<PAGE> 1
STAGECOACH FUNDS, INC.
Telephone: (800) 222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated September 6, 1996
as supplemented on September 24, 1996
SMALL CAP FUND
INSTITUTIONAL CLASS
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Stagecoach Funds, Inc. (the "Company") is an open-end, series
investment company. This Statement of Additional Information ("SAI") contains
information about one of the Company's series -- the SMALL CAP FUND (the
"Fund"). This SAI relates only to the Institutional Class Shares offered by
the Fund. The investment objective of the Fund is described in the Prospectus
under the heading "Investment Objective and Policies." The Fund seeks to
achieve its investment objective by investing all of its assets in the Small
Cap Master Portfolio (at times, the "Master Portfolio") of Master Investment
Trust (the "Trust"), which has the same investment objective as the Fund. The
Fund may withdraw its investment in the Small Cap Master Portfolio at any time.
This SAI is not a prospectus and should be read in conjunction with the
Fund's Prospectus, dated September 6, 1996. All terms used in this SAI that are
defined in the Prospectus have the meanings assigned in the Prospectus. A copy
of the Prospectus 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . 1
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Servicing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . 8
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . 12
Additional Purchase and Redemption Information . . . . . . . . . . . 12
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 13
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 21
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 21
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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INVESTMENT RESTRICTIONS
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "Investment Objective and
Policies."
FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund and the Master Portfolio
are subject to the following investment restrictions, all of which are
fundamental policies. These restrictions cannot be changed, as to either the
Fund or the Master Portfolio, without approval by the holders of a majority (as
defined by the 1940 Act) of the outstanding voting securities of the Fund or
the Master Portfolio, as appropriate. Whenever the Fund is requested to vote
on a fundamental policy of the Master Portfolio, the Fund will hold a meeting
of Fund shareholders and it will cast its votes as instructed by such
shareholders.
Neither the Fund nor the Master Portfolio may:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase and
as a result thereof, the value of the Fund's investments in that industry would
equal or exceed 25% of the current value of the Fund's total assets, provided
that there is no limitation with respect to investments in securities issued or
guaranteed by the United States Government, its agencies or instrumentalities;
and provided further, that the Fund may invest all its assets in a diversified,
open-end management investment company, or a series thereof, with substantially
the same investment objective, policies and restrictions as such Fund, without
regard to the limitations set forth in this paragraph (1);
(2) purchase or sell real estate (other than securities secured by real
estate or interests therein or securities issued by companies that invest in
real estate or interests therein, including mortgage passthrough securities),
commodities or commodity contracts or interests in oil, gas, or other mineral
exploration or development programs;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that
the purchase of permitted investments directly from the issuer thereof or from
an underwriter for an issuer and the later disposition of such securities in
accordance with the Fund's investment program may be deemed to be an
underwriting; and provided further, that the purchase by the Fund of securities
issued by a diversified, open-end management investment company, or a series
thereof, with substantially the same investment objective, policies and
restrictions as such Fund shall not constitute an underwriting for purposes of
this paragraph (4);
(5) make investments for the purpose of exercising control or
management; provided that the Fund may invest all its assets in a diversified,
open-end management company, or a series thereof, with substantially the same
investment objective, policies
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and restrictions as such Fund, without regard to the limitations set forth in
this paragraph (5);
(6) issue senior securities, except that the Fund may borrow from banks
up to 10% of the current value of its net assets for temporary purposes only in
order to meet redemptions, and these borrowings may be secured by the pledge of
up to 10% of the current value of its net assets (but investments may not be
purchased while any such outstanding borrowings exceed 5% of its net assets);
(7) make loans of portfolio securities having a value that exceeds 33
1/3% of the current value of its total assets, provided that, this restriction
does not apply to the purchase of fixed time deposits, repurchase agreements,
commercial paper and other types of debt instruments commonly sold in a public
or private offering; nor
(8) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, with respect to 75% of its total assets, more than 5% of the value of
its total assets would be invested in the securities of any one issuer or, with
respect to 100% of its total assets, the Fund's ownership would be more than
10% of the outstanding voting securities of such issuer, provided that the Fund
may invest all its assets in a diversified, open-end management investment
company, or a series thereof, with substantially the same investment objective,
policies and restrictions as such Fund, without regard to the limitations set
forth in this paragraph (8).
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The Fund and the Master
Portfolio are subject to the following investment restrictions, all of which
are non-fundamental policies. These restrictions may be changed by a vote of a
majority of the Directors of the Company or the Trustees of the Trust, as the
case may be, at any time.
Neither the Fund nor the Master Portfolio may:
(1) purchase or retain securities of any issuer if the officers or
directors of the Fund or its Investment Adviser owning beneficially more than
one-half of one percent (0.5%) of the securities of the issuer together own
beneficially more than 5% of such securities;
(2) purchase or sell real estate limited partnership interests;
(3) invest in securities of issuers who, with their predecessors, have
been in existence less than three years, unless the securities are fully
guaranteed or insured by the U.S. Government if, by reason thereof, the value
of its aggregate investment in such securities will exceed 5% of its total
assets;
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(4) purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets would be invested
in the securities of any one issuer;
(5) invest more than 15% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among others, (a)
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of more than
seven days, and (c) repurchase agreements not terminable within seven days;
(6) In addition, as a matter of non-fundamental policy, the Fund may
invest in shares of other open-end, management investment companies, subject to
the limitations of Section 12(d)(1) of the Act, provided that any such
purchases will be limited to temporary investments in shares of unaffiliated
investment companies and the Investment Adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition; nor
(7) Invest more than 25% of their respective net assets in securities
of foreign governmental and foreign private issues that are denominated in and
pay interest in U.S. dollars.
Notwithstanding any other investment policy or limitation (whether or
not fundamental), the Fund may invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objective, policies and limitations as the Fund. A
decision to so invest all of its assets may, depending on the circumstances
applicable at the time, require approval of shareholders.
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "Management of the
Fund." The principal occupations during the past five years of the Directors
and principal executive Officer of the Company are listed below. The address
of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
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<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and Accountancy;
Associate Professor of
Finance of the School of
Business and Accounting at
Wake Forest University
since 1983.
*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
</TABLE>
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<TABLE>
<S> <C> <C>
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment Corporation;
and Co-Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $10,188 $39,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
</TABLE>
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<TABLE>
<S> <C> <C>
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company and
by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers of Overland
Express Funds, Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and
as trustees and/or officers of Stagecoach Trust, Master Investment Portfolio,
Life & Annuity Trust, Master Investment Trust and Managed Series Investment
Trust, each of which is a registered open-end management investment company and
each of which, prior to January 1, 1996 and the reorganization of Wells Fargo
Nikko Investment Advisors, a former affiliate of Wells Fargo, was considered to
be in the same "fund complex," as such term is defined in Form N-1A under the
1940 Act, as the Company. Effective January 1, 1996, the Company, Overland
Express Funds, Inc., Stagecoach Trust, Life & Annuity Trust and Master
Investment Trust are considered to be members of the same fund complex and are
no longer part of the same fund complex as MasterWorks Funds Inc., Master
Investment Portfolio and Managed Series Investment Trust. The Directors are
compensated by other companies and trusts within the fund complex for their
services as directors/trustees to such companies and trusts. Currently the
Directors do not receive any retirement benefits or deferred compensation from
the Company or any other member of the fund complex.
As of the date of this SAI, Directors and Officers of the Company
as a group beneficially owned less than 1% of the outstanding shares of the
Company.
Investment Adviser. The Fund has not engaged an investment adviser.
The Master Portfolio (which has the same investment objective as the Fund, and
in which the Fund invests all its assets) is advised by Wells Fargo. The
Advisory Contract provides that Wells Fargo shall furnish to the Master
Portfolio investment guidance and policy direction in connection with the daily
portfolio management of the Master Portfolio. Pursuant to the Advisory
Contract, Wells Fargo furnishes to the Board of Trustees of the Trust periodic
reports on the investment strategy and performance of the Master Portfolio.
For its services as investment adviser to the Master Portfolio, Wells Fargo is
entitled to receive a monthly fee at the annual rate of 0.60% of the Master
Portfolio's average daily net assets.
Wells Fargo has agreed to provide to the Master Portfolio, among other
things, money market security and fixed-income research, analysis and
statistical and economic data and information concerning interest rate and
security market trends, portfolio composition, credit conditions and average
maturities of the Master Portfolio.
The Advisory Contract will continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of the Master Portfolio's outstanding voting securities or by the Trust's Board
of Trustees and (ii) by a majority of the Trustees of the Trust who are not
parties to the Advisory Contract or "interested persons" (as defined in the
Act) of any such party. The Advisory Contract may
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be terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
Administrator and Distributor. The Company has retained Stephens as
administrator and distributor on behalf of the Fund. In addition, the Trust
has retained Stephens as administrator on behalf of the Master Portfolio.
Under the respective Administration Agreements with the Company and the Trust,
Stephens furnishes the Company and the Trust with office facilities, together
with those ordinary clerical and bookkeeping services that are not furnished by
Wells Fargo. Stephens also has entered into a Distribution Agreement with the
Company pursuant to which Stephens has the responsibility of distributing
shares of the Fund. For its services as administration to the Fund, Stephens
is entitled to receive a monthly fee at the annual rate of 0.05% of the Fund's
average daily net assets.
Custodian and Transfer and Dividend Disbursing Agent. Wells Fargo has
been retained to act as custodian and transfer and dividend disbursing agent
for the Fund and the Master Portfolio. The custodian, among other things,
maintains a custody account or accounts in the name of the Fund and the Master
Portfolio, receives and delivers all assets for the Fund and the Master
Portfolio upon purchase and upon sale or maturity, collects and receives all
income and other payments and distributions on account of the assets of the
Fund and the Master Portfolio and pays all expenses of the Fund and the Master
Portfolio. For its services as custodian, Wells Fargo is entitled to receive
fees as follows: a net asset charge at the annual rate of 0.0167%, payable
monthly, plus specified transaction charges. Wells Fargo also will provide
portfolio accounting services under the Custody Agreement as follows: a monthly
base fee of $2,000 plus a net asset fee at the annual rate of 0.070% of the
first $50,000,000 of the Fund's average daily net assets, 0.045% of the next
$50,000,000, and 0.020% of the average daily net assets in excess of
$100,000,000.
For its services as transfer and dividend disbursing agent for the
Fund, Wells Fargo is entitled to receive monthly payments at the annual rate of
0.07% of the Fund's average daily net assets.
Collective Investment Fund Management Fees. Prior to September 6,
1996, Wells Fargo provided management and administrative services to the
Collective Investment Fund. For these services Wells Fargo charged fees at an
annual rate of 0.75% of the Collective Investment Fund's average net assets.
Wells Fargo was also entitled to be reimbursed by the Collective Investment
Fund for expenses incurred on its behalf, excluding costs incurred in
establishing and organizing the Fund. The Collective Investment Fund was
entitled to pay up to 0.10% of its net assets for "Audit Expenses." There
were no sales charges. The Collective Investment Fund paid all brokerage
commissions incurred on its portfolio transactions.
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SERVICING PLAN
The Company's Board of Directors, on behalf of the Fund, adopted a
Servicing Plan ("Servicing Plan") on August 28 and 29, 1996, with respect to
each class of the Fund's shares. The Servicing Plan was approved by a majority
of the Directors who were not "interested persons" (as defined in the Act) of
the Fund and who had no direct or indirect financial interest in the operation
of the Servicing Plan or in any agreement related to the Servicing Plan (the
"Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Institutional Class Shares, the Fund may pay one or more
servicing agents, as compensation for performing certain services, a fee at an
annual rate of up to 0.25% of the average daily net assets of the Fund's
Institutional Class Shares attributable to the servicing agent's customers.
The actual fee payable to servicing agents is determined, within such limits,
from time to time by mutual agreement between the Company and each servicing
agent and will not exceed the maximum service fees payable by mutual funds sold
by members of the NASD under the NASD Rules of Fair Practice.
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in the Prospectus entitled "Investing in the Fund -- Share
Value" and "How the Fund Works -- Performance."
As indicated in the Prospectus, the Fund may advertise certain total
return information for a class of shares, computed in the manner described in
the Prospectus. As and to the extent required by the Commission, an average
annual compound rate of return ("T") will be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment in a class of shares ("P") over a period of years ("n") according to
the following formula: P(1+T)n = ERV. In addition, as indicated
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<PAGE> 11
in the Prospectus, the Fund also may, at times, calculate total return for a
class of shares based on net asset value per share (rather than the public
offering price), in which case the figures would not reflect the effect of any
sales charges that would have been paid by an investor, or would be based on
the assumption that a sales charge other than the maximum sales charge
(reflecting a Volume Discount) was assessed, provided that total return data
derived pursuant to the calculation described above also are presented.
In addition to the above performance information, the Fund may also
advertise the cumulative total return of a class. The cumulative total return
for such periods is based on the overall percentage change in value of a
hypothetical investment in a class of shares, assuming all dividends and
capital gain distributions are reinvested in shares of that class, without
reflecting the effect of any sales charge that would be paid by an investor,
and is not annualized.
Performance information may be advertised for non-standardized periods,
including year-to-date and other periods less than a year.
The total return information for the Institutional Class Shares
presented below and advertised by the Fund for the period prior to September
6, 1996, the date the Fund commenced operations, is based upon the prior
performance of the Collective Investment Fund. The performance information is
adjusted to reflect the current level of operating expenses applicable to the
Institutional Class Shares.
Average Annual Total Return
<TABLE>
<CAPTION>
Commencement of Commencement of
Operations to Year Ended Operations to
12/31/95 12/31/95 8/31/96
--------------- ---------- ---------------
<S> <C> <C>
64.79% 69.60% 52.13%
</TABLE>
- -------------------------
Cumulative Total Return
<TABLE>
<CAPTION>
Commencement of Commencement of Eight-Month
Operations to Operations to Period Ended
12/31/95 8/31/96 8/31/96
--------------- --------------- ------------
<S> <C> <C>
79.10% 115.80% 20.49%
</TABLE>
- -------------------------
9
<PAGE> 12
From time to time and only to the extent the comparison is appropriate
for a class of shares of the Fund, the Company may quote the performance or
price-earning ratio of a class of shares of the Fund in advertising and other
types of literature as compared to the performance of the 1-Year Treasury Bill
Rate, the S&P Index, the Dow Jones Industrial Average, the Lehman Brothers 20+
Years Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, Donoghue's
Money Fund Averages, Real Estate Investment Averages (as reported by the
National Association of Real Estate Investment Trusts), Gold Investment
Averages (provided by the World Gold Council), Bank Averages (which is
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the Federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices. The performance of a class of shares of the Fund
also may be compared to the performance of other mutual funds having similar
objectives. This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc., Bloomberg Financial Markets or Morningstar, Inc., independent services
which monitor the performance of mutual funds. The performance of a class of
shares of the Fund will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare the class' past performance with that of its competitors. Of course,
past performance cannot be a guarantee of future results. The Company also may
include, from time to time, a reference to certain marketing approaches of the
Distributor, including, for example, a reference to a potential shareholder
being contacted by a selected broker or dealer. General mutual fund statistics
provided by the Investment Company Institute may also be used.
