and the Growth and Income Fund) after the date of the commitment to
purchase. These 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.
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Loans of Portfolio Securities. All of the Funds may lend
securities from their portfolios to brokers, dealers and financial institutions
(but not individuals) if cash, U.S. Government securities or other high-quality
debt obligations equal to at least 100% of the current market value of the
securities loan (including accrued interest thereon) plus the interest payable
to such Fund with respect to the loan is maintained with the Fund. In
determining whether to lend a security to a particular broker, dealer or
financial institution, the Fund's Investment Adviser will consider all relevant
facts and circumstances, including the creditworthiness of the broker, dealer,
or financial institution. Any loans of portfolio securities will be fully
collateralized based on values that are marked to market daily. The Funds will
not enter into any portfolio security lending arrangement having a duration of
longer than one year. Any securities that a Fund may receive as collateral
will not become part of the Fund's portfolio at the time of the loan and, in
the event of a default by the borrower, the Fund will, if permitted by law,
dispose of such collateral except for such part thereof that is a security in
which the Fund is permitted to invest. During the time securities are on loan,
the borrower will pay the Fund any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed-upon fee from a borrower that has delivered cash-equivalent collateral.
None of the Funds will lend securities having a value that exceeds 33 1/3% of
the current value of its total assets. Loans of securities by any of the Funds
will be subject to termination at the Fund's or the borrower's option. The
Funds may pay reasonable administrative and custodial fees in connection with a
securities loan and may pay a negotiated portion of the interest or fee earned
with respect to the collateral to the borrower or the placing broker.
Borrowers and placing brokers may not be affiliated, directly or indirectly,
with Stagecoach, its Investment Adviser, or its Distributor. The Ginnie Mae
Fund currently intends to limit the practice of lending portfolio securities to
no more than 5% of its net assets during the coming year.
Foreign Obligations. Investments in foreign obligations involve
certain considerations that are not typically associated with investing in
domestic obligations. There may be less publicly available information about a
foreign issuer than about a domestic issuer. Foreign issuers also are not
generally subject to uniform accounting, auditing and financial reporting
standards or governmental supervision comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
interest may be withheld at the source under foreign income tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in, the liquidity of, and the ability to enforce contractual obligations with
respect to, securities of issuers located in those countries. Neither the
Ginnie Mae Fund nor the Variable Rate Government Fund intends 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. None 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 a 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
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price and risk of loss of income and principal, including the probability of
default by or bankruptcy of the issuers of such securities. Lower rated
securities and comparable unrated securities (a) will likely have some quality
and protective characteristics that, in the judgment of the rating
organization, are outweighed by large uncertainties or major risk exposures to
adverse conditions and (b) are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation. Accordingly, it is possible that these types of
factors could, in certain instances, reduce the value of securities held in the
Fund's portfolio, with a commensurate effect on the value of the Fund's shares.
Therefore, an investment in the Fund should not be considered as a complete
investment program and may not be appropriate for all investors.
While the market values of lower rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than the market values of higher-rated securities, the market values of certain
lower rated securities and comparable unrated securities also tend to be more
sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower rated securities
and comparable unrated securities generally present a higher degree of credit
risk. Issuers of lower rated securities and comparable unrated securities
often are highly leveraged and may not have more traditional methods of
financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower rated securities and comparable
unrated securities generally are unsecured and frequently are subordinated to
the prior payment of senior indebtedness. The Fund may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of principal or interest on its portfolio holdings. The existence
of limited markets for lower rated securities and comparable unrated securities
may diminish the Fund's ability to (a) obtain accurate market quotations for
purposes of valuing such securities and calculating net asset value 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.
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
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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 and the Variable Rate Government Fund
each may only purchase warrants on securities in which the Fund may invest
directly.
MANAGEMENT
Directors and Officers. The principal occupations during the past
five years of the Directors and executive officers 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.
JACK S. EUPHRAT, Director. - 415 Walsh Road, Atherton, California 94027.
Private Investor.
*R. GREG FELTUS, Director, Chairman and President. Senior Vice President of
Stephens Inc.; Manager of Financial Services Group; President of Stephens
Insurance Services Inc.; Senior Vice President of Stephens Sports
Management Inc.; and President of Investors Brokerage Insurance Inc.
THOMAS S. GOHO, Director. 321 Beechcliff Court, Winston-Salem, North Carolina
27104. Associate Professor of Finance of the School of Business and
Accounting at Wake Forest University since 1983. Financial Planner and
President of Piedmont Financial Planning since 1983.
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*ZOE ANN HINES, Director. Senior Vice President of Stephens Inc. and Director
of Brokerage Accounting; and Secretary of Stephens Resource Management.
*W. RODNEY HUGHES, Director. 31 Dellwood Court, San Rafael, California 94901.
Private Investor.
ROBERT M. JOSES, Director. 47 Dowitcher Way, San Rafael, California 94901.
Private Investor.
*J. TUCKER MORSE, Director. 10 Legrae Street, Charleston, South Carolina
29401. Principal occupation is real estate development. Chairman of
Renaissance Properties Ltd.; President of Morse Investment Corporation; and
Co-Managing Partner of Main Street Ventures.
RICHARD H. BLANK, JR., Chief Operating Officer, Secretary and Treasurer.