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, 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."
10
<PAGE> 13
The Company also may use the following information in advertisements
and other types of literature, only to the extent the information is
appropriate for a class of shares of the Fund: (i) the Consumer Price Index
may be used to assess the real rate of return from an investment in a class of
shares of the Fund; (ii) other government statistics, including, but not
limited to, The Survey of Current Business, may be used to illustrate
investment attributes of a class of shares of the Fund or the general economic,
business, investment, or financial environment in which the Fund operates;
(iii) the effect of tax-deferred compounding on the investment returns of a
class of shares of the Fund, or on returns in general, may be illustrated by
graphs, charts, etc., where such graphs or charts would compare, at various
points in time, the return from an investment in a class of shares of the Fund
(or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and (iv) the sectors or industries in which the Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate the historical performance or current or
potential value of a class of shares of the Fund with respect to the particular
industry or sector.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company may also disclose in advertising and other types of
literature, information and statements the distribution rate on the shares of
each class of the Fund. Distribution rate is the amount determined by dividing
the dollar amount per share of the most recent dividend by the most recent NAV
per share.
The Company also may discuss in advertising and other types of
literature that the Fund has been assigned a rating by an NRSRO, such as S&P
or Moody's. Such rating would assess the creditworthiness of the investments
held by the 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 the
unavailability of, information relating to the Fund or its investments. The
Company may compare the performance of the Fund with other investments that are
assigned ratings by the NRSROs. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with other rated
investments.
The Company also may disclose, in advertising and other types of
literature, information and statements that the Company's investment adviser,
Wells Fargo, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the
11
<PAGE> 14
1994 edition of "America's Best Money Managers." The Nelson survey ranks the
performance of money managers in over 30 asset/style categories and is based on
analysis of performance composites and surveys of institutional money managers.
The Company may also disclose in advertising and other types of sales literature
the assets and categories of assets under management by the Company's investment
adviser and the total amount of assets under management by Wells Fargo
Investment Management Group ("IMG"). As of December 31, 1995, IMG had $30.1
billion in assets under management. The Company also may disclose in advertising
and other types of sales literature the amount of assets and mutual fund assets
managed by Wells Fargo Bank. As of June 30, 1996, Wells Fargo Bank and its
affiliates provided investment Advisory services for approximately $56 billion
of assets of individuals, trusts, estates and institutions and $17 billion of
mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or
through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section entitled "Investing in the Fund." Net asset value
per share for each class of the Fund and net asset value per unit of the Master
Portfolio are each determined by Wells Fargo on each day the Exchange is open
for trading as of the close of regular trading on the Exchange, which is
currently 1:00 p.m. Pacific time.
Securities of the Master Portfolio for which market quotations are
available are valued at latest prices. Any security for which the primary
market is an exchange is valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the latest bid price
quoted on such day. In the case of other securities, including U.S. Government
securities but excluding money market instruments maturing in 60 days or less,
the valuations are based on latest quoted bid prices. Money market instruments
maturing in 60 days or less are valued at amortized cost. The assets of the
Master Portfolio other than money market instruments maturing in 60 days or
less are valued at latest quoted bid prices. Prices may be furnished by a
reputable independent pricing service approved by the Board of Trustees.
Prices provided by an independent pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data. All other securities and other assets of the Master
Portfolio for which current market quotations are not readily available are
valued at fair value as determined in good faith by the Trust's Trustees and in
accordance with procedures adopted by the Trustees.
Expenses and fees, including advisory fees are accrued daily and are
taken into account for the purpose of determining the net asset value of the
Master Portfolio's interests and the Fund's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Funds as described
in the Prospectus. For further information about this form of payment please
contact Stephens. In
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<PAGE> 15
connection with an in-kind securities payment, the Funds will require, among
other things, that the securities be valued on the day of purchase in
accordance with the pricing methods used by a Fund and that such Fund receives
satisfactory assurances that (i) it will have good and marketable title to the
securities received by it; (ii) that the securities are in proper form for
transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption
payments for such periods as are permitted under the 1940 Act. The Company may
also redeem shares involuntarily or make payment for redemption in securities
or other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse
the Funds for any losses sustained by reason of the failure of a shareholders
to make full payment for shares purchased or to collect any charge relating to
a transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities by the Master Portfolio are usually
principal transactions. Portfolio securities normally are purchased or sold
from or to dealers serving as market makers for the securities at a net price.
The Master Portfolio also may purchase portfolio securities in underwritten
offerings and may purchase securities directly from the issuer. The cost of
executing the Master Portfolio's portfolio securities transactions consists
primarily of dealer spreads and underwriting commissions. Under the 1940 Act,
persons affiliated with the Trust are prohibited from dealing with the Trust as
a principal in the purchase and sale of securities unless an exemptive order or
other relief allowing such transactions is obtained from the SEC or an
exemption is otherwise available. The Master Portfolio may purchase securities
from underwriting syndicates of which Stephens or Wells Fargo is a member under
certain conditions in accordance with the provisions of a rule adopted under
the 1940 Act and in compliance with procedures adopted by the Board of
Trustees.
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Trust's Board of Trustees, Wells Fargo is responsible for
the Master Portfolio decisions and the placing of portfolio transactions. In
placing orders, it is the policy of the Trust
13
<PAGE> 16
to obtain the best overall terms taking into account the dealer's general
execution and operational facilities, the type of transaction involved and
other factors such as the dealer's risk in positioning the securities involved.
While Wells Fargo generally seeks reasonably competitive spreads or
commissions, the Master Portfolio will not necessarily be paying the lowest
spread or commission available.
In assessing the best overall terms available for any transaction,
Wells Fargo Bank considers factors deemed relevant, including the breadth of
the market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing
basis. Wells Fargo Bank may cause the Master Portfolio to pay a broker/dealer
which furnishes brokerage and research services a higher commission than that
which might be charged by another broker/dealer for effecting the same
transaction, provided that Wells Fargo Bank determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker/dealer, viewed in terms of either the
particular transaction or the overall responsibilities of Wells Fargo Bank.
Such brokerage and research services might consist of reports and statistics
relating to specific companies or industries, general summaries of groups of
stocks or bonds and their comparative earnings and yields, or broad overviews
of the stock, bond, and government securities markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by Wells Fargo Bank and does
not reduce the advisory fees payable by the Master Portfolio. The Board of
Trustees will periodically review the commissions paid by the Master Portfolio
to consider whether the commissions paid over representative periods of time
appear to be reasonable in relation to the benefits inuring to the Master
Portfolio. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies
or other accounts for which investment discretion is exercised. Conversely,
the Master Portfolio may be the primary beneficiary of the research or services
received as a result of portfolio transactions effected for such other account
or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided. . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to the Master Portfolio in any transaction may be less favorable than
that available from another broker/dealer if the difference is reasonably
justified by other aspects of the portfolio execution services offered.
Broker/dealers utilized by Wells Fargo Bank may furnish statistical,
research and other information or services which are deemed by Wells Fargo Bank
to be beneficial to the Master Portfolio's investment programs. Research
services received from brokers supplement Wells Fargo Bank's own research and
may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services to Wells Fargo Bank and to the
Trust's Trustees with respect to the performance, investment activities and
fees and expenses of other mutual Funds. Such information may be communicated
electronically, orally or in written form. Research
14
<PAGE> 17
services may also include the providing of equipment used to communicate
research information, the arranging of meetings with management of companies
and the providing of access to consultants who supply research information.
The outside research assistance is useful to Wells Fargo Bank since the
brokers utilized by Wells Fargo Bank as a group tend to follow a broader
universe of securities and other matters than the staff of Wells Fargo Bank can
follow. In addition, this research provides Wells Fargo Bank with a diverse
perspective on financial markets. Research services which are provided to
Wells Fargo Bank by brokers are available for the benefit of all accounts
managed or advised by Wells Fargo Bank. It is the opinion of Wells Fargo Bank
that this material is beneficial in supplementing their research and analysis;
and, therefore, it may benefit the Master Portfolio by improving the quality
of Wells Fargo Bank's investment advice. The advisory fees paid by the Master
Portfolio are not reduced because Wells Fargo Bank receives such services.
Portfolio Turnover. Portfolio turnover generally involves some
expenses to the Master Portfolio, including brokerage commissions or dealer
mark-ups and other transactions costs on the sale of securities and the
reinvestment in other securities. A high portfolio turnover rate should not
result in the Master Portfolio paying substantially more brokerage commissions,
since most transactions in government securities and municipal securities are
effected on a principal basis. Portfolio turnover also can generate short-term
capital gains tax consequences. The portfolio turnover rate will not be a
limiting factor when Wells Fargo deems portfolio changes appropriate.
FEDERAL INCOME TAX
The following information supplements and should be read in conjunction
with the Prospectus sections entitled "Dividends" and "Taxes." The Prospectus
describes generally the tax treatment of distributions by the Company. This
section of the SAI includes additional information concerning federal income
tax.
Qualification of the Fund as a regulated investment company under the
Code requires, among other things, that (i) the Fund derive (a) at least 90% of
its annual gross income from interest, payments with respect to securities
loans, dividends and gains from the sale or other disposition of securities or
options thereon; (ii) the Fund derive less than 30% of its gross income from
gains from the sale or other disposition of securities or options thereon held
for less than three months; and (iii) the Fund diversify its holdings so that,
at the end of each quarter of the taxable year, (a) 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 (b) not more than 25% of the value of the Fund's assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are engaged in the same
or similar
15
<PAGE> 18
trades or businesses. As a regulated investment company, the Fund will not be
subject to federal income tax on its net investment income and net capital
gains distributed to its shareholders, provided that it distributes to its
stockholders at least 90% of the sum of its net investment income and net
tax-exempt income earned in each year.
A 4% nondeductible excise tax will be imposed on the Fund to the extent
it does not meet certain minimum distribution requirements by the end of each
calendar year. For this purpose, any income or gain retained by the Fund that
is subject to income tax will be considered to have been distributed by
year-end. In addition, dividends and distributions declared payable as of a
record date in October, November or December of any calendar year are deemed
under the Code to have been distributed by the Fund and received by the
shareholders on December 31 of that calendar year if the dividend is actually
paid no later than January 31 of the following year. Such dividends will,
accordingly, be subject to income tax for the year in which the record date
falls. The Fund intends to distribute substantially all of its net investment
income and net capital gains and, thus, expects to avoid the excise tax.
Income and dividends received by the Fund from sources within foreign
countries may be subject to withholding and other taxes (generally at rates
from 10% to 40%) imposed by such countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Because
the Fund does not expect to hold more than 50% of the value of its total assets
in securities of foreign issuers, the Fund does not expect to be eligible to
elect to "pass through" foreign tax credits to shareholders.
The Master Portfolio will be treated as a non-publicly traded
partnership rather than as a regulated investment company or a corporation
under the Code. As a non-publicly traded partnership under the Code, any
interest, dividends and gains or losses of the Master Portfolio will be deemed
to have been "passed through" to the Fund and other investors in the Master
Portfolio, regardless of whether such interest, dividends or gains have been
distributed by the Master Portfolio or losses have been realized by the Fund
and other investors. Therefore, to the extent the Master Portfolio were to
accrue but not distribute any interest, dividends or gains, or accrue losses,
the Fund would be deemed to have realized and recognized its proportionate
share of interest, dividends, gains or losses without receipt of any
corresponding distribution. However, the Trust will seek to minimize
recognition by investors of interest, dividends, gains or losses without a
corresponding distribution.
Gains or losses on sales of portfolio securities by the Master
Portfolio will be long-term capital gains or losses if the securities have been
held by it for more than one year, except in certain cases including the case
where the Master Portfolio acquires a put or writes a call thereon. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. To the extent that the Fund recognizes long-term capital gains, such
gains will be distributed at least annually. Such distributions will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares. Such distributions will be designated as
capital gain distributions in a written
16
<PAGE> 19
notice mailed by the Fund to shareholders not later than 60 days after the
close of the Fund's taxable year. If a shareholder receives such a designated
capital gain distribution (to be treated by the shareholder as a long-term
capital gain) with respect to any Fund share and such Fund share is held for
six months or less, then (unless otherwise disallowed) any loss on the sale or
exchange of that Fund share will be treated as a long-term capital loss to the
extent of the designated capital gain distribution. Gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by the Master Portfolio at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent such accrued market discount had not been
previously included as taxable income during the period of time the Master
Portfolio held the debt obligation.
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (effective rates may be higher for some
individuals due to phase out of exemptions and eliminations of deductions); the
maximum individual marginal tax rate applicable to net capital gains is 28%;
and the maximum marginal corporate tax rate applicable to ordinary income and
net capital gains is 35% (except that to eliminate the benefit of lower
marginal corporate income tax rates, corporations which have taxable income in
excess of $100,000 for a taxable year will be required to pay an additional
amount of income tax up to $11,750 on taxable income exceeding $100,000 in a
taxable year and corporations which have taxable income in excess of
$15,000,000 for a taxable year will be required to pay an additional tax of up
to $100,000). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for
example, deductions, credits, deferrals, exemptions, sources of income and
other matters.
If a shareholder exchanges or otherwise disposes of shares of the Fund
within 90 days of having acquired such shares and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
for shares of the Fund or of a different fund, the sales charge previously
incurred in acquiring the Fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.
Also, any loss realized on a redemption or exchange of shares of the
Fund will be disallowed to the extent that substantially identical shares are
reacquired within the 61-day period beginning 30 days before and ending 30 days
after the shares are disposed of.
If, in the opinion of the 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.
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<PAGE> 20
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation, or foreign partnership (a
"foreign shareholder") will be subject to U.S. withholding tax (at a rate of
30% or a lower treaty rate). Withholding will not apply if a dividend paid by
the Fund to a foreign shareholder is "effectively connected" with a U.S. trade
or business, in which case the reporting and withholding requirements
applicable to U.S. citizens, U.S. residents or domestic corporations will
apply. Distributions of net long-term capital gains are not subject to tax
withholding, but in the case of a foreign shareholder who is a nonresident
alien individual, such distributions ordinarily will be subject to U.S. income
tax at a rate of 30% if the individual is physically present in the U.S. for
more than 182 days during the taxable year.
Other Matters. Investors should be aware that the investments to be
made by the Master Portfolio may involve sophisticated tax rules such as marked
to market rules that would result in income or gain recognition by the Master
Portfolio without corresponding current cash receipts. Although the Master
Portfolio will seek to avoid significant noncash income, such noncash income
could be recognized by the Master Portfolio, in which case the Master Portfolio
may distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Fund, the Master Portfolio and
Management."
The Company, an open-end management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 48,000,000,000 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 twenty-four series of shares, each representing an
interest in one of the following funds -- the Aggressive Growth, Arizona
Tax-Free, Asset Allocation, Balanced, California Tax-Free Bond, California
Tax-Free Income, California Tax- Free Money Market Mutual, Corporate Stock,
Diversified Income, Equity Value, Ginnie Mae, Government Money Market Mutual,
Growth and Income, Intermediate Bond, Money Market Mutual, Money Market Trust,
National Tax-Free, National Tax-Free Money Market Mutual, Oregon Tax-Free,
Prime Money Market Mutual, Short-Intermediate U.S. Government Income, Small
Cap, Treasury Money Market Mutual and U.S. Government Allocation Funds -- and
the Board of Directors may, in the future, authorize the issuance of other
series of capital stock representing shares of additional investment
portfolios.
The Fund is comprised of three classes of shares, Class A Shares, Class
B Shares and Institutional Class shares. With respect to matters that affect
one class but not another, shareholders vote as a class; for example, the
approval of a Plan. Subject to the foregoing, on any matter submitted to a
vote of shareholders, all shares then entitled to
18
<PAGE> 21
vote will be voted separately by portfolio unless otherwise required by the
Act, in which case all shares will be voted in the aggregate. For example, a
change in the Fund's fundamental investment policies would be voted upon only
by shareholders of the Fund and not shareholders of the Company's other
investment portfolios. Additionally, approval of an advisory contract is a
matter to be determined separately by the Fund. Approval by the shareholders
of one portfolio is effective as to that portfolio whether or not sufficient
votes are received from the shareholders of the other portfolios to approve the
proposal as to those portfolios. As used in the Prospectus and in this
Statement of Additional Information, the term "majority," when referring to
approvals to be obtained from shareholders of a class of the Fund, means the
vote of the lesser of (i) 67% of the shares of such class of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of such class of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of such class of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders of
the Company as a whole, means the vote of the lesser of (i) 67% of the
Company's shares represented at a meeting if the holders of more than 50% of
the Company's outstanding shares are present in person or by proxy, or (ii)
more than 50% of the Company's outstanding shares. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares
held.
The Company may dispense with annual meetings of shareholders in any
year in which it is not required to elect directors under the Act. However,
the Company undertakes 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 of 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 Act.
Each share of a class of the Fund represents an equal proportional
interest in the Fund with each other share of the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of the
Fund are entitled to receive the assets attributable to the Fund that are
available for distribution, and a distribution of any general assets not
attributable to the Fund that are available for distribution in such manner and
on such basis as the Directors in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Company.
The Trust is a business trust organized under the laws of Delaware. In
accordance with Delaware law and in connection with the tax treatment sought by
the Trust, the Trust's Declaration of Trust provides that its investors would
be personally responsible for Trust liabilities and obligations, but only to
the extent the Trust property is insufficient to satisfy such liabilities and
obligations. The Declaration of Trust also provides that the Trust shall
maintain appropriate insurance (for example, fidelity bonding
19
<PAGE> 22
and errors and omissions insurance) for the protection of the Trust,
its investors, Trustees, officers, employees and agents covering
possible tort and other liabilities, and that investors will be
indemnified to the extent they are held liable for a disproportionate
share of Trust obligations. Thus, the risk of an investor incurring
financial loss on account of investor liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations.
The Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of
the Trust and that the Trustees will not be liable for any action or failure to
act. However, nothing in the Declaration of Trust protects a Trustee against
any liability to which the Trustee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the Trustee's office.
The interests in the Master Portfolio have substantially identical
voting and other rights as those rights enumerated above for Fund shares. The
Trust also intends to dispense with annual meetings, but will hold a special
meeting and assist investor communications under the circumstances described
above with respect to the Company in accord with provisions under Section 16(c)
of the Act. Whenever the Fund is requested to vote on a matter with respect to
the Master Portfolio, the Fund will hold a meeting of Fund shareholders and
will cast its votes as instructed by such shareholders. In a situation where
the Fund does not receive instruction from certain of its shareholders on how
to vote the corresponding shares of the Master Portfolio, the Fund will vote
such shares in the same proportion as the shares for which the Fund does
receive voting instructions.
As of September 6, 1996, Stephens owned approximately 99% of the
outstanding Institutional Class Shares of the Fund and such could be considered
a "control person" of the Fund for purposes of the 1940 Act. However, upon
commencement of the initial public offering of the Fund's shares, it is
expected that Stephens will own a significantly smaller percentage of the
Fund's outstanding voting securities and will no longer be considered a control
person of the Fund.
OTHER
The Registration Statements of the Trust and the Company, including the
Fund's Prospectus, the SAI and the exhibits filed therewith, may be examined at
the office of the Commission in Washington, D.C. Statements contained in the
Prospectus or the SAI as to the contents of any contract or other document
referred to herein or in the Prospectus are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
20
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INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for
the Company and the Trust. KPMG Peat Marwick LLP provides audit services, tax
return preparation and assistance and consultation in connection with review of
certain Securities & Exchange Commission filings. KPMG Peat Marwick LLP's
address is Three Embarcadero Center, San Francisco, California 94111.
FINANCIAL INFORMATION
The portfolio of investments, audited financial statements and
independent auditors' reports for the Company's other Funds are contained in
the Company's Annual Reports which are available by calling 1-800-222-8222.
21
<PAGE> 24
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.
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+."
A-1
<PAGE> 25
Commercial paper with a strong capacity for timely payments on issues will be
rated "A-2."
A-2
<PAGE> 26
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
Dated September 6, 1996
as Supplemented on September 24, 1996
PRIME MONEY MARKET MUTUAL FUND
TREASURY MONEY MARKET MUTUAL FUND
Service Class
---------------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end investment
company. This Statement of Additional Information ("SAI") contains information
about two of the funds in the Stagecoach Family of Funds -- the PRIME MONEY
MARKET MUTUAL FUND and the TREASURY MONEY MARKET MUTUAL FUND (each a "Fund" and
collectively, the "Funds"). The Funds offer three classes of shares -- Class
A, Institutional and Service shares. This SAI relates only to the Service
class of shares ("Service Class shares") of the Funds. The investment
objective of each Fund is described in its Prospectus under the section
entitled "How the Funds Work -- Investment Objectives and Policies."
This SAI is not a prospectus and should be read in conjunction
with each Fund's Prospectus dated September 6, 1996. All terms used in this
SAI that are defined in the Prospectus for each Fund will have the meanings
assigned in that Fund's Prospectus. A copy of the Prospectus for each Fund may
be obtained without charge by writing Stephens Inc., the Company's sponsor,
administrator and distributor, at 111 Center Street, Little Rock, Arkansas
72201 or calling the Transfer Agent at the telephone number indicated above.
---------------------------------
<PAGE> 27
TABLE OF CONTENTS
Page
----
General . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . 1
Additional Permitted Investment Activities . . . . . 5
Management . . . . . . . . . . . . . . . . . . . . . 8
Servicing Plans . . . . . . . . . . . . . . . . . . . 14
Performance Calculations . . . . . . . . . . . . . . 15
Determination of Net Asset Value . . . . . . . . . . 18
Additional Purchase and Redemption Information . . . 20
Portfolio Transactions . . . . . . . . . . . . . . . 20
Federal Income Tax . . . . . . . . . . . . . . . . . 22
Capital Stock . . . . . . . . . . . . . . . . . . . . 23
Other . . . . . . . . . . . . . . . . . . . . . . 27
Independent Auditors . . . . . . . . . . . . . . . . 27
Financial Information . . . . . . . . . . . . . . . . 28
Appendix . . . . . . . . . . . . . . . . . . . . . . A-1
i
<PAGE> 28
GENERAL
Stagecoach Funds, Inc. (the "Company" and, at times, "Stagecoach") is
an open-end management investment company offering shares in separately managed
investment portfolios. The Prime Money Market Mutual Fund operated as Pacific
American Liquid Assets, Inc. from commencement of operations on April 30, 1981
until it was reorganized as a portfolio of Pacific American Fund on October 1,
1985; on October 1, 1994, it was reorganized as the Pacific American Money
Market Portfolio of Pacifica; and, in July of 1995, it was renamed the Pacifica
Prime Money Market Fund. Prior to August 1, 1990, the Treasury Money Market
Mutual Fund was known as the Short-Term Government Fund and invested in
obligations issued or guaranteed by agencies and instrumentalities of the U.S.
Government in accordance with fundamental policies that were then effective for
the Fund. The Fund operated as a portfolio of Pacific American Fund through
October 1, 1994, when it was reorganized as the Pacific American U.S. Treasury
Portfolio, a portfolio of Pacifica Funds Trust. In July 1995, the Fund was
renamed the Pacifica Treasury Money Market Fund.
On April 25, 1996, the Agreement and Plan of Reorganization of
Pacifica with Stagecoach, and the creation of each Fund as a new fund of
Stagecoach were approved by the Company's Board of Directors. On May 17, 1996,
the Agreement and Plan of Reorganization of Pacifica with Stagecoach was
approved by Pacifica's Board of Trustees. As part of the recent Reorganization
of Pacifica with Stagecoach (the "Reorganization"), each of the following
portfolios of Pacifica was reorganized as the specified Stagecoach Fund:
PACIFICA FUNDS TRUST PORTFOLIO NAME STAGECOACH FUND NAME
- ----------------------------------- --------------------
Pacifica Prime Money Market Fund Prime Money Market Mutual Fund
Pacifica Treasury Money Market Fund Treasury Money Market Mutual Fund
INVESTMENT RESTRICTIONS
The Prospectuses summarize certain fundamental investment restrictions
that have been adopted for the Funds. All of the Funds' restrictions are
stated in full herein and cannot be changed with respect to a Fund without
approval by the holders of a majority, as defined in the 1940 Act, of the
Fund's outstanding voting shares.
The Funds are subject to the following investment restrictions, all of
which are fundamental policies, unless expressly indicated otherwise.
The Funds may not:
1
<PAGE> 29
1. Purchase common stocks, and with respect to the Treasury Money
Market Mutual Fund, voting securities, (with respect to the Prime Money Market
Mutual Fund including preferred stocks, warrants or other equity securities
and, with respect to the Treasury Money Market Mutual Fund, including state,
municipal or industrial revenue bonds) except for securities of other
investment companies.
2. Borrow money or issue senior securities, except that a Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of its total assets at the
time of such borrowing. Neither Fund will purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. As a matter of non-fundamental policy, each Fund
intends to limit its investments in reverse repurchase agreements to no more
than 20% of its total assets and will only engage in such transactions with
primary reporting dealers.
3. Mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of one-third of the value
of a Fund's total assets at the time of its borrowing. Securities held in
escrow or separate accounts in connection with a Fund's investment practices
are not deemed to be pledged for purposes of this investment restriction.
4. Purchase securities on margin, except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for the
clearance of transactions; or make short sales of securities or, for the
Treasury Money Market Mutual Fund, maintain a short position.
5. Write put or call options.
6. Underwrite the securities of other issuers, except as a Fund may
be deemed to be an underwriter in connection with the purchase or sale of
portfolio instruments in accordance with its investment objective and portfolio
management policies.
7. Invest in companies for the purpose of exercising control.
8. Make loans, except that a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies and may
enter into loans of portfolio securities and repurchase agreements.
9. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation, acquisition of assets or
where otherwise permitted by the 1940 Act.
10. Lend its portfolio securities in excess of one-third of the value
of its total assets.
As a non-fundamental policy, any loans of portfolio securities will be
made according to guidelines established by the SEC and the Company's Board of
Directors, including maintenance of collateral of the borrower equal at all
times to at least the current market value of the securities loaned.
2
<PAGE> 30
11. Purchase the securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(with respect to the Treasury Money Market Mutual Fund, such obligations only
include U.S. Treasury obligations) and repurchase agreements secured by such
obligations, if immediately after such purchase more than 5% of the value of a
Fund's total assets would be invested in such issuer, except that up to 25% of
the value of its total assets may be invested in any securities without regard
to this 5% limitation.
12. Purchase any securities that cause 25% or more of the value of a
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry, provided that there is no limitation with respect to: (a) instruments
that are issued or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions; (b) with
respect to the Prime Money Market Mutual Fund, instruments issued or guaranteed
by U.S. banks and U.S. branches of foreign banks (provided that, with respect
to U.S. branches of foreign banks, such branches are subject to the same
regulations as domestic branches of U.S. banks and, with respect to foreign
branches of U.S. banks, the domestic parent is unconditionally liable in the
event that the foreign branch fails to pay on its instruments for any reason);
and (c) repurchase agreements secured by the instruments described in clause
(a) and, with respect to the Prime Money Market Mutual Fund, clause (b).
The Prime Money Market Mutual Fund may not:
Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil or gas interests, but this
restriction shall not prevent the Fund from investing directly or indirectly in
instruments secured by real estate or interests therein.
The Treasury Money Market Mutual Fund may not:
1. Purchase or sell real estate.
2. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in the
value of a Fund's investments will not constitute a violation of such
limitation, except that any borrowing by a Fund that exceeds the fundamental
investment limitations stated above must be reduced to meet such limitations
within the period required by the 1940 Act (currently three days) and the Funds
will not at any time hold more than 15% of their net assets in illiquid
securities. Otherwise, a Fund may continue to hold a security even though it
causes the Fund to exceed a percentage limitation because of fluctuation in the
value of the Fund's assets.
3
<PAGE> 31
In addition, in accordance with current SEC regulations, the Funds
intend, as a non-fundamental policy, to limit their respective investments in
the securities of any single issuer (other than securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements collateralized by such securities) to not more than 5% of the value
of their respective total assets at the time of purchase, except for 25% of the
value of their respective total assets which may be invested in any one issuer
for a period of up to three business days.
The Company may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Fund shares in certain
states. Should the Company determine that such a commitment is no longer in the
best interests of the Fund involved and its shareholders, the Company reserves
the right to revoke the commitment by terminating the sale of Fund shares in
the state involved.
Pursuant to state securities regulations, the Treasury Money Market
Mutual Fund has undertaken the following non-fundamental investment limitation:
the Fund will not purchase warrants, valued at the lower of cost or market, in
excess of 5% of the value of its net assets (included within that amount, but
not to exceed 2% of the value of the Fund's net assets, may be warrants that
are not listed on the New York or American Stock Exchanges) except that
warrants acquired by the Fund at any time in units or attached to securities
are not subject to this limitation. Investors should note, however, that
neither Fund currently intends to purchase any warrants whatsoever, or to
acquire any put option that may be sold, transferred or assigned separately
from the underlying security.
As a non-fundamental investment policy: each Fund currently intends to
limit its investments in securities issued by other investment companies so
that, as determined immediately after a purchase of such securities is made:
(i) not more than 5% of the value of the Fund's total assets will be invested
in the securities of any one investment company; (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (iii) not more than 3% of the outstanding
voting securities of any one investment company will be owned by a Fund or by
the Company as a whole.
For purposes of determining industry classifications of issuers,
wholly-owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents, and utilities will be classified according to their
services (for example, gas, gas transmission, electric and gas, and electric
and telephone each will be considered a separate industry). In accordance with
the current views of the staff of the SEC and as a matter of nonfundamental
policy that may be changed without a vote of shareholders, a Fund will treat
all supranational organizations as a single industry and each foreign
government (and all of its agencies) as a separate industry.