Associate of Financial Services Group of Stephens Inc.; Director of
Stephens Sports Management Inc.; and Director of Capo Inc.
LARRY W. BOWDEN, Vice President. Vice President of Stephens Inc. and Assistant
Manager of Financial Services Group; Senior Vice President of Stephens
Insurance Services Inc.
ELLEN M. GRAY, Vice President. Senior Vice President of Stephens Inc. and
Director of Investors Brokerage Insurance Inc. Prior thereto, Senior Vice
President of Eppler, Guerin & Turner, Inc.
E. CURTIS JEFFRIES, Vice President - Marketing. Associate of Financial
Services Group of Stephens Inc. Prior thereto, Account Supervisor of
Brooks-Pollard Co.
JANE G. JOHNSON, Vice President. Associate of Financial Services Group of
Stephens Inc.
MICHAEL W. NOLTE, Assistant Secretary. Associate of Financial Services Group
of Stephens Inc.
ANN BONSTEEL, Assistant Secretary. Associate of Financial Services Group of
Stephens Inc.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $8,500 $34,188
Director
</TABLE>
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<TABLE>
<S> <C> <C>
*R. Greg Feltus 0 0
Director
Thomas S. Goho 8,500 34,188
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 8,500 32,188
Director
Robert M. Joses 8,500 34,188
Director
*J. Tucker Morse 8,500 32,188
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 officers and Directors 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. Each of the Funds is advised by Wells Fargo
Bank pursuant to an Advisory Contract. In addition, Wells Fargo Nikko
Investment Advisors ("WFNIA") serves as sub-adviser to the U.S. Government
Allocation Fund, the Corporate Stock Fund and the Asset Allocation Fund. 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.
As of December 31, 1994, mutual funds advised by Wells Fargo had
in excess of $10 billion in total assets.
11
<PAGE> 14
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 U.S. Government Allocation Fund, the Variable
Rate Government Fund and the Asset Allocation Fund, average maturities of the
portfolios of each of those Funds.
Each Advisory Contract will continue in effect for more than two
years provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities or by the
Company's Board of Directors and (ii) by a majority of the Directors of the
Company who are not parties to the Advisory Contract or "interested persons"
(as defined in the 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.
WFNIA has entered into an agreement with Wells Fargo Bank and the
Company pursuant to which Wells Fargo Bank has employed WFNIA to provide
certain advisory services in connection with the investment of the assets of
the U.S. Government Allocation Fund, the Corporate Stock Fund and the Asset
Allocation Fund. Subject to the direction of the Company's Board of Directors
and the overall supervision and control of Wells Fargo Bank and the Company,
WFNIA is responsible for investing and reinvesting these Funds' assets. In
this regard, WFNIA is responsible for implementing and monitoring the
performance of the investment model employed with respect to the Funds, in
accordance with the investment objective, policies and restrictions set forth
in each Fund's Prospectus, and shall furnish to Wells Fargo Bank periodic
reports on the investment activity and performance of the Funds, and such
additional reports and information as Wells Fargo Bank and the Company's Board
of Directors and officers shall reasonably request.
For the years ended December 31, 1992, 1993 and 1994, the Funds
paid to Wells Fargo Bank the fees indicated below and Wells Fargo Bank waived
the indicated amounts:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
Fees Fees Fees Fees Fees Fees
Fund Paid Waived Paid Waived Paid Waived
<S> <C> <C> <C> <C> <C> <C>
Asset Allocation $1,995,133 -0- $3,136,581 -0- $3,907,880 -0-
Corporate Stock $1,086,748 -0- $1,248,207 -0- $1,259,739 -0-
Ginnie Mae $ 219,870 $223,765 $ 888,174 $437,110 $1,185,036 -0-
Growth and Income $ 42,947 $ 79,904 $ 443,874 -0- $ 587,977 -0-
U.S. Government
Allocation $ 348,860 -0- $1,090,400 -0- $1,034,079 -0-
Variable Rate
Government $ 72,266 -0- $ 139,685 $ 12,647 $ 90,234 $40,617
</TABLE>
12
<PAGE> 15
For the years ended December 31, 1992, 1993 and 1994, Wells Fargo
paid to WFNIA the fees indicated below:
<TABLE>
<CAPTION>
1992 1993 1994
Fund Fees Paid Fees Paid Fees Paid
<S> <C> <C> <C>
Asset Allocation $ 872,184 $1,586,982 $2,106,980
Corporate Stock $ 213,779 $ 239,319 $ 241,489
U.S. Government Allocation $ 144,545 $ 366,951 $ 353,761
</TABLE>
Morrison & Foerster, special counsel to Wells Fargo Bank and
counsel to the Company, has advised Wells Fargo Bank and the Company that Wells
Fargo Bank should be able to perform the services contemplated by the Advisory
Contract, the Shareholder Servicing Agreement, the Selling Agent Agreement, the
Agency Agreement, the Custodian Agreement and the Prospectus, without violation
of the Glass-Steagall Act. Such counsel have pointed out, however, that there
are no controlling judicial or administrative interpretations or decisions and
that future judicial or administrative interpretations of, or decisions
relating to, present federal or state statutes and regulations relating to the
permissible activities of banks and their subsidiaries or affiliates, as well
as future changes in federal or state statutes and regulations and judicial or
administrative decisions or interpretations thereof, could prevent Wells Fargo
Bank from continuing to perform, in whole or in part, such services. If Wells
Fargo Bank were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
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, 1992, 1993 and 1994, the
Funds paid administrative fees to Stephens as follows:
13
<PAGE> 16
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Asset Allocation Fund $130,885 $238,347 $ 315,787
Corporate Stock Fund $ 65,205 $ 74,804 $ 75,748
Ginnie Mae Fund $ 27,924 $ 81,058 $ 71,842
Growth and Income Fund $ 7,675 $ 26,644 $ 35,279
U.S. Government Allocation Fund $ 20,931 $ 65,395 $ 62,168
Variable Rate Government Fund $ 4,489 $ 9,259 $ 7,851
</TABLE>
For the fiscal years ended December 31, 1992, 1993 and 1994 the
Funds' distributor retained $2,365,423, $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, 1992, 1993 and 1994, Wells Fargo Securities
Inc., an affiliated broker-dealer of the Company, and its registered
representatives received $0, $378,895 and $904,274, respectively, in
underwriting commissions in connection with the purchase or redemption of Fund
shares.
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.
DISTRIBUTION PLANS
As indicated in each Fund's respective Prospectus, each of the
Funds has adopted a distribution plan (a "Plan") under Section 12(b) of the
1940 Act and Rule 12b-1 thereunder (the "Rule"). The Plans for the Corporate
Stock Fund, the Variable Rate Government Fund and the shares now designated the
Class A Shares of each other Fund were adopted by the Company's Board of
Directors on October 22, 1991, including a majority of the Directors who were
not "interested persons" (as defined in the 1940 Act) of the respective Fund
and who had no direct or
14
<PAGE> 17
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 having such shares were adopted by the Company's Board of
Directors, including a majority of the Qualified Directors, on July 27, 1994.
The Plans in effect for the Corporate Stock Fund, the Variable
Rate Government Fund and the Class A Shares of each other Fund allow such Funds
to defray all or part of the cost of preparing and printing prospectuses and
other promotional materials and of delivering prospectuses and those materials
to prospective shareholders of each such Fund by paying on an annual basis up
to 0.05% of the respective Fund's average daily net assets or average daily net
assets attributable to Class A Shares of such Fund, as the case may be. The
plans for the Corporate Stock Fund, the Variable Rate Government Fund and Class
A Shares of the other funds provide only for the reimbursement of actual
expenses. The plans for the Class B Shares allow each Fund with such shares to
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.
The Corporate Stock Fund and the Variable Rate Government Fund may terminate
such Agreements at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of such Fund. Each of the Funds
with Class A and Class B shares may terminate such Agreements at any time,
without payment of any penalty, by a vote of a majority of outstanding voting
securities of the Class of shares affected by such Agreement. The amounts
payable under each Plan may not be increased materially without, in the case of
the Corporate Stock Fund and the Variable Rate Government Fund, the approval of
a majority of the voting securities of such Fund, or, in the case of the other
funds, without the approval of a majority of the voting securities of each
Class of Funds effected by such Agreements. Material amendments to a Plan may
not be made except by affirmative vote of a majority of both the Directors of
the Company and the Qualified Directors.
Each Plan requires that the Treasurer of the Company shall provide
to the Directors, and the Directors shall review, at least quarterly, a written
report of the amounts expended (and purposes therefor) under the Plan. The
Rule also requires that the selection and nomination of Directors who are not
"interested persons" of the Company be made by such disinterested directors.
For the year ended December 31, 1994, the Funds' distributor
received the following amounts of 12b-1 fees for the specified purposes set
forth below under each Fund's Plan.
15
<PAGE> 18
<TABLE>
<CAPTION>
Marketing
Prospectus Brochures
---------- ---------
<S> <C> <C>
Asset Allocation Fund $70,492 $107,557
Corporate Stock Fund 50,573 30,396
Ginnie Mae Fund 55,942 25,303
Growth and Income Fund 23,809 10,114
U.S. Government Allocation Fund 60,401 21,640
Variable Rate Government Fund 55,824 52,202
</TABLE>
For the year ended December 31, 1994, WFSI and its registered
representatives received no compensation under each Fund's Plan.
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.
The Corporate Stock Fund and the Variable Rate Government Fund may
advertise certain total return information computed in the manner described in
each Fund's Prospectus. As and to the extent required by the SEC, an average
annual compound rate of return ("T") will be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment in shares of the Fund ("P") over a period of years ("n") according
to the following formula: P(1+T)n = ERV. In addition, the Corporate Stock Fund
and the Variable Rate Government Fund, at times, may calculate total return
based on net asset value per share (rather than the public offering price), in
which case the figures would not reflect the effect of any sales charges that
would have been paid by an investor, or based on the assumption that a sales
charge other than the maximum sales charge (reflecting a Volume Discount) was
assessed, provided that total return data derived pursuant to the calculation
described above also are presented.