4
<PAGE> 32
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
A description of the securities in which each of the Funds may invest
is set forth in their Prospectuses, to which reference is hereby made.
Additional information about these instruments follows.
Loans of Portfolio Securities. The Prime Money Market Mutual Fund may
lend its securities to brokers, dealers and financial institutions, provided
(1) the loan is secured continuously by collateral consisting of cash, U.S.
Treasury securities, or other U.S. Government securities or a letter of credit
which is marked to market daily to ensure that each loan is fully
collateralized at all times; (2) the Fund may at any time call the loan and
obtain the return of the securities loaned within five business days; (3) the
Fund will receive any interest or dividends paid on the securities loaned; and
(4) the aggregate market value of securities loaned will not at any time exceed
one-third of the total assets of the Fund. The Fund may earn income in
connection with securities loans either through the reinvestment of the cash
collateral or the payment of fees by the borrower. The Treasury Money Market
Mutual Fund does not currently intend to lend its portfolio securities.
Repurchase Agreements. Each Fund may engage in a repurchase agreement
with respect to any security in which that Fund is authorized to invest,
including U.S. Treasury STRIPS, although the underlying security may mature in
more than thirteen months. Each Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price that involves the
acquisition by a Fund of an underlying debt instrument, subject to the seller's
obligation to repurchase, and such Fund's obligation to resell, the instrument
at a fixed price usually not more than one week after its purchase. The Fund's
custodian has custody of, and holds in a segregated account, securities
acquired as collateral by a Fund under a repurchase agreement. Repurchase
agreements are considered by the staff of the SEC to be loans by the Fund. The
Funds may enter into repurchase agreements only with respect to securities of
the type in which such Fund may invest, including government securities and
mortgage-related securities, regardless of their remaining maturities, and
requires that additional securities be deposited with the custodian if the
value of the securities purchased should decrease below resale price. Wells
Fargo Bank monitors on an ongoing basis the value of the collateral to assure
that it always equals or exceeds the repurchase price. Certain costs may be
incurred by a Fund in connection with the sale of the underlying securities if
the seller does not repurchase them in accordance with the repurchase
agreement. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the securities, disposition of the securities by a Fund may be
delayed or limited. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delay and costs to a
Fund in connection with insolvency proceedings), it is the policy of each Fund
to limit repurchase agreements to selected creditworthy securities dealers or
domestic banks or other recognized financial institutions. Each Fund considers
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements. Repurchase agreements are considered to be
loans by a Fund under the Investment Company Act of 1940 (the "1940 Act").
Floating- and Variable-Rate Obligations. The Funds may purchase floating-
and variable-rate
5
<PAGE> 33
obligations as described in the prospectuses. Each Fund may purchase floating-
and variable-rate demand notes and bonds, which are obligations ordinarily
having stated maturities in excess of thirteen months, but which permit the
holder to demand payment of principal at any time, or at specified intervals
not exceeding thirteen months. Variable rate demand notes include master
demand notes that are obligations that permit a Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to direct
arrangements between the Fund, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of such obligations
ordinarily has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of such
obligations. The interest rate on a floating-rate demand obligation is based
on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, a Fund's
right to redeem is dependent on the ability of the borrower to pay principal
and interest on demand. Such obligations frequently are not rated by credit
rating agencies and each Fund may invest in obligations which are not so rated
only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which such
Fund may invest. Wells Fargo Bank, on behalf of each Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. No Fund will invest
more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable within
seven days. Such obligations may be treated as liquid, provided that an active
secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
Transactions. Each Fund may purchase securities on a when-issued or forward
commitment (sometimes called a delayed-delivery) basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. A
Fund will make commitments to purchase such securities only with the intention
of actually acquiring the securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. The Fund will not accrue
income in respect of a security purchased on a forward commitment basis prior
to its stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in a Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or
6
<PAGE> 34
forward commitment basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself. A segregated account of each
Fund consisting of cash or U.S. Government obligations or other high quality
liquid debt securities at least equal at all times to the amount of the
when-issued or forward commitments will be established and maintained at the
Funds' custodian bank. Purchasing securities on a forward commitment basis
when a Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of such Fund's total net assets and its net asset
value per share. In addition, because a Fund will set aside cash and other
high quality liquid debt securities as described above the liquidity of the
Fund's investment portfolio may decrease as the proportion of securities in the
Fund's portfolio purchased on a when-issued or forward commitment basis
increases.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining a Fund's net asset value
starting on the day the Fund agrees to purchase the securities. A Fund does not
earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When a Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
Rule 144A. It is possible that unregistered securities, purchased by the
Prime Money Market Mutual Fund in reliance upon Rule 144A under the Securities
Act of 1933, could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
period, uninterested in purchasing these securities.
General. The assets of each of the Funds consist only of obligations
maturing within thirteen months from the date of acquisition (as determined in
accordance with the regulations of the SEC), and the dollar-weighted average
maturity of each Fund may not exceed 90 days.
The securities in which each Fund may invest will not yield as high a
level of current income as may be achieved from securities with less liquidity
and less safety. There can be no assurance that each Fund's investment
objective will be realized as described in the Funds' Prospectuses.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Adviser, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund involved should continue to hold the security in accordance
with the interests of the Fund and applicable regulations of the SEC.
7
<PAGE> 35
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy; Associate
Professor of Finance
of the School of Business
and Accounting at
Wake Forest University
since 1983.
*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource Management.
8
<PAGE> 36
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor; Real Estate
10 Legrae Street Developer; Chairman
Charleston, SC 29401 of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 4 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
COMPENSATION TABLE
For the Year Ended December 31, 1995
------------------------------------
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ------------------------- ------------------
Jack S. Euphrat $10,188 $39,750
Director
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
9
<PAGE> 37
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
Directors of the Company are compensated annually by the Company and by
all the registrants in the fund complex for their services as indicated above
and also are reimbursed for all out-of-pocket expenses relating to attendance
at board meetings. Each of the Directors and Officers of the Company serves in
the identical capacity as directors and officers of Overland Express Funds,
Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and as trustees
and/or officers of Stagecoach Trust, Master Investment Portfolio, Life &
Annuity Trust, Master Investment Trust and Managed Series Investment Trust,
each of which is a registered open-end management investment company and each
of which, prior to January 1, 1996 and the reorganization of WFNIA, was
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. Effective January 1, 1996,
MasterWorks Funds, Inc., Master Investment Portfolio, and Managed Series
Investment Trust are considered to be members of the same fund complex and are
no longer part of the same fund complex as Stagecoach Funds, Inc., Overland
Express Funds, Inc., Stagecoach Trust, Life & Annuity Trust and Master
Investment Trust. The Directors are compensated by other companies and trusts
within the fund complex for their services as directors/trustees to such
companies and trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of the
fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
Investment Adviser. The Funds are advised by Wells Fargo Bank pursuant
to an advisory contract for each Fund under which Wells Fargo Bank has agreed
to furnish investment guidance and policy direction in connection with the
daily portfolio management of the Fund. On behalf of each Fund, the Company's
Board of Directors approved the advisory contracts with Wells Fargo Bank on
April 25, 1996, for an initial two-year period. Pursuant to the advisory
contracts, Wells Fargo Bank also has agreed to furnish to the Board of
Directors periodic reports on the investment strategy and performance of each
Fund.
10
<PAGE> 38
Wells Fargo Bank has agreed to provide to the Funds, among other things, money
market and fixed-income research, analysis and statistical and economic data
and information concerning interest-rate and security market trends, portfolio
composition, credit conditions and, average maturities of each Fund. As
compensation for its advisory services, Well Fargo Bank is entitled to receive
a monthly fee at the annual rates of 0.25% of the average daily value of each
Fund's net assets during the preceding month.
The advisory contracts continue in effect for more than two years
provided the continuance is approved annually (i) by the holders of a majority
of a Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the 1940 Act)
of any such party. The advisory contracts may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
Prior to the Reorganization, Wells Fargo Investment Management, Inc.
("WFIM") and its predecessor, First Interstate Capital Management, Inc.
("FICM") served as former adviser to the predecessor portfolios of Pacifica.
For the six-month period beginning October 1, 1995 and ending March 31, 1996,
WFIM/FICM were entitled to receive, and waived or reimbursed advisory fees paid
by the predecessor portfolios to the Funds as follows:
Investment Advisory Fees
<TABLE>
<CAPTION>
Fees Waived and
Fees Earned Expenses Reimbursed
Six-Month Period Six-Month Period Ended
FUND Ended March 31, 1996 Ended March 31, 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime Money Market Mutual $812,609 $916,740
Treasury Money Market Mutual $1,136,476 $1,132,651
</TABLE>
During the fiscal year ended September 30, 1995, the six-month period
ended September 30, 1994 and the fiscal years ended March 31, 1994 and 1993,
the advisory fees paid to the former adviser by the predecessor portfolios of
the Prime Money Market Mutual Fund and the Treasury Money Market Mutual Fund
were as follows:
Investment Advisory Fees Paid*
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994 Mar. 31, 1994 Mar. 31, 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Money Market Mutual $693,315 $330,715 $737,811 $640,620
Treasury Money Market Mutual $1,160,424 $454,029 $900,919 $629,121
</TABLE>
*These amounts reflect voluntary fee waivers and expense reimbursements
by the adviser. Prior to October 1, 1994, all of these fees were, in turn,
paid by the adviser to its affiliates which served as investment sub-advisers
during the periods indicated.
11
<PAGE> 39
Administrator and Distributor. The Company has retained Stephens as
administrator and distributor on behalf of each Fund. Under the Administration
Agreement between Stephens and the Company on behalf of each Fund, Stephens
agreed to provide as administrative services, among other things: (i) general
supervision of the operation of a Fund, including coordination of the services
performed by a 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 a 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 a Fund together with those ordinary clerical and bookkeeping
services that are not furnished by Wells Fargo Bank. Stephens also pays the
compensation of the Company's Directors, Officers and employees who are
affiliated with Stephens. The Administration Agreement and the Amended
Distribution Agreement were approved by the Company's Board of Directors on
April 25, 1996.
Prior to April 1, 1996, the Dreyfus Corporation ("Dreyfus") provided
management and administrative services necessary for the operation of the
Funds, pursuant to an Administrative Services Contract. For these services,
Dreyfus was entitled to receive a fee, payable monthly, at the annual rate of
0.10% of the average daily net assets of the predecessor portfolios. The
following table reflects the administration fees to which Dreyfus was entitled,
and the amounts of fee waivers, during the indicated period:
<TABLE>
<CAPTION>
Administration Fees
-------------------
Fees Earned Fees Waived
Period Ended Period Ended
FUND March 31, 1996 Ended March 31, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime Money Market Mutual $677,174 $0
Treasury Money Market Mutual $947,063 $0
</TABLE>
During the fiscal year ended September 30, 1995, the six-month period ended
September 30, 1994 and the fiscal years ended March 31, 1994 and 1993, the
administration fees paid to Dreyfus by the Prime Money Market Mutual Fund and
the Treasury Money Market Mutual Fund were as follows:
Administration Fees Paid
<TABLE>
<CAPTION>
Year Ended Period Ended Year Ended Year Ended
FUND Sept. 30, 1995 Sept. 30, 1994 Mar. 31, 1994 Mar. 31, 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Money Market Mutual $577,763 $275,596 $614,901 $533,850
Treasury Money Market Mutual $921,886 $347,499 $690,137 $524,268
</TABLE>
12
<PAGE> 40
The advisory contracts and administration agreement for the Funds provide
that if, in any fiscal year, the total expenses of a Fund incurred by, or
allocated to, such 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 applicable advisory contract and the administration
agreement) exceed the most restrictive expense limitation applicable to a Fund
imposed by the securities laws or regulations of the states in which the Fund's
shares are registered for sale, Wells Fargo Bank and Stephens shall waive their
fees proportionately under the advisory contract and the administration
agreement, respectively, for the Fund for the fiscal year to the extent of the
excess or reimburse the excess, but only to the extent of their respective
fees. The advisory contracts and the administration agreement for the Funds
further provide that a 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. Currently,
California is the only state imposing limitations on the expenses of the Funds.
Those expense limitations are 2-1/2 percent of the first $30 million of a
Fund's average net assets, 2 percent of the next $70 million and 1-1/2 percent
of a Fund's remaining average net assets.
Shareholder Servicing Agent. As discussed in each Fund's Prospectus
under the heading "Shareholder Servicing Agent," the Funds approved Servicing
Plans and have entered into related Shareholder Servicing Agreements with
financial institutions, including Wells Fargo Bank. For providing these
services, a Servicing Agent is entitled to a fee from the applicable Fund, not
to exceed 0.25%, on an annualized basis, of the average daily net assets of the
class of shares owned of record or beneficially by the customers of the
Servicing Agent during the period for which payment is being made. The
Servicing Plans and related form of shareholder servicing agreement were
approved by the Company's Board of Directors on April 25, 1996 and provide
that a Fund shall not be obligated to make any payments under such Plans or
related Agreements that exceed the maximum amounts payable under Article III,
Section 26 of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (NASD). For the six months ended March 31, 1996 and
under similar service agreements with certain institutions, including
affiliates of FICM, the Prime Money Market Mutual Fund and the Treasury Money
Market Mutual Fund made payments to various institutions totaling $1,055,708,
of which $637,228 was waived, and $1,326,718, of which $1,040,940 was waived,
respectively.
Custodian And Transfer And Dividend Disbursing Agent. Wells Fargo Bank
has been retained to act as custodian and transfer and dividend disbursing
agent for the Funds, pursuant to a Custody Agreement and an Agency Agreement
with the Company on behalf of the Funds. The custodian, among other things,
maintains a custody account or accounts in the name of a Fund, receives and
delivers all assets for the Fund upon purchase and upon sale or maturity,
collects and receives all income and other payments and distributions on
account of the assets of the Fund and pays all expenses of the Fund. For its
services as custodian, Wells Fargo Bank is entitled to receive fees as follows:
a net asset charge at the annual rate of 0.0167%, payable monthly, plus
specified transaction charges. Wells Fargo Bank also will provide portfolio
accounting services under the Custody Agreement as follows: a monthly base fee
of $2,000 plus a net asset fee at the annual
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<PAGE> 41
rate of 0.070% of the first $50,000,000 of a Fund's average daily net assets,
0.045% of the next $50,000,000, and 0.020% of the average daily net assets in
excess of $100,000,000.
For its services as transfer and dividend disbursing agent for the
Service Class shares of the Funds, Wells Fargo Bank is entitled to receive
monthly payments at the annual rate of 0.07% of the average daily net assets of
each Fund.