Each of the Funds with Class A and Class B shares may advertise
certain total return information computed in the manner described in such
Fund's Prospectus. As and to the extent required by the SEC, an average annual
compound rate of return ("T") will be computed by using the redeemable value at
the end of a specified period ("ERV") of a hypothetical initial investment in a
Class of shares ("P") over a period of years ("n") according to the following
formula: P(1+T)n = ERV. In addition, the Funds that assess a sales charge, at
times, also may calculate total return based on net asset value per share of
each Class (rather than the public offering price),
16
<PAGE> 19
in which case the figures would not reflect the effect of any sales charges
that would have been paid by an investor, or based on the assumption that a
sales charge other than the maximum sales charge (reflecting a Volume Discount)
was assessed, provided that total return data derived pursuant to the
calculation described above also are presented.
The average annual total return for the period since inception for
the predecessor fund (November 13, 1986) to December 31, 1994 for the Asset
Allocation Fund, assuming a 4.50% sales load, was 9.00%. The average annual
total return for the same period, assuming no sales load, was 9.62%. The
average annual total return for the five-year period ended December 31, 1994,
assuming a 4.50% sales load, was 8.47%. The average annual total return for
the same period, assuming no sales load, was 9.47%. The average annual total
return for the one year ended December 31, 1994, assuming a 4.50% sales load,
was -7.22%. The average annual total return for the same period, assuming no
sales load, was -2.82%.
The average annual total return for the period since inception
(January 3, 1991) to December 31, 1994 for the Ginnie Mae Fund, assuming a
4.50% sales load, was 4.86%. The average annual total return for the same
period, assuming no sales load, was 6.07%. The average annual total return for
the year ended December 31, 1994, assuming a 4.50% sales load, was -7.56%. The
average annual total return for the same period, assuming no sales load, was
- -3.23%.
The average annual total return for the period since inception for
the predecessor fund (March 31, 1987) to December 31, 1994 for the U.S.
Government Allocation Fund, assuming a 4.50% sales load, was 7.07%. The
average annual total return for the same period, assuming no sales load, was
7.70%. The average annual total return for the five-year period ended December
31, 1994, assuming a 4.50% sales load, was 6.46%. The average annual total
return for the same period, assuming no sales load, was 7.45%. The average
annual total return for the year ended December 31, 1994, assuming a 4.50%
sales load, was -11.17%. The average annual total return for the period,
assuming no sales load, was - 6.99%.
The average annual total return for the period since inception
(August 2, 1990) to December 31, 1994, for the Growth and Income Fund, assuming
a 4.50% sales load, was 9.69%. The average annual total return for the period,
assuming no sales load, was 10.83%. The average annual total return for the
year ended December 31, 1994, assuming a 4.50% sales load, was -4.81%. The
average annual total return for the period, assuming no sales load, was -0.29%.
The average annual total return for the period since inception
(January 3, 1991) to December 31, 1994, for the Variable Rate Government Fund,
assuming a 3.00% sales load, was 2.54%. The average annual total return for
the period, assuming no sales load, was 3.33%. The average annual total return
for the year ended December 31, 1994, assuming a 3.00% sales load, was -6.32%.
The average annual total return for the period, assuming no sales load, was -
3.43%.
The average annual total return assuming a purchase at net asset
value, for the period since inception for the predecessor fund (January 25,
1984) to December 31, 1994, for the Corporate Stock Fund, was 12.28%.
Similarly, such total returns for the five-year and one-year periods ended
December 31, 1994, were 7.59% and 0.42%, respectively.
17
<PAGE> 20
As indicated in their respective Prospectuses, the Ginnie Mae
Fund, the U.S. Government Allocation Fund and the Variable Rate Government Fund
may advertise certain yield information on their shares. As and to the extent
required by the SEC, yield on each Class of shares, or in the case of the
Variable Rate Government Fund, yield on the single 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, 1994, assuming
a maximum sales charge of 4.50%, on the Class A Shares of the Ginnie Mae Fund
and shares of the U.S. Government Allocation Fund were 6.38% and 6.56%,
respectively. The 30-day yields for the same period, assuming no sales charge,
were 6.68% and 6.87%, respectively. The yields for the 30-day period ended
December 31, 1994, assuming a maximum sales charge of 3.00%, on the shares of
the Variable Rate Government Fund was 5.34%, and 5.51% for the same period,
assuming no sales charge.
The yield on each Class of the Ginnie Mae Fund and the U.S.
Government Allocation Fund and the shares of the Variable Rate Government Fund
will fluctuate from time to time, unlike bank deposits or other investments
that pay a fixed yield for a stated period of time, and does not provide a
basis for determining future yields since it is based on historical data.
Yield is a function of portfolio quality, composition, maturity and market
conditions as well as the expenses allocated to the Fund.
In addition, investors should recognize that changes in the net
asset values of shares of each Class of the Ginnie Mae Fund and the U.S.
Government Allocation Fund and the shares of the Variable Rate Government Fund
will affect the yield of each such Class or Fund, as the case may be, for any
specified period, and such changes should be considered together with the yield
of each Class or Fund in ascertaining the total return for the period to
shareholders of each Fund. Yield information for each Fund or each Class of
shares of the Funds, as the case may be, may be useful in reviewing the
performance of such Funds and for providing a basis for comparison with
investment alternatives. The yield of each Fund or each Class of a Fund,
however, may not be comparable to the yields from investment alternatives
because of differences in the foregoing variables and differences in the
methods used to value portfolio securities, compute expenses and calculate
yield.
18
<PAGE> 21
From time to time and only to the extent the comparison is
appropriate for a Fund or Class of shares of a Fund, the Company may quote the
performance or price-earning ratio of a Fund or Class of shares in advertising
and other types of literature as compared to the performance of the Lehman
Brothers Municipal Bond Index, the 1-Year Treasury Bill Rate, the S&P Index,
the Dow Jones Industrial Average, the Lehman Brothers 20+ Treasury Index, the
Lehman Brothers 5-7 Year Treasury Index, Donoghue's Money Fund Averages, Real
Estate Investment Averages (as reported by the National Association of Real
Estate Investment Trusts), Gold Investment Averages (provided by the World Gold
Council), Bank Averages (which is calculated from figures supplied by the U.S.
League 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 Fund or Class of shares, as appropriate, also may be compared
to those of other mutual funds having similar objectives. This comparative
performance could be expressed as a ranking prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Bloomberg Financial Markets
or Morningstar, Inc., independent services which monitor the performance of
mutual funds. The performance of a Fund or Class of shares, as appropriate,
will be calculated by relating net asset value per share at the beginning of a
stated period to the net asset value of the investment, assuming reinvestment
of all gains, distributions and dividends paid, at the end of the period. Any
such comparisons may be useful to investors who wish to compare the past
performance of a Fund or Class of shares with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
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."
19
<PAGE> 22
The Company also may use the following information in
advertisements and other types of literature, only to the extent the
information is appropriate for a Fund: (i) the Consumer Price Index may be
used to assess the real rate of return from an investment in a Fund; (ii) other
government statistics, including, but not limited to, The Survey of Current
Business, may be used to illustrate investment attributes of a Fund or the
general economic, business, investment, or financial environment in which a
Fund operates; (iii) the effect of tax-deferred compounding on the investment
returns of a Fund or a Class of shares, or on returns in general, may be
illustrated by graphs, charts, etc., where such graphs or charts would compare,
at various points in time, the return from an investment in a Fund or Class of
shares (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector.
In addition, performance information for a Class of shares of the
U.S. Government Allocation Fund, the Asset Allocation Fund and the shares of
the Corporate Stock Fund may be compared, in reports and promotional
literature, to the S&P 500 Index, the Wilshire 5000 Equity Index, the Lehman
Brothers 20+ Treasury Index, Donoghue's Money Fund Averages, the Lehman
Brothers 5-7 Year Treasury Index, or other appropriate managed or unmanaged
indices of the performance of various types of investments, so that investors
may compare results of a Fund or Class of shares with those of indices widely
regarded by investors as representative of the security markets in general.
Unmanaged indices may assume the reinvestment of dividends, but generally do
not reflect deductions for administrative and management costs and expenses.
Managed indices generally do reflect such deductions.
From time to time, the Company also may include in advertisements
or other marketing materials a discussion of certain of the objectives of the
investment strategy of the U.S. Government Allocation Fund and the Asset
Allocation Fund and a comparison of this strategy with other investment
strategies. In particular, the responsiveness of these Funds to changing
market conditions may be discussed. For example, the Company may describe the
benefits derived by having Wells Fargo Bank, as investment adviser, monitor and
reallocate investments among the asset categories described in each Fund's
Prospectus. The Company's advertising or other marketing material also might
set forth illustrations depicting examples of recommended allocations in
different market conditions. It may state, for example, that when the model
indicates that stocks represent a better value than bonds or money market
instruments, the Asset Allocation Fund might consist of 70% stocks, 25% bonds
and 5% money market instruments and that when the model indicates that bonds
represent a better value than stocks or money market instruments, the balance
of assets might shift to 60% bonds, 20% stocks and 20% money market
instruments.
The Company also may include, from time to time, a reference to
certain marketing approaches of the Distributor, including, for example, a
reference to a potential shareholder being contacted by a selected broker or
dealer.
20
<PAGE> 23
The Company also may discuss in advertising and other types of
literature that a Fund has been assigned a rating by a nationally recognized
statistical rating organization ("NRSRO"), such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to
purchase, sell or hold the Fund's shares since the rating would not comment on
the market price of the Fund's shares or the suitability of the Fund for a
particular investor. In addition, the assigned rating would be subject to
change, suspension or withdrawal as a result of changes in, or unavailability
of, information relating to the Fund or its investments. The Company may
compare a Fund's performance with other investments which are assigned ratings
by NRSROs. Any such comparisons may be useful to investors who wish to compare
the Fund's past performance with other rated investments.
From time to time, the Funds may use the following statements, or
variations thereof, in advertisements and other promotional materials: "Wells
Fargo Bank, as a Shareholder Servicing Agent for the Stagecoach Funds, provides
various services to its customers that are also shareholders of the Funds.
These services may include access to Stagecoach Funds' account information
through Automated Teller Machines (ATMs), the placement of purchase and
redemption requests for shares of the Funds through ATMs and the availability
of combined Wells Fargo Bank and Stagecoach Funds account statements." The
Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Company's
investment adviser.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund or per share for each
Class of each Fund is determined by the Custodian of the Fund on each day the
NYSE is open for trading.