FICAL, located at 707 Wilshire Blvd., Los Angeles, California 90017,
acted as custodian of the predecessor portfolios of Pacifica, but played no
role in making decisions as to the purchase or sale of portfolio securities for
the predecessor portfolios. FICAL was entitled to receive a fee from Pacifica,
computed daily and payable monthly, at the annual rate of 0.021% of the first
$5 billion in aggregate average daily net assets of the Funds; 0.0175% of the
next $5 billion in aggregate average daily net assets of the Funds; and 0.015%
of the aggregate average daily net assets of the Funds in excess of $10
billion. For the six months ended March 31, 1996, the custodian fees to FICAL
amounted to $145,468 and $206,288 for the Prime Money Market Mutual Fund and
Treasury Money Market Mutual Fund, respectively.
Furman Selz acted as transfer agent for the predecessor portfolios.
Pacifica compensated Furman Selz for providing personnel and facilities to
perform transfer agency related services for Pacifica at a rate intended to
represent the cost of providing such services.
Underwriting Commissions. Pacifica's distributor did not retain fees in
underwriting commissions in connection with the purchase and redemption of
shares of the predecessor portfolios of the Funds, since the Funds do not have
front-end sales loads or contingent deferred sales charges.
SERVICING PLANS
As indicated in each Fund's Prospectus, the Company's Board of Directors,
on behalf of each Fund, adopted a Servicing Plan ("Servicing Plan") on April
25, 1996, with respect to each class of the Funds' shares. The Board of
Directors included a majority of the Directors who were not "interested
persons" (as defined in the Act) of each Fund and who had no direct or indirect
financial interest in the operation of the Servicing Plan or in any agreement
related to the Servicing Plan (the "Servicing Plan Non-Interested Directors").
Under the Servicing Plan and pursuant to the shareholder servicing
agreements for the Service Class shares, each Fund may pay one or more
servicing agents, as compensation for performing certain services, a fee at an
annual rate of up to 0.20% of the average daily net assets of the Fund's
Service Class shares attributable to the servicing agent's customers. The
actual fee payable to servicing agents is determined, within such limits, from
time to time by mutual agreement between the Company and each servicing agent
and will not exceed the maximum service fees payable by mutual funds sold by
members of the NASD under the NASD Rules of Fair Practice.
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<PAGE> 42
Each Servicing Plan continues in effect from year to year if such
continuance is approved by a majority vote of both the Directors of the Company
and the Servicing Plan Non-Interested Directors. Any form of servicing
agreement related to the Servicing Plan also must be approved by such vote of
the Directors and the Servicing Plan Non-Interested Directors. Servicing
agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Servicing Plan Non-Interested Directors. No material
amendment to the Servicing Plans may be made except by a majority of both the
Directors of the Company and the Servicing Plan Non-Interested Directors.
Each Servicing Plan requires that the administrator shall provide to the
Directors, and the Directors shall review, at least quarterly, a written report
of the amounts expended (and purposes therefor) under the Servicing Plan.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in each Prospectus entitled "Determination of Net Asset
Value" and "Performance Data."
The "yields" and "effective yields" of each Fund described in the
Prospectuses are calculated according to formulas prescribed by the SEC. The
standardized seven-day yields for the respective classes of shares of a Fund
are computed separately for each class by determining the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account in the
Fund having a balance of one share at the beginning of the period, dividing the
net change in account value by the value of the account at the beginning of the
base period to obtain the base period return, and multiplying the base period
return by (365/7). The net change in the value of an account in each Fund
includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any such
additional shares, and all fees, other than non-recurring account or sales
charges, that are charged to all shareholder accounts in proportion to the
length of the base period and the Fund's average account size. The capital
changes to be excluded from the calculation of the net change in account value
are realized gains and losses from the sale of securities and unrealized
appreciation and depreciation. The effective annualized yields for a Fund are
also computed separately for each class by compounding the unannualized base
period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The fees which may be imposed by Banks for cash management services
in connection with investments in shares of the Funds are not reflected in the
Funds' yields, and any such fees, if charged, will reduce the actual return
received by Customers for their investments.
For the seven-day period ended March 31, 1996, the Prime Money Market
Mutual Fund's yield and effective yield on Service Class shares were 5.25% and
5.37%, respectively. Similarly, for the seven-day period ended March 31, 1996,
the Treasury Money Market Mutual Fund's yield and effective yield on Service
Class shares were 5.10% and 5.22% respectively.
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<PAGE> 43
For the seven-day period ended September 30, 1995, the Prime Money Market
Mutual Fund's yield and effective yield on Service Class shares were 5.46% and
5.60%, respectively. Similarly, for the seven-day period ended September 30,
1995, the Treasury Money Market Mutual Fund's yield and effective yield on
Service Class shares were 5.29% and 5.42% respectively.
During the seven-day period ended September 30, 1995, the Investment
Adviser and Service Organizations waived portions of their fees amounting to
0.23% and 0.43% of the average daily net assets of the Prime Money Market
Mutual Fund for Service Class shares, and 0.23% and 0.43% of the average daily
net assets of the Treasury Money Market Mutual Fund for Service Class shares.
With respect to the Prime Money Market Mutual Fund, had these expenses
not been waived, the yield and effective yield for the same period would have
been, 5.23% and 5.37%, respectively, for the Service Class shares. With respect
to the Treasury Money Market Mutual Fund, had these expenses not been waived,
the yield and effective yield for the same period would have been 5.06% and
5.19%, respectively, for the Service Class shares.
Yield information may be useful in reviewing the Funds' performance and
for providing a basis for comparison with other investment alternatives.
However, yields fluctuate, unlike investments which pay a fixed yield for a
stated period of time. Yields for the Funds are calculated on the same basis as
other money market funds as required by applicable regulations. Investors
should give consideration to the quality and maturity of the portfolio
securities of the respective investment companies when comparing investment
alternatives.
Investors should recognize that in periods of declining interest rates,
the Funds' yields will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates, the Funds' yields will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to the Funds from the continuous sale of their shares will likely be
invested in instruments producing lower yields than the balance of the Funds,
thereby reducing the current yields of the Funds. In periods of rising interest
rates, the opposite can be expected to occur.
From time to time and only to the extent the comparison is appropriate
for a Fund or a class of shares, the Company may quote performance or
price-earning ratios in advertising and other types of literature as compared
with the performance of the Lehman Brothers Municipal Bond Index, 1-Year
Treasury Bill Rate, S&P Index, the Dow Jones Industrial Average, the Lehman
Brothers 20+ Years Treasury Index, the Lehman Brothers 5-7 Year Treasury Index,
IBC/Donoghue's Money Fund Averages, Real Estate Investment Averages (as
reported by the National Association of Real Estate Investment Trusts), Gold
Investment Averages (provided by the World Gold Council), Bank Averages (which
is calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts), average annualized certificate of deposit rates (from the federal
Reserve G-13 Statistical Releases or the Bank Rate Monitor), the Salomon One
Year Treasury Benchmark Index, the Consumer Price Index (as published by the
U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average, S&P's
Corporate Bond Yield 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
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<PAGE> 44
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 of other criteria. The S&P Index
and the Dow Jones Industrial Average are unmanaged indices of selected common
stock prices.
The performance of a Fund or a class of shares also may be compared to
the performance of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Bloomberg
Financial Markets or Morningstar, Inc., independent services that monitor the
performance of mutual funds. Any such comparisons may be useful to investors
who wish to compare a Fund's past performance with that of its competitors. Of
course, past performance cannot be a guarantee of future results. The Company
also may include, from time to time, a reference to certain marketing
approaches of the Distributor, including, for example, a reference to a
potential shareholder being contacted by a selected broker or dealer. General
mutual fund statistics provided by the Investment Company Institute may also be
used.
In addition, the Company also may use, in advertisements and other types
of literature, information and statements showing that bank savings accounts
offer a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising
and other types of literature information and other data from reports and
studies prepared by the Tax Foundation, including information regarding federal
and state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate
for a class of shares of a Fund: (i) the Consumer Price Index may be used to
assess the real rate of return from an investment in a class of shares of a
Fund; (ii) other government statistics, including, but not limited to, The
Survey of Current Business, may be used to illustrate investment attributes of
a Fund or a class of shares or the general economic, business, investment, or
financial environment in which the Fund operates; (iii) the effect of
tax-deferred compounding on the investment returns of a 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 a 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 the historical performance of the Fund or a class or current or
potential value with respect to the particular industry or sector.
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would
assess the creditworthiness of the investments held by a Fund. The assigned
rating would not be a recommendation to purchase, sell or hold any class of a
Fund's shares since the rating would not comment on the market price of a
Fund's shares or the suitability of a Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information
relating
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<PAGE> 45
to a Fund or its investments. The Company may compare a Fund's performance
with other investments that are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare a Fund's past
performance with other rated investments.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate
on the shares of a Fund or a class of shares. Distribution rate, which may be
annualized, is the amount determined by dividing the dollar amount per share of
the most recent dividend by the most recent NAV or maximum offering price per
share as of a date specified in the sales literature. Distribution rate will
be accompanied by the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising statements and other types
of literature, information and statements that the Company's investment
adviser, Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top
20" performance rankings as published in the 1994 edition of "America's Best
Money Managers." The Nelson survey ranks the performance of money managers in
over 30 asset/style categories and is based on analysis of performance
composites and surveys of institutional money managers.
The Company may also disclose in advertising and other types of sales
literature the assets and categories of assets under management by the
Company's investment adviser and the total amount of assets under management by
Wells Fargo Investment Management Group ("IMG") or the amount of assets and
mutual fund assets managed by Wells Fargo Bank. As of December 31, 1995, IMG
had $30.1 billion in assets under management. As of June 30, 1996, Wells Fargo
Bank and its affiliates provided investment advisory services for approximately
$56 billion of assets of individuals, trusts, estates and institutions and $17
billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or
through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the Prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are
taken into account for the purpose of determining the net asset value of a
Fund's shares.
Net asset value per share for a class of shares is determined as of
12:00 noon Pacific time and 1:00 p.m. Pacific time on each Business Day as
described in the Prospectus.
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<PAGE> 46
The Funds' instruments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than
the price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of a Fund computed as
described above may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its instruments. Thus, if the
use of amortized cost by a Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in a Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund utilizing
solely market values and existing investors in a Fund would receive less
investment income. The converse would apply in a period of rising interest
rates.
The valuation of each Funds' instruments, based upon their amortized cost
and the concomitant maintenance by each Fund of a net asset value of $1.00, is
permitted in accordance with Rule 2a-7 under the Act, pursuant to which a Fund
must adhere to certain conditions. Each Fund must maintain a dollar-weighted
average maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days (thirteen months) or less, and invest only in securities
that are determined to present minimal credit risks pursuant to guidelines
adopted by the Directors or the adviser under guidelines approved by the
Directors. Instruments having variable or floating interest rates or demand
features may be deemed to have remaining maturities as follows: (a) a
government security with a variable rate of interest readjusted no less
frequently than every thirteen months may be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate; (b) an
instrument with a variable rate of interest, the principal amount of which is
scheduled on the face of the instrument to be paid in thirteen months or less,
may be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through
demand; and (e) a repurchase agreement may be deemed to have a maturity equal
to the period remaining until the date on which the repurchase of the
underlying securities is scheduled to occur or, where no date is specified but
the agreement is subject to demand, the notice period applicable to a demand
for the repurchase of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, each Fund's price per
share as computed for the purpose of sales and redemptions. Such procedures
include the determination, at such intervals as the Directors deem appropriate,
of the extent to which each such Fund's NAV as calculated by using available
market quotations deviates from $1.00 per share, such deviation may result in
material dilution or other unfair results to existing shareholders or
investors. In the event the Directors determine that such a material deviation
exists, they have agreed to take such corrective action as they regard as
necessary and appropriate, which may include selling portfolio instruments
prior to maturity to
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<PAGE> 47
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Funds to maintain a per share net
asset value of $1.00, but there can be no assurance that each Fund will do so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Funds as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Funds
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by a Fund and that such
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
In addition, the Company may redeem shares involuntarily to reimburse the
Funds for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of a Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Funds' portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably
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<PAGE> 48
competitive spreads or commissions, the Funds will not necessarily be paying
the lowest spread or commission available.
Purchase and sale orders of the securities held by the Funds may be
combined with those of other accounts that Wells Fargo Bank manages, and for
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for a Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.
Purchases and sales of securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or
to dealers serving as market makers for the securities at a net price. The
Funds also will purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, municipal obligations
and taxable money market securities are traded on a net basis and do not
involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions. Under the 1940 Act, persons affiliated with the
Company are prohibited from dealing with the Company as a principal in the
purchase and sale of securities unless an exemptive order allowing such
transactions is obtained from the SEC or an exemption is otherwise available.
The Funds may purchase municipal obligations from underwriting
syndicates of which Stephens or Wells Fargo Bank is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act and in compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the investment adviser of each Fund, may, in
circumstances in which two or more dealers are in a position to offer
comparable results for a Fund portfolio transaction, give preference to a
dealer that has provided statistical or other research services to Wells Fargo
Bank. By allocating transactions in this manner, Wells Fargo Bank is able to
supplement its research and analysis with the views and information of
securities firms. Information so received will be in addition to, and not in
lieu of, the services required to be performed by Wells Fargo Bank under the
Advisory Contracts, and the expenses of Wells Fargo Bank will not necessarily
be reduced as a result of the receipt of this supplemental research
information. Furthermore, research services furnished by dealers through which
Wells Fargo Bank places securities transactions for each Fund may be used by
Wells Fargo Bank in servicing its other accounts, and not all of these services
may be used by Wells Fargo Bank in connection with advising such Fund.
Consistent with the Rules of Fair Practice of the NASD, and subject to
seeking the most favorable price and execution available and such other
policies as the Directors may determine, the adviser may consider sales of
shares of the Funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
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<PAGE> 49
Brokerage Commissions. Subject to the general supervision and
approval of the Board of Directors, the adviser makes decisions with respect to
and places orders for all purchases and sales of securities for the Funds.
Securities are generally purchased and sold either directly from the issuer or
from dealers who specialize in money market instruments. Such purchases are
usually effected as principal transactions and therefore do not involve the
payment of brokerage commissions.
Securities of Regular Broker Dealers. The Funds may from time to time
purchase securities issued by their regular dealers. At September 30, 1995, the
Funds held securities issued by Goldman Sachs & Co., J.P. Morgan Securities,
Inc., Salomon Brothers Inc., and HSBC Securities Inc., valued at $159,111,345,
$200,000,000, $126,043,763 and $160,000,000, respectively.
Portfolio Turnover. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate. Because the
Funds' portfolios consist of securities with relatively short-term maturities,
the Funds can expect to experience high portfolio turnovers. A high portfolio
turnover rate should not adversely affect such Funds, however, because
portfolio transactions ordinarily will be made directly with principals on a
net basis and, consequently, the Funds usually will not incur brokerage
expenses.
FEDERAL INCOME TAX
Each Fund has qualified and intends to continue to qualify each year
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended. By so qualifying, the Funds will not be subject to
federal income taxes to the extent that they distribute their taxable net
investment income and net realized capital gains, if any. Net investment income
and net realized capital gains, if any, will be distributed to investors of the
Fund that realized the income or gain. Distributions of net investment income
and capital gains are taxable to those investors who are not exempt from
federal income taxes. It is expected that each Fund will distribute any net
realized short-term gains (unless negligible in amount) at least annually.