Securities of a Fund for which market quotations are available are
valued at latest prices. Securities of a Fund for which the primary market is
a national securities exchange or the National Association of Securities
Dealers Automated Quotations National Market System are valued at last sale
prices. In the absence of any sale of such securities on the valuation date
and in the case of other securities, including U.S. Government securities but
excluding money market instruments maturing in 60 days or less, the valuations
are based on latest quoted bid prices. Money market instruments maturing in 60
days or less are valued at amortized cost. Futures contracts will be marked to
market daily at their respective settlement prices determined by the relevant
exchange. These prices are not necessarily final closing prices, but are
intended to represent prices prevailing during the final 30 seconds of the
trading day. Options listed on a national exchange are valued at the last sale
price on the exchange on which they are traded at the close of the NYSE, or, in
the absence of any sale on the valuation date, at latest quoted bid prices.
Options not listed on a national exchange are valued at latest quoted bid
prices. Debt securities maturing in 60 days or less are valued at amortized
cost. In all cases, bid prices will be furnished by a reputable independent
pricing service approved by the Board of Directors. Prices provided by an
independent pricing service may be determined without exclusive reliance on
quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups
21
<PAGE> 24
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, the Corporate Stock Fund and the Asset Allocation Fund,
purchases and sales of securities usually will be principal transactions.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. Each of the Funds
also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, 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 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, the Corporate Stock Fund and the Asset
Allocation Fund. Purchases and sales of equity securities on a securities
exchange are effected through brokers who charge a negotiated commission for
their services. Orders may be directed to any
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<PAGE> 25
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 these Funds, 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, these Funds 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.
For the fiscal year ended December 31, 1992, the Asset Allocation
Fund, the Corporate Stock Fund and the Growth and Income Fund paid brokerage
commissions in the amounts of $38,000, $43,000 and $114,913, respectively. For
the fiscal year ended December 31, 1993, the Asset Allocation Fund, the
Corporate Stock Fund and the Growth and Income Fund paid brokerage commissions
in the amounts of $294,861, $30,123 and $347,779, respectively. For the fiscal
year ended December 31, 1994, the Asset Allocation Fund, the Corporate Stock
Fund and the Growth and Income Fund paid brokerage commissions in the amounts
of $99,002, $31,896 and $407,643, respectively.
On December 31, 1994, the following Funds owned securities of its
"regular brokers or dealers" or their parents, as defined in the Act, as
follows: Ginnie Mae Fund, $3,464,000 of Goldman Sachs & Co.; Growth and Income
Fund, $4,397,000 of Goldman Sachs & Co.; and Variable Rate Government Fund,
$229,000 of Goldman Sachs & Co.
The higher portfolio turnover rates for the U.S. Government
Allocation Fund and the Ginnie Mae Fund should not adversely affect these Funds
because portfolio transactions ordinarily are made directly with principals on
a net basis and, consequently, these Funds usually do 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.
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<PAGE> 26
Qualification as a regulated investment company under the Code
requires, among other things, that (a) at least 90% of each Fund's annual gross
income be derived from interest, payments with respect to securities loans,
dividends and gains from the sale or other disposition of securities or options
thereon; (b) each Fund derives less than 30% of its gross income from gains
from the sale or other disposition of securities or options thereon held for
less than three months; and (c) each Fund diversifies its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, government securities and
other securities limited in respect of any one issuer to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any one issuer (other than U.S. Government securities and
the securities of other regulated investment companies), or of two or more
issuers which the taxpayer controls and which are determined to be engaged in
the same or similar trades or businesses or related trades or businesses. As
regulated investment companies, the Funds will not be subject to federal income
tax on their net investment income and net capital gains distributed to their
shareholders, provided that they distribute to their stockholders at least 90%
of their 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. For this purpose, any income or gain retained by a Fund
that is subject to income tax will be considered to have been distributed by
year-end. In addition, dividends and distributions of taxable income declared
payable as of a record date in October, November or December of any calendar
year are deemed under the Code to have been received by the shareholders on
December 31 of that calendar year if the dividend is actually paid in the
following January. Such dividends will, accordingly, be subject to income tax
for the year in which the record date falls. Each Fund intends to distribute
substantially all of its net investment income and net capital gains and, thus,
does not expect to be subject to the excise tax.
Income and dividends received by a Fund from sources within
foreign countries may be subject to withholding and other taxes (generally at
rates of 10% to 40%) imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Because not more than 50% of the value of the total assets of any Fund is
expected to consist of securities of foreign issuers, no Fund will be eligible
to elect to "pass through" foreign tax credits to shareholders.
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, except in certain cases such as where a Fund
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 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
24
<PAGE> 27
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 (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.
As of the printing of this SAI, the maximum individual marginal
tax rate applicable to ordinary income is 39.60%; the maximum individual tax
rate applicable to net capital gains is 28.00%; and the maximum corporate tax
rate applicable to ordinary income and net capital gains is 35.00% (however, to
eliminate the benefit of lower marginal income tax rates, corporations that
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).
Generally, 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 a
Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.
Also, any loss realized on a redemption or exchange of shares of a
Fund will be disallowed to the extent shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.
Corporate shareholders of the Growth and Income Fund, the Asset
Allocation Fund and the Corporate Stock Fund may be eligible for the
dividends-received deduction on the dividends (excluding the net capital gains
dividends) paid by a Fund to the extent the Fund's income is derived from
dividends (which, if received directly, would qualify for such deduction)
received from domestic corporations. 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.
Distributions from the other Funds will not qualify for the dividends received
deduction for corporate shareholders.
If an option written by a Fund lapses or is terminated through a
closing transaction, such as a repurchase by such Fund of the option from its
holder, the Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount
25
<PAGE> 28
paid by the Fund in the closing transaction. Some realized capital losses may
be deferred if they result from a position which is part of a tax straddle.
If securities are sold by a Fund pursuant to the exercise of a
call option written by it, such Fund will add the premium received to the sale
price of the securities delivered in determining the amount of gain or loss on
the sale. If securities are purchased by a Fund pursuant to the exercise of a
put option written by it, such Fund will subtract the premium received from its
cost basis in the securities purchased. The requirement that the Fund derive
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 write options.
The amount of any gain or loss realized by a Fund on closing out a
futures contract will generally result in a realized capital gain or loss for
tax purposes. Futures contracts held at the end of each fiscal year will be
required to be "marked to market" for federal income tax purposes. In this
regard, they will be deemed to have been sold at market value. Sixty percent
(60%) of any net gain or loss recognized on these deemed sales and sixty
percent (60%) of any net realized gain or loss from any actual sales, generally
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the marked to market rule and the "60%/40%"
rule. Currency transactions may be subject to Section 988 of the Code, under
which foreign currency gains or losses would generally be computed separately
and treated as ordinary income or losses. The Fund will attempt to monitor
Section 988 transactions to avoid an adverse tax impact.
If, in the opinion of the Company, ownership of its shares has or
may become concentrated to an extent that could cause the Company to be deemed
a personal holding company within the meaning of the Code, the Company may
require the redemption of shares or reject any order for the purchase of shares
in an effort to prevent such concentration.
Foreign Shareholders. Under the Code, distributions of net
investment income by a Fund to a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, foreign corporation, or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax
(at a rate of 30% or a lower treaty rate). Withholding will not apply if a
dividend paid by a Fund to a foreign shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens 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,
26
<PAGE> 29
in which case a Fund may distribute cash derived from other sources in order to
meet the minimum distribution requirements described above.
FUND EXPENSES
Except for the expenses borne by Wells Fargo Bank and Stephens,
the Company bears all costs of its operations, including the compensation of
its Directors who are not affiliated with Stephens or Wells Fargo Bank or any
of their affiliates; advisory, shareholder servicing and administration fees;
payments pursuant to any Plan; interest charges; taxes; fees and expenses of
its independent accountants, legal counsel, transfer agent and dividend
disbursing agent; expenses of redeeming shares; expenses of preparing and
printing prospectuses (except the expense of printing and mailing prospectuses
used for promotional purposes, unless otherwise payable pursuant to a Plan),
shareholders' reports, notices, proxy statements and reports to regulatory
agencies; insurance premiums and certain expenses relating to insurance
coverage; trade association membership dues; brokerage and other expenses
connected with the execution of portfolio transactions; fees and expenses of
its custodian, including those for keeping books and accounts and calculating
the NAV per share of a Fund; expenses of shareholders' meetings; expenses
relating to the issuance, registration and qualification of Fund shares;
pricing services, and any extraordinary expenses. Expenses attributable to a
Fund are charged against a Fund's assets. General expenses of the Company are
allocated among all of the funds of the Company, including a Fund, in a manner
proportionate to the net assets of each Fund, on a transactional basis, or on
such other basis as the Company's Board of Directors deems equitable.
CAPITAL STOCK
The Company, an open-end, management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 10,000,000,000 shares having a par value of $.001 per
share. As of the date of this SAI, the Company's Board of Directors has
authorized the issuance of twelve series of shares, each representing an
interest in one portfolio -- the Asset Allocation Fund, the California Tax-Free
Bond Fund, the California Tax-Free Income Fund, the California Tax-Free Money
Market Mutual Fund, the Corporate Stock Fund, the Diversified Income Fund, the
Ginnie Mae Fund, the Growth and Income Fund, the Money Market Mutual Fund, the
Short-Intermediate U.S. Government Income Fund, the U.S. Government Allocation
Fund and the Variable Rate Government Fund -- and the Board of Directors may,
in the future, authorize the issuance of other series of capital stock
representing shares of additional investment portfolios.
Each of the Funds, other than the Corporate Stock Fund and the
Variable Rate Government 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
27
<PAGE> 30
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 proxy, or (ii) more than 50% of
the outstanding shares of the Fund. The term "majority," when referring to the
approvals to be obtained from shareholders of the Company as a whole, means the
vote of the lesser of (i) 67% of the Company's shares represented at a meeting
if the holders of more than 50% of the Company's outstanding shares are present
in person or by proxy, or (ii) more than 50% of the Company's outstanding
shares. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
The Company may dispense with an annual meeting of shareholders in
any year in which it is not required to elect Directors under the 1940 Act.