Neither Fund expects to realize any long-term capital gains. Each Fund will be
treated separately for federal tax-purposes.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of the gain
realized from the disposition of certain market discount bonds will be treated
as ordinary income under Section 1276 of the Code.
The Prime Money Market Mutual Fund has an unused capital loss
carryover of approximately $103,100 available for federal income tax purposes
to be applied against future profits from sales of securities, if any, realized
subsequent to September 30, 1995. If not applied, $46,700 expires on September
30, 1999 and $56,400 expires on September 30, 2000.
For federal income tax purposes, an exchange of shares is a taxable
event and, accordingly, a capital gain or loss may be recognized. Please
consult a tax or other financial Adviser to determine the tax consequences of a
particular exchange.
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Dividends derived from net investment income, together with
distributions from the excess, if any, of net realized short-term gains over
net realized long-term losses and gains from the sale or other disposition of
certain market discount bonds paid by each Fund to a foreign investor generally
are subject to U.S. nonresident withholding taxes at the rate of 30%, unless
the foreign investor claims the benefit of a lower rate specified in a tax
treaty. Distributions from the excess, if any, of net realized long-term
securities gains over net realized short-term securities losses paid by each
Fund to a foreign investor will not be subject to any U.S. withholding taxes.
However, such distributions may be subject to backup withholding, as described
in the Fund's Prospectuses, unless the foreign investor certifies his non-U.S.
residency status. Different tax consequences may apply to foreign investors
engaged in a U.S. trade or business. Foreign investors should consult their Tax
Advisors regarding the U.S. and foreign tax consequences of investing in the
Funds.
CAPITAL STOCK
The following information supplements and should be read in
conjunction with the section in the Prospectus entitled "The Funds and
Management."
The Company, an open-end management investment company, was
incorporated in Maryland on September 9, 1991. The authorized capital stock of
the Company consists of 48,000,000,000 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 twenty-three series of shares, each representing an
interest in one of the following funds -- the Aggressive Growth, Arizona
Tax-Free, Asset Allocation, Balanced, California Tax-Free Bond, California
Tax-Free Income, California Tax-Free Money Market Mutual, Corporate Stock,
Diversified Income, Equity Value, Ginnie Mae, Government Money Market Mutual,
Growth and Income, Intermediate Bond, Money Market Mutual, Money Market Trust,
National Tax-Free, National Tax-Free Money Market Mutual, Oregon Tax-Free,
Prime Money Market Mutual, Short-Intermediate U.S. Government Income, Treasury
Money Market Mutual and U.S. Government Allocation Funds -- and the Board of
Directors may, in the future, authorize the issuance of other series of capital
stock representing shares of additional investment portfolios.
Voting Rights. With respect to matters that affect one class of a
Fund's shares but not another, shareholders vote as a class; for example, the
approval of a Plan. Subject to the foregoing, on any matter submitted to a
vote of shareholders, all shares then entitled to vote are voted separately by
series unless otherwise required by the Act, in which case all shares are voted
in the aggregate. For example, a change in a series' fundamental investment
policy affects only one series and are voted upon only by shareholders of the
series and not by shareholders of the Company's other series. Additionally,
approval of an advisory contract is a matter to be determined separately by
each series. Approval by the shareholders of one series is effective as to
that series whether or not sufficient votes are received from the shareholders
of the other series to approve the proposal as to those series. As used in the
Prospectus and in this SAI, the term "majority" when referring to approvals to
be obtained from shareholders of a class of a Fund, means the vote of the
lesser of (i) 67% of the shares of such class of the Fund represented at a
meeting if the holders of more than 50% of the outstanding shares of such class
of the Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of such class of the Fund. 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
23
<PAGE> 51
50% of the Company's outstanding shares are present in person or by proxy, or
(ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held. The Company may dispense with an annual meeting of
shareholders in any year in which it is not required to elect directors under
the 1940 Act.
Each share of a class of a Fund represents an equal proportional
interest in the Fund with each other share in the same class and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Directors. In
the event of the liquidation or dissolution of the Company, shareholders of a
Fund or class are entitled to receive the assets attributable to the Fund or
class that are available for distribution, and a distribution of any general
assets not attributable to a particular investment portfolio that are available
for distribution in such manner and on such basis as the Directors in their
sole discretion may determine.
Shares have no preemptive rights or subscription. All shares, when
issued for the consideration described in the Prospectus, are fully paid and
non-assessable by the Company.
Pacifica was a Massachusetts business trust established under a
Declaration of Trust dated July 17, 1984, consisting of series of separately
managed portfolios which are described in this SAI. Prior to February 9, 1993
the name of Pacifica was Fund Source. This SAI relates only to the Service
Class shares of two of those portfolios -- the Prime Money Market Mutual Fund
and the Treasury Money Market Mutual Fund. The capitalization of Pacifica
consisted solely of an unlimited number of shares of beneficial interest with a
par value of $0.001 each.
Below is the name, address and share ownership of each person known to
Pacifica to have beneficial or record ownership with respect to 5% or more of a
class of a Predecessor Portfolio as of May 15, 1996.
<TABLE>
<CAPTION>
CLASS; AMOUNT OF
SHARES OWNED; PERCENTAGE PERCENTAGE PERCENTAGE
PACIFICA TYPE OF OF OF OF PORTFOLIO
PORTFOLIO NAME AND ADDRESS OWNERSHIP CLASS PORTFOLIO POST-CLOSING
<S> <C> <C> <C> <C> <C>
PRIME MONEY Virg & Co. Institutional Class; 93.87% 30.50% 30.50%
MARKET FUND Attn: MF Dept. A88-4 395,533,609.29
P.O. Box 9800 Shares; Record Holder
Calabasas, CA 91372
</TABLE>
24
<PAGE> 52
<TABLE>
<CAPTION>
CLASS; AMOUNT OF
SHARES OWNED; PERCENTAGE PERCENTAGE PERCENTAGE
PACIFICA TYPE OF OF OF OF PORTFOLIO
PORTFOLIO NAME AND ADDRESS OWNERSHIP CLASS PORTFOLIO POST-CLOSING
<S> <C> <C> <C> <C> <C>
First Interstate Bank Institutional Class; 5.22% 1.70% 1.70%
of Oregon N A 22,000,000.00 Shares:
Attn: Investment Sweep Record Holder
T-15
1300 S.W. Fifth Avenue
Portland, OR 97201
Cocopah Bingo & Casino Institutional Class; 7.01% 2.28% 2.28%
Cocopah Indian Tribe 29,536,848.22 Shares;
Bingo/Casino Beneficially Owned
Attn: Sherry Cordova
County 15
Avenue G
Somerton, AZ 85350
Virg & Co. Investor Class; 94.16% 21.48% 21.48%
Attn: MF Dept. A88-4 278,614,885.48
P.O. Box 9800 Shares;
Calabasas, CA 91372 Record Holder
Virg & Co. Investor Class; 99.10% 44.32% 44.32%
Attn: MF Dept. A88-4 574,814.322.95
P.O. Box 9800 Shares;
Calabasas, CA 91372 Record Holder
Private Banking PAF-MM Service Class; 14.52% 6.49% 6.49%
Corps 84,191,778.17 Shares
#100000814-01 Beneficially Owned
Attn: A. Katz
16633 Ventura Blvd.
Suite 1400
Encino, CA 91436
SC UFCW JT TR FDS- Service Class; 9.21% 4.12% 4.12%
Benefit Operating 53,401,635.58 Shares;
c/o Wells Fargo Bank Beneficially Owned
201 3rd Street
11th Floor
San Francisco, CA 94163
Operating Engineers Service Class; 5.74% 2.57% 2.57%
Health & Welfare 33,287,647.99 Shares;
c/o Wells Fargo Bank Beneficially Owned
201 3rd Street
11th Floor
San Francisco, CA 94163
TREASURY MONEY Virg & Co. Institutional Class; 91.89% 35.86% 35.86%
Attn: MF Dept. A88-4 749,978,141.17
P.O. Box 9800 Shares;
Calabasas, CA 91372 Record Holder
</TABLE>
25
<PAGE> 53
<TABLE>
<CAPTION>
CLASS; AMOUNT OF
SHARES OWNED; PERCENTAGE PERCENTAGE PERCENTAGE
PACIFICA TYPE OF OF OF OF PORTFOLIO
PORTFOLIO NAME AND ADDRESS OWNERSHIP CLASS PORTFOLIO POST-CLOSING
<S> <C> <C> <C> <C> <C>
MARKET FUND DCIA Fund Institutional Class 5.93% 2.32% 2.32%
c/o Wells Fargo Bank 48,435,199.92 Shares;
201 3rd Street Beneficially Owned
11th Floor
San Francisco, CA 94163
Lumber Employees & W. Investor Class; 10.54% 0.31% 0.31%
Counc/Columbia Co. 6,545,875.34 Shares;
P.O. Box 1350 Beneficially Owned
Portland, OR 97207
CH2M Hill Pension Investor Class; 7.71% 0.23% 0.23%
R/Becker Institutional 4,785,242.82 Shares;
Shareholder Services at Beneficially Owned
VAS/279/Becker
7200 Wisconsin Ave.
Suite 1001
Bethesda, MD 20814
Nick Bunick Investor Class; 5.27% 0.16% 0.16%
c/o Wells Fargo Bank 3,271,282.65 Shares;
201 3rd Street Beneficially Owned
11th Floor
San Francisco, CA 94163
Virg & Co. Investor Class; 89.55% 2.66% 2.66%
Attn: MF Dept. A88-4 55,623,936.25 Shares;
P.. Box 9800 Record Holder
Calabasas, CA 91372
Virg & Co. Investor Class; 99.16% 57.52% 57.52%
Attn: MF Dept. A88-4 1,202,807,089.44
P.. Box 9800 Shares;
Calabasas, CA 91372 Record Holder
Spears Manufacturing Service Class; 8.14% 0.24% 0.24%
Company 5,051,733.03 Shares:
P.O. Box 9203 Record Holder
Sylmar, CA 91392
Access Services Service Class; 10.15% 0.30% 0.30%
Incorporated 6,299,59078 Shares;
P.O. Box 71684 Record Holder
Los Angeles, CA 90071
</TABLE>
26
<PAGE> 54
<TABLE>
<CAPTION>
CLASS; AMOUNT OF
SHARES OWNED; PERCENTAGE PERCENTAGE PERCENTAGE
PACIFICA TYPE OF OF OF OF PORTFOLIO
PORTFOLIO NAME AND ADDRESS OWNERSHIP CLASS PORTFOLIO POST-CLOSING
<S> <C> <C> <C> <C> <C>
San Fernando Community Service Class; 5.69% 0.17% 0.17%
Hospital 3,531,226.35 Shares;
14580 Roscoe Blvd. Record Holder
Panorama City, CA 91402
Novalogic Inc. Service Class; 5.68% 0.17% 0.17%
26010 Mureau Road 3,529,277.78 Shares;
Suite #200 Record Holder
Calabasas, CA 91302
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class, or is identified as the holder of record of
more than 25% of a class and has voting and/or investment powers, it may be
presumed to control such class.
OTHER
This 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 the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors
for the Company. KPMG Peat Marwick LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of
certain SEC filings. KPMG Peat Marwick LLP's address is Three Embarcadero
Center, San Francisco, California 94111.
Ernst & Young LLP, 515 South Flower Street, Los Angeles, California
90071 served as the independent auditors for the predecessor Funds of Pacifica
until the Reorganization. The audited financial statements which are
incorporated by reference into this SAI and the audited financial information
which appears in the Funds' Prospectuses under the heading "Financial History,"
for the fiscal year ended September 30, 1995 and the six-month fiscal period
ended September 30, 1994 have been audited by Ernst & Young LLP. The audited
financial statements for the year
27
<PAGE> 55
ended March 31, 1994 which are incorporated by reference into this SAI and the
audited financial information which appears in the Funds' Prospectuses under the
heading "Financial History," for each of the four years in the period ended
March 31, 1994 for the Funds have been audited by the Funds' former independent
accountants, Price Waterhouse LLP. The audited financial statements that have
been incorporated by reference herein and included in the Funds' Prospectuses
are so included or incorporated in reliance on the reports of Ernst & Young LLP
and Price Waterhouse LLP given upon the authority of such firms as experts in
accounting and auditing.
FINANCIAL INFORMATION
The portfolio of investments, financial statements and independent
auditors' report of the predecessor portfolios for the fiscal period ended
March 31, 1996, are incorporated by reference to Pacifica's Semi-Annual Report
to Shareholders as filed on EDGAR with the SEC on June 7, 1996.
The portfolio of investments, financial statements and independent
auditors' report of the predecessor portfolios for the fiscal year ended
September 30, 1995 are incorporated by reference to Pacifica's Annual Report to
Shareholders.
The portfolio of investments, audited financial statements and
independent auditors' report are attached to all SAIs delivered to current or
prospective shareholders.
28
<PAGE> 56
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds
are "Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the
"best quality" and carry the smallest amount of investment risk. Bonds rated
"Aa" are of "high quality by all standards," but margins of protection or other
elements make long-term risks appear somewhat greater than "Aaa" rated bonds.
Bonds rated "A" possess many favorable investment attributes and are considered
to be upper medium grade obligations. Bonds rated "Baa" are considered to be
medium grade obligations; interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds
have speculative characteristics as well. Moody's applies numerical modifiers:
1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are
"AAA," "AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings
assigned by S&P and have an extremely strong capacity to pay interest and repay
principal. Bonds rated "AA" have a "very strong capacity to pay interest and
repay principal" and differ "from the highest rated issued only in small
degree." Bonds rated "A" have a "strong capacity" to pay interest and repay
principal, but are "somewhat more susceptible" to adverse effects of changes in
economic conditions or other circumstances than bonds in higher rated
categories. Bonds rated "BBB" are regarded as having an "adequate capacity" to
pay interest and repay principal, but changes in economic conditions or other
circumstances are more likely to lead to a "weakened capacity" to make such
repayments. The ratings from "AA" to "BBB" may be modified by the addition of
a plus or minus sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding group." Notes rated "MIG 3" or "VMIG
3" are of "favorable quality," with all security elements accounted for, but
lacking the strength of the preceding grades.
A-1
<PAGE> 57
S&P: The "SP-1" rating reflects a "very strong or strong capacity to
pay principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial
paper is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations,"
but earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
2
<PAGE> 58
STAGECOACH FUNDS, INC.
Telephone: 1-800-222-8222
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 6, 1996
AS SUPPLEMENTED ON SEPTEMBER 24, 1996
MONEY MARKET TRUST
----------------------------------------------
Stagecoach Funds, Inc. (the "Company") is an open-end investment
company. This Statement of Additional Information ("SAI") contains additional
information about shares offered in one of the funds of the Stagecoach Family
of Funds -- MONEY MARKET TRUST (the "Fund"). The Fund offers a single class of
shares. The investment objective of the Fund is described in its prospectus
under "How the Fund Works -- Investment Objective and Policies."