However, the Company has undertaken to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a Director
or Directors if requested in writing by the holders of at least 10% of the
Company's outstanding voting securities, and to assist in communicating with
other shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund or Class represents an equal proportional
interest in the Fund or Class with each other share and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
the Fund as are declared in the discretion of the Directors. In the event of
the liquidation or dissolution of the Company, shareholders of a Fund are
entitled to receive the assets attributable to the Fund that are available for
distribution, and a distribution of any general assets not attributable to a
particular investment portfolio that are available for distribution in such
manner and on such basis as the Directors in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by the Company.
As of April 13, 1995, no shareholders of the Variable Rate
Government Fund and the Corporate Stock Fund, nor any Shareholder of the Class
A Shares of the Asset Allocation Fund, Ginnie Mae Fund, Growth and Income Fund,
and U.S. Government Allocation Fund, were known by the Company to own 5% or
more of their respective outstanding Shares.
28
<PAGE> 31
As of April 13, 1995, the shareholders identified below were known
by the Company to own 5% or more of the outstanding Class B Shares of the Funds
in the following capacities:
<TABLE>
<CAPTION>
Name and Address Percentage Capacity
Name of Fund of Shareholder of Class Owned
- ------------ ---------------- ---------- --------
<S> <C> <C> <C>
Asset Allocation Fund
Class B Shares Curtis O. Minor & 9.24% Record
Dian C. Minor JTTEN
5157 Leeds Street
Simi Valley, CA 93063
Ginnie Mae Fund
Class B Shares Guadalupe V De Castelo 11.43% Record
413 Hidden Vista Drive
Chula Vista, CA 91910
John A. Deluca & 8.06% Record
Annette R. Deluca JTTEN
28301 Alava
Mission Viejo, CA 92692
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
Name and Address Percentage Capacity
Name of Fund of Shareholder of Class Owned
- ------------ ---------------- ---------- --------
<S> <C> <C> <C>
Shannon Paul 6.06% Record
1323 E Lomita
Orange, CA 92667
Malcolm Taylor 7.30% Record
21155 Skyline Boulevard
Redwood City, CA 94062
Growth and Income Fund
Class B Shares Hassan El Bietar 6.91% Record
419 Bark Drive
Redwood City, CA 94065
U.S. Government
Allocation Fund
Class B Shares Debi Corbelli 5.79% Record
712 Park Avenue
Petaluma, CA 94954
Louise M. Rogers 8.76% Record
1460 Riverpark Boulevard
Napa, CA 94559
Betty L. Allen TTEE 9.29% Record
Allen Family Trust
DTD 4-30-91
3737 Ginger Way
Oceanside, CA 92057
Robert Hostetter & 6.70% Record
Marjorie A. Hostetter TTEES
The Hostetter 1994 Trust
DTD 1-31-94
318 S Nevada Street
Oceanside, CA 92054
</TABLE>
30
<PAGE> 33
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. The Annual Report will be sent free of charge to any
shareholder who requests the Annual Report.
CUSTODIANS AND TRANSFER AND
DIVIDEND DISBURSING AGENT
Wells Fargo has been retained to act as Custodian for the Ginnie
Mae Fund, the Variable Rate Government Fund and the Growth and Income Fund, and
Wells Fargo Institutional Trust Company, N.A. ("WFITC") has been retained to
act as the Custodian for the U.S. Government Allocation Fund, the Corporate
Stock Fund and the Asset Allocation Fund. The Custodians, among other things,
maintain a custody account or accounts in the name of each Fund; receive and
deliver all assets for each Fund upon purchase and upon sale or maturity;
collect and receive all income and other payments and distributions on account
of the assets of each Fund and pay all expenses of each Fund. For their
services as Custodian, Wells Fargo Bank and WFITC each receive an asset-based
fee and transaction charge from the respective Funds.
Wells Fargo Bank also has been retained to act as the Transfer and
Dividend Disbursing Agent for the Funds, and receives for its services a base
fee and per-account fees from each Fund.
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 audited financial statements and portfolio of investments
contained in the Company's Annual Report for the most recent fiscal year are
hereby incorporated by reference in this SAI. The Annual Report will be sent
free of charge with this SAI to any shareholder who requests the SAI.
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<PAGE> 34
SAI APPENDIX
The following is a description of the ratings given by Moody's and
S&P to corporate bonds and commercial paper.
Corporate Bonds
Moody's: The four highest ratings for corporate bonds are "Aaa,"
"Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best quality"
and carry the smallest amount of investment risk. Bonds rated "Aa" are of
"high quality by all standards," but margins of protection or other elements
make long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds
rated "A" possess many favorable investment attributes and are considered to be
upper medium grade obligations. Bonds rated "Baa" are considered to be medium
grade obligations; interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds have
speculative characteristics as well. Moody's applies numerical modifiers: 1,
2 and 3 in each rating category from "Aa" through "Baa" in its rating system.
The modifier 1 indicates that the security ranks in the higher end of its
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Corporate Commercial Paper
Moody's: The highest rating for corporate commercial paper is
"P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for repayment
of short-term promissory obligations." Issuers rated "P-2" (Prime-2) "have a
strong capacity for repayment of short-term promissory obligations," but
earnings trends, while sound, will be subject to more variation.
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<PAGE> 35
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."
33