This SAI is not a prospectus and should be read in conjunction with
the Fund's prospectus also dated September 6, 1996, as may be revised from time
to time (the "Prospectus"). All terms used in this SAI that are defined in the
Prospectus have the meanings assigned in the Prospectus. A copy of the
Prospectus may be obtained without charge by writing Stephens Inc., the
Company's sponsor, administrator and distributor, at 111 Center Street, Little
Rock, Arkansas 72201 or calling the Company's Transfer Agent at the telephone
number indicated above.
----------------------------------------------
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 1
Additional Permitted Investment Activities . . . . . . . . . . . . . . 2
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Performance Calculations . . . . . . . . . . . . . . . . . . . . . . . 13
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . 17
Additional Purchase and Redemption Information . . . . . . . . . . . . 18
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 26
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
i
<PAGE> 60
GENERAL
Prior to the Reorganization (defined below), the Fund was an
investment portfolio (the "Predecessor Portfolio") of the predecessor company,
Pacifica Funds Trust ("Pacifica"), an open-end management investment company.
Pacifica was organized on July 17, 1984 under the name "Fund Source." Pacifica
changed its name to "Pacifica Funds Trust" on February 9, 1993. The Fund
originally commenced operations on September 17, 1990 as a separate investment
portfolio of Westcore Trust called the "Prime Money Market Fund." On October 1,
1995, the Fund was reorganized as a portfolio of Pacifica.
On April 25, 1996, the Agreement and Plan of Reorganization and the
creation of the Predecessor Portfolio as a new fund of Stagecoach were
approved by the Company's Board of Directors. On May 17, 1996, the
Reorganization was approved by Pacifica's Board of Trustees. As part of the
Reorganization of Pacifica with the Company (the "Reorganization"), the
Predecessor Portfolio of Pacifica was reorganized as the Company's Money Market
Trust.
INVESTMENT RESTRICTIONS
In addition to the investment limitations disclosed in the Prospectus,
the Fund is subject to the following investment limitations which may be
changed only by a vote of the holders of a majority of the outstanding shares
of the Fund (as defined in "Other Information").
The Fund may not:
1. Purchase securities of any one issuer, other than obligations of
the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the
Fund's total assets would be invested in such issuer, except that
up to 25% of the value of the Fund's total assets may be invested
without regard to such 5% limitation.
2. Purchase or sell real estate, except that the Fund may, to the
extent appropriate to its investment objective, purchase
securities issued by companies which invest in real estate or
interests therein.
3. Purchase securities on margin, make short sales of securities
or maintain a short position.
4. Underwrite the securities of other issuers.
5. Purchase or sell commodity contracts (including futures
contracts), or invest in oil, gas or mineral exploration or
development programs.
1
<PAGE> 61
6. Buy common stocks or voting securities, or state, municipal or
industrial revenue bonds.
7. Write or purchase put or call options.
In order to permit the sale of the Fund's shares in certain states,
the Company may make commitments with respect to the Fund that are more
restrictive than the investment policies listed above and in the Prospectus.
Should the Company determine that the commitments made to permit the sale of
the Fund's shares in any state are no longer in the best interests of the Fund,
it will revoke the commitment by terminating sales of the Fund's shares in the
state involved.
The Fund is not permitted to engage in securities lending in
accordance with a fundamental policy prohibiting loans as described in the
prospectus. In the event that this fundamental policy is changed, the Fund has
a non-fundamental operating policy to engage in securities lending only in
compliance with the requirements and limitations of the Securities and Exchange
Commission (the "SEC") and in compliance with related state blue sky
regulations.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in the
value of the Fund's investments will not constitute a violation of such
limitation, however, the Fund will not at any time hold more than 10% of its
net assets in illiquid securities. Otherwise, the Fund may continue to hold a
security even though it causes the Fund to exceed a percentage limitation
because of fluctuation in the value of the Fund's assets.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
The Prospectus discusses the investment objective of the Fund and the
policies to be employed to achieve that objective. This section contains
supplemental information concerning certain types of securities and other
instruments in which the Fund may invest, the investment policies and portfolio
strategies that the Fund may utilize, and certain risks attendant to such
investments, policies and strategies.
General. The assets of the Fund consist only of obligations maturing
within thirteen months from the date of acquisition (as determined in
accordance with the regulations of the SEC), and the dollar-weighted average
maturity of the Fund may not exceed 90 days.
The securities in which the Fund may invest will not yield as high a level
of current income as may be achieved from securities with less liquidity and
less safety. There can be no assurance that the Fund's investment objective
will be realized as described in the Prospectus.
Subsequent to its purchase by the Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Board of Directors or the Adviser, pursuant to
guidelines established by the Board, will consider such an event in determining
whether the Fund should continue to hold the security in accordance with the
interests of the Fund and applicable regulations of the SEC.
2
<PAGE> 62
Subject to the general supervision and approval of the Board of Directors,
the Adviser makes decisions with respect to and places orders for all purchases
and sales of securities for the Fund. Securities are generally purchased and
sold either directly from the issuer or from dealers who specialize in money
market instruments. Such purchases are usually effected as principal
transactions and therefore do not involve the payment of brokerage commissions.
Repurchase Agreements. The Fund may engage in a repurchase agreement
with respect to any security in which the Fund is authorized to invest,
including U.S. Treasury STRIPS, although the underlying security may mature in
more than thirteen months. The Fund may enter into repurchase agreements
wherein the seller of a security to the Fund agrees to repurchase that security
from the Fund at a mutually agreed-upon time and price which involve the
acquisition by the Fund of an underlying debt instrument, subject to the
seller's obligation to repurchase, and the Fund's obligation to resell, the
instrument at a fixed price usually not more than one week after its purchase.
The Fund's custodian has custody of, and holds in a segregated account,
securities acquired as collateral by the Fund under a repurchase agreement.
Repurchase agreements are considered by the staff of the Securities and
Exchange Commission to be loans by the Fund. The Fund may enter into
repurchase agreements only with respect to securities of the type in which the
Fund may invest, including government securities and mortgage-related
securities, regardless of their remaining maturities, and requires that
additional securities be deposited with the custodian if the value of the
securities purchased should decrease below resale price. Wells Fargo Bank
monitors on an ongoing basis the value of the collateral to assure that it
always equals or exceeds the repurchase price. Certain costs may be incurred
by the Fund in connection with the sale of the underlying securities if the
seller does not repurchase them in accordance with the repurchase agreement.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the securities, disposition of the securities by the Fund may be delayed or
limited. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the
market value of the underlying securities, as well as delay and costs to the
Fund in connection with insolvency proceedings), it is the policy of the Fund
to limit repurchase agreements to selected creditworthy securities dealers or
domestic banks or other recognized financial institutions. The Fund considers
on an ongoing basis the creditworthiness of the institutions with which it
enters into repurchase agreements. Repurchase agreements are considered to be
loans by the Fund under the Investment Company Act of 1940 (the "1940 Act").
Reverse Repurchase Agreements. The Fund may borrow funds for temporary
purposes by entering into reverse repurchase agreements with financial
institutions such as banks and broker-dealers in accordance with the investment
limitations described in the Prospectus. Pursuant to such an agreement, the
Fund would sell portfolio securities and agree to repurchase them at a mutually
agreed upon date and price. The Fund intends to enter into reverse repurchase
agreements to avoid otherwise having to sell securities during unfavorable
market conditions in order to meet redemptions. At the time the Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account liquid
3
<PAGE> 63
assets such as U.S. Government securities or other liquid high-quality debt
securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by the Fund may
decline below the price of the securities the Fund is obligated to repurchase.
Reverse repurchase agreements are considered to be borrowings by the Fund under
the 1940 Act.
Floating and Variable-Rate Obligations. The Fund may purchase floating-
and variable-rate obligations as described in the prospectuses. The Fund may
purchase floating- and variable-rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of thirteen months,
but which permit the holder to demand payment of principal at any time, or at
specified intervals not exceeding thirteen months. Variable rate demand notes
include master demand notes which are obligations that permit the Fund to
invest fluctuating amounts, which may change daily without penalty, pursuant to
direct arrangements between the Fund, as lender, and the borrower. The
interest rates on these notes fluctuate from time to time. The issuer of such
obligations ordinarily has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating- rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are
not secured by letters of credit or other credit support arrangements, the
Fund's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and each Fund may invest in obligations which are not so
rated only if Wells Fargo Bank determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the
Fund may invest. Wells Fargo Bank, on behalf of the Fund, considers on an
ongoing basis the creditworthiness of the issuers of the floating- and
variable-rate demand obligations in such Fund's portfolio. The Fund will not
invest more than 10% of the value of its total net assets in floating- or
variable-rate demand obligations whose demand feature is not exercisable within
seven days. Such obligations may be treated as liquid, provided that an active
secondary market exists.
Forward Commitments, When-Issued Purchases and Delayed-Delivery
Transactions. The Fund may purchase securities on a when-issued or forward
commitment (sometimes called a delayed-delivery) basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. The
Fund will make
4
<PAGE> 64
commitments to purchase such securities only with the intention of actually
acquiring the securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable. The Fund will not accrue income in
respect of a security purchased on a forward commitment basis prior to its
stated delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held in the Fund's investment portfolio are subject to
changes in value (both generally changing in the same way, i.e., appreciating
when interest rates decline and depreciating when interest rates rise) based
upon the public's perception of the creditworthiness of the issuer and changes,
real or anticipated, in the level of interest rates. Securities purchased on a
when-issued or forward commitment basis may expose the relevant Fund to risk
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or forward commitment basis can involve
the additional risk that the yield available in the market when the delivery
takes place actually may be higher than that obtained in the transaction
itself. A segregated account of the Fund consisting of cash or U.S. Government
securities or other high quality liquid debt securities at least equal at all
times to the amount of the when-issued or forward commitments will be
established and maintained at the Fund's custodian bank. Purchasing securities
on a forward commitment basis when the Fund is fully or almost fully invested
may result in greater potential fluctuation in the value of the Fund's total
net assets and its net asset value per share. In addition, because the Fund
will set aside cash and other high quality liquid debt securities as described
above the liquidity of the Fund's investment portfolio may decrease as the
proportion of securities in the Fund's portfolio purchased on a when-issued or
forward commitment basis increases.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the Fund's net asset value
starting on the day the Fund agrees to purchase the securities. The Fund does
not earn interest on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets, and fluctuations in the value of
the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
Rule 144A. It is possible that unregistered securities purchased by
the Fund in reliance upon Rule 144A under the Securities Act of 1933, could
have the effect of increasing the level of the Fund's illiquidity to the extent
that qualified institutional buyers become, for a period, uninterested in
purchasing these securities.
5
<PAGE> 65
MANAGEMENT
The following information supplements and should be read in
conjunction with the section in the prospectus entitled "The Funds and
Management." The principal occupations during the past five years of the
Directors and principal executive Officer of the Company are listed below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Directors deemed to be "interested persons" of the Company
for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position During Past 5 Years
- --------------------- -------- ---------------------
<S> <C> <C>
Jack S. Euphrat, 74 Director Private Investor.
415 Walsh Road
Atherton, CA 94027.
*R. Greg Feltus, 45 Director, Senior Vice President
Chairman and of Stephens; Manager
President of Financial Services
Group; President of
Stephens
Insurance Services
Inc.; Senior Vice
President of Stephens
Sports Management
Inc.; and President of
Investor Brokerage
Insurance Inc.
Thomas S. Goho, 54 Director T.B. Rose Faculty
321 Beechcliff Court Fellow-Business,
Winston-Salem, NC 27104 Wake Forest University
Calloway School, of
Business and
Accountancy;
Associate Professor of
Finance of the School
of Business and
Accounting at Wake
Forest University
since 1983.
</TABLE>
6
<PAGE> 66
<TABLE>
<S> <C> <C>
*Zoe Ann Hines, 47 Director Senior Vice President
of Stephens and
Director of Brokerage
Accounting; and
Secretary of Stephens
Resource
Management.
*W. Rodney Hughes, 70 Director Private Investor.
31 Dellwood Court
San Rafael, CA 94901
Robert M. Joses, 78 Director Private Investor.
47 Dowitcher Way
San Rafael, CA 94901
*J. Tucker Morse, 52 Director Private Investor;
10 Legrae Street Real Estate Developer;
Charleston, SC 29401 Chairman of Renaissance
Properties Ltd.;
President of Morse
Investment
Corporation; and Co-
Managing Partner of
Main Street Ventures.
Richard H. Blank, Jr., 40 Chief Associate of
Operating Financial Services
Officer, Group of Stephens;
Secretary and Director of Stephens
Treasurer Sports Management
Inc.; and Director of
Capo Inc.
</TABLE>
COMPENSATION TABLE
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Total Compensation
Aggregate Compensation from Registrant
Name and Position from Registrant and Fund Complex
- ----------------- ---------------------- ------------------
<S> <C> <C>
Jack S. Euphrat $10,188 $39,750
Director
</TABLE>
7
<PAGE> 67
<TABLE>
<S> <C> <C>
*R. Greg Feltus 0 0
Director
Thomas S. Goho 10,188 39,750
Director
*Zoe Ann Hines 0 0
Director
*W. Rodney Hughes 9,438 37,000
Director
Robert M. Joses 9,938 39,000
Director
*J. Tucker Morse 8,313 33,250
Director
</TABLE>
Directors of the Company are compensated annually by the Company and
by all the registrants in the fund complex for their services as indicated
above and also are reimbursed for all out-of-pocket expenses relating to
attendance at board meetings. Each of the Directors and Officers of the
Company serves in the identical capacity as directors and officers of Overland
Express Funds, Inc. and MasterWorks Funds Inc. (formerly, Stagecoach Inc.), and
as trustees and/or officers of Stagecoach Trust, Master Investment Portfolio,
Life & Annuity Trust, Master Investment Trust and Managed Series Investment
Trust, each of which is a registered open-end management investment company and
each of which, prior to January 1, 1996 and the reorganization of WFNIA, was
considered to be in the same "fund complex," as such term is defined in Form
N-1A under the 1940 Act, as the Company. Effective January 1, 1996,
MasterWorks Funds, Inc., Master Investment Portfolio, and Managed Series
Investment Trust are considered to be members of the same fund complex and are
no longer part of the same fund complex as Stagecoach Funds, Inc., Overland
Express Funds, Inc., Stagecoach Trust, Life & Annuity Trust and Master
Investment Trust. The Directors are compensated by other companies and trusts
within the fund complex for their services as directors/trustees to such
companies and trusts. Currently the Directors do not receive any retirement
benefits or deferred compensation from the Company or any other member of the
fund complex.
As of the date of this SAI, Directors and Officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
Investment Adviser. The Fund is advised by Wells Fargo Bank pursuant
to an advisory contract under which Wells Fargo Bank has agreed to furnish
investment
8
<PAGE> 68
guidance and policy direction in connection with the daily portfolio management
of the Fund. On behalf of the Fund, the Company's Board of Directors approved
the advisory contract with Wells Fargo Bank on April 25, 1996, for an initial
two-year period. Pursuant to the advisory contract, Wells Fargo Bank also
has agreed to furnish to the Board of Directors periodic reports on the
investment strategy and performance of the Fund.
Wells Fargo Bank has agreed to provide to the Fund, among other things,
money market and fixed-income research, analysis and statistical and economic
data and information concerning interest-rate and security market trends,
portfolio composition, credit conditions and, average maturity of the Fund. As
compensation for its advisory services, Well Fargo Bank is entitled to receive
a monthly fee at the annual rate of 0.30% of the first $500 million of the
Fund's average daily net assets, 0.25% of the next $500 million, and 0.20% on
the average daily net assets in excess of $1 billion
The advisory contract continues in effect for more than two years provided
the continuance is approved annually (i) by the holders of a majority of the
Fund's outstanding voting securities or (ii) by the Company's Board of
Directors and by a majority of the Directors of the Company who are not parties
to the advisory contracts or "interested persons" (as defined in the 1940 Act)
of any such party. The advisory contracts may be terminated on 60 days'
written notice by either party and will terminate automatically if assigned.
Prior to April 1, 1996, Wells Fargo Investment Management, Inc. ("WFIM")
and its predecessor, First Interstate Capital Management, Inc. ("FICM") served
as adviser to the predecessor portfolio of Pacifica. FICM was a wholly-owned
subsidiary of First Interstate Bank of California ("FICAL"), located at 707
Wilshire Blvd., Los Angeles, California 90017. FICAL was the largest banking
subsidiary of First Interstate Bancorp. As compensation for services rendered
by FICM to the Fund, FICM was entitled to a fee, computed daily and paid
monthly, at an annual rate of 0.30% of the first $500 million of the average
daily net assets of the Fund, 0.25% of the next $500 million of the Fund's
average daily net assets, and 0.20% of the Fund's average daily net assets in
excess of $1 billion. For the six-month period beginning October 1, 1995 and
ending March 31, 1996, WFIM/FICM were entitled to receive, and waived or
reimbursed advisory fees paid by the Fund as follows:
Money Market Trust
Investment Advisory Fees
<TABLE>
<CAPTION>
Fees Waived and
Fiscal Period Fees Earned Expenses Reimbursed
- ------------- ------------ -------------------
<S> <C> <C>
Six-Month Period
Ended March 31, 1996 $820,280 $820,280
</TABLE>
9
<PAGE> 69
Prior to October 1, 1995, First Interstate of Oregon, N.A. (the
"Predecessor Adviser") served as the investment adviser to the Fund. For the
four-month period ended September 30, 1995, and fiscal years ended May 31,
1995, 1994 and 1993, the Predecessor Adviser was entitled to receive and waived
or reimbursed advisory fees paid by the Fund as follows:
Money Market Trust
Investment Advisory Fees
<TABLE>
<CAPTION>
Fees Waived and
Fiscal Period Fees Earned Expenses Reimbursed
- ------------- ------------ -------------------
<S> <C> <C>
Four-Month Period Ended
September 30, 1995 $662,983 $662,983
Year Ended May 31, 1995 $1,932,733 $2,120,794
Year Ended May 31, 1994 $1,193,856 $1,104,228
Year Ended May 31, 1993 $570,505 $387,505
</TABLE>
The advisory contracts and administration agreement for the Funds provide
that if, in any fiscal year, the total expenses of a Fund incurred by, or
allocated to, such 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 applicable advisory contract and the administration
agreement) exceed the most restrictive expense limitation applicable to a Fund
imposed by the securities laws or regulations of the states in which the Fund's
shares are registered for sale, Wells Fargo Bank and Stephens shall waive their
fees proportionately under the advisory contract and the administration
agreement, respectively, for the Fund for the fiscal year to the extent of the
excess or reimburse the excess, but only to the extent of their respective
fees. The advisory contracts and the administration agreement for the Funds
further provide that a 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. Currently,
California is the only state imposing limitations on the expenses of the Funds.
Those expense limitations are 2-1/2 percent of the first $30 million of a
Fund's average net assets, 2 percent of the next $70 million and 1-1/2 percent
of a Fund's remaining average net assets.
Expenses incurred in the organization and operation of the Fund, including
taxes, interest, penalties, brokerage and other fees and commissions, if any,
fees and expenses of Directors, SEC fees and related expenses, state Blue Sky
qualification fees, advisory fees, administration fees, charges of custodians,
costs of transfer and dividend disbursing agents, certain insurance premiums,
outside auditing and legal expenses, costs of maintenance of
10
<PAGE> 70
Company existence, costs of independent pricing services, investor services,
preparation and printing of prospectuses for regulatory purposes and for
distribution to shareholders, shareholders' reports and shareholders' meetings,
and extraordinary expenses, are borne by the Fund.
Banking laws and regulations, including the Glass-Steagall Act as presently
interpreted by the Board of Governors of the Federal Reserve System, (a)
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 (the "Holding Company Act") or any bank or non-bank
affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from underwriting securities, but (b) do not
prohibit such a bank holding company or affiliate generally from acting as
investment adviser, transfer agent, or custodian to such an investment company,
or from purchasing shares of such a company as agent for and upon the order of
a customer. In some states, banks or other institutions through which
transactions in Fund shares are effected, may be required to register as
dealers pursuant to state law.
Administrator and Distributor. The Company has retained Stephens as
administrator and distributor on behalf of the Fund. Under the Administration
Agreement between Stephens and the Company on behalf of the Fund, Stephens
agreed to provide as administrative services, among other things: (i) general
supervision of the Fund's operation, including coordination of the services
performed by its 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 the Fund's proxy statements and
shareholder reports; 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 Fund's business
together with those ordinary clerical and bookkeeping services that are not
furnished by Wells Fargo Bank. Stephens also pays the compensation of the
Company's Directors, Officers and employees who are affiliated with Stephens.
The Administration Agreement and the Amended Distribution Agreement were
approved by the Company's Board of Directors on April 25, 1996.
Prior to the Reorganization, Furman Selz provided management and
administrative services necessary for the operation of the Fund, pursuant to an
Administrative Services Contract. For these services, Furman Selz was entitled
to receive a fee, payable monthly, at the annual rate of 0.15% of the average
daily net assets of the Fund. Furman Selz received and waived administrative
fees from the Fund as follows:
11
<PAGE> 71
Money Market Trust
Administrative Fees
<TABLE>
<CAPTION>
Fiscal Period Fees Received Fees Waived
- ------------- ------------- -----------
<S> <C> <C>
Six-Month Period
Ended March 31, 1996 $349,357 $60,783
</TABLE>
Prior to October 1, 1995, ALPS served as the administrator to the Fund. For
the four-month period ended September 30, 1995 and the fiscal years ended May
31, 1995, 1994 and 1993, ALPS received and waived administrative fees from the
Fund as follows:
Money Market Trust
Administrative Fees
<TABLE>
<CAPTION>
Fiscal Period Fees Received Fees Waived
- ------------- ------------- -----------
<S> <C> <C>
Four-Month Period Ended
September 30, 1995 $132,597 $0
Year Ended May 31, 1995 $387,803 $86,188
Year Ended May 31, 1994 $241,778 $146,794
Year Ended May 31, 1993 $114,101 $69,276
</TABLE>
Prior to April 1, 1996, Pacifica had retained Pacifica Funds Distributor,
Inc., a subsidiary of Furman Selz, to serve as principal underwriter for the
shares of the Fund pursuant to a Distribution Contract. The Distribution
Contract provided that the distributor was not entitled to any payments from
the Fund for its distribution services.
Prior to October 1, 1995, ALPS Mutual Funds Services, Inc. ("ALPS") served
as distributor for the Fund. ALPS was not entitled to any compensation for its
services as distributor.
Custodian And Transfer And Dividend Disbursing Agent. Wells Fargo Bank
has been retained to act as custodian and transfer and dividend disbursing
agent for the Fund, pursuant to a Custody Agreement and an Agency Agreement
with the Company on behalf of the Fund. The custodian, among other things,
maintains a custody account or accounts in the name of the Fund, receives and
delivers all assets for the Fund upon purchase and upon sale or maturity,
collects and receives all income and other payments and distributions on
account of the assets of the Fund and pays all expenses of the Fund. For its
services as custodian, Wells Fargo Bank is entitled to receive fees as follows:
a net asset charge at the
12
<PAGE> 72
annual rate of 0.0167%, payable monthly, plus specified transaction charges.
Wells Fargo Bank also will provide portfolio accounting services under the
Custody Agreement as follows: a monthly base fee of $2,000 plus a net asset fee
at the annual rate of 0.070% of the first $50,000,000 of a Fund's average daily
net assets, 0.045% of the next $50,000,000, and 0.020% of the average daily net
assets in excess of $100,000,000.
For its services as transfer and dividend disbursing agent for the Fund,
Wells Fargo Bank is entitled to receive monthly payments at the annual rate of
0.07% of the Fund's average daily net assets.
Prior to April 1, 1996, FICAL acted as custodian of the predecessor
portfolio, but played no role in making decisions as to the purchase or sale of
portfolio securities for the predecessor portfolio. FICAL was entitled to
receive a fee from Pacifica, computed daily and payable monthly, at the annual
rate of 0.021% of the first $5 billion in aggregate average daily net assets of
the Fund; 0.0175% of the next $5 billion in aggregate average daily net assets
of the Fund; and 0.015% of the aggregate average daily net assets of the Fund
in excess of $10 billion.
Prior to the Reorganization, Furman Selz acted as transfer agent for the
predecessor portfolio. Pacifica compensated Furman Selz for providing personnel
and facilities to perform transfer agency related services for Pacifica at a
rate intended to represent the cost of providing such services.
Underwriting Commissions. The Fund does not charge any front-end sales
loads or contingent deferred sales charges in connection with the purchase and
redemption of its shares, and therefore pays no underwriting commissions to
the Distributor.
PERFORMANCE CALCULATIONS
The following information supplements and should be read in conjunction
with the sections in each prospectus entitled "Determination of Net Asset
Value" and "Performance Data."
The Fund may, from time to time, include its yield or effective yield in
advertisements or reports to shareholders or prospective investors.
Current yield for the Fund will be based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular
seven-day period, less a pro-rata share of the Fund's expenses accrued over
that period (the "base period"), and stated as a percentage of the investment
at the start of the base period (the "base period return"). The base period
return is then annualized by multiplying by 365/7, with the resulting yield
figure carried to at least the nearest hundredth of one percent. "Effective
yield" for the Fund assumes that all dividends received during an annual period
have been reinvested. Calculation of "effective yield" begins with the same
"base period return" used in the
13
<PAGE> 73
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
Effective Yield = [(Base Period Return +1)365/7]-1.
For the seven-day period ended September 30, 1995, the yield of the Fund
was 5.62%, and the effective yield was 6.80%.
Yield information may be useful in reviewing the Fund's performance and for
providing a basis for comparison with other investment alternatives. However,
yields fluctuate, unlike investments which pay a fixed yield for a stated
period of time. Yields for the Fund are calculated on the same basis as other
money market funds as required by applicable regulations. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.
Quotations of yield reflect only the performance of a hypothetical
investment in the Fund during the particular time period shown. Yield varies
based on changes in market conditions and the level of a Fund's expenses, and
no reported performance figure should be considered an indication of
performance which may be expected in the future.
Investors should recognize that in periods of declining interest rates, the
Fund's yields will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates, the Fund's yields will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to
the Fund from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of the Fund, thereby
reducing the current yields of the Fund. In periods of rising interest rates,
the opposite can be expected to occur.
In connection with communicating its yields to current or prospective
shareholders, these figures may also be compared to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
From time to time and only to the extent the comparison is appropriate for
the Fund, the Company may quote performance or price-earning ratios in
advertising and other types of literature as compared with the performance of
the Lehman Brothers Municipal Bond Index, 1-Year Treasury Bill Rate, S&P Index,
the Dow Jones Industrial Average, the Lehman Brothers 20+ Years Treasury Index,
the Lehman Brothers 5-7 Year Treasury Index, IBC/Donoghue's Money Fund
Averages, Real Estate Investment Averages (as reported by the National
Association of Real Estate Investment Trusts), Gold Investment Averages
(provided by the World Gold Council), Bank Averages (which is calculated from
figures supplied by the U.S. League of Savings Institutions based on effective
annual rates of interest on both passbook and certificate accounts), average
annualized certificate of deposit rates (from the federal Reserve G-13
Statistical Releases or the Bank Rate Monitor), the Salomon One Year Treasury
Benchmark Index, the Consumer Price Index (as published
14
<PAGE> 74
by the U.S. Bureau of Labor Statistics), Ten Year U.S. Government Bond Average,
S&P's Corporate Bond Yield Averages, Schabacter Investment Management Indices,
Salomon Brothers High Grade Bond Index, Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, other managed or unmanaged indices or
performance data of bonds, stocks or government securities (including data
provided by Ibbotson Associates), or by other services, companies, publications
or persons who monitor mutual funds on overall performance or other criteria.
The S&P Index and the Dow Jones Industrial Average are unmanaged indices of
selected common stock prices.
The performance of the Fund also may be compared to the performance of
other mutual funds having similar objectives. This comparative performance
could be expressed as a ranking prepared by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Bloomberg Financial Markets or Morningstar,
Inc., independent services that monitor the performance of mutual funds. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with that of its competitors. Of course, past performance cannot
be a guarantee of future results. The Company also may include, from time to
time, a reference to certain marketing approaches of the Distributor,
including, for example, a reference to a potential shareholder being contacted
by a selected broker or dealer. General mutual fund statistics provided by the
Investment Company Institute may also be used.
In addition, the Company also may use, in advertisements and other types of
literature, information and statements showing that bank savings accounts offer
a guaranteed return of principal and a fixed rate of interest, but no
opportunity for capital growth. The Company also may include in advertising
and other types of literature information and other data from reports and
studies prepared by the Tax Foundation, including information regarding federal
and state tax levels and the related "Tax Freedom Day."
The Company also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate
for the Fund: (i) the Consumer Price Index may be used to assess the real rate
of return from an investment in the Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of the Fund or the general economic, business,
investment, or financial environment in which the Fund operates; (iii) the
effect of tax-deferred compounding on the investment returns of the Fund, or on
returns in general, may be illustrated by graphs, charts, etc., where such
graphs or charts would compare, at various points in time, the return from an
investment in the Fund or a 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 the Fund invests may be compared to relevant
indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate the
historical performance of the Fund or current or potential value with respect
to the particular industry or sector.
15
<PAGE> 75
The Company also may discuss in advertising and other types of literature
that the Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as S&P or Moody's. Such rating would
assess the creditworthiness of the investments held by the Fund. The assigned
rating would not be a recommendation to purchase, sell or hold any class of the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information
relating to the Fund or its investments. The Company may compare the Fund's
performance with other investments that are assigned ratings by NRSROs. Any
such comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
From time to time the Company may reprint, reference or otherwise use
material from magazines, newsletters, newspapers and books including, but not
limited to the Wall Street Journal, Money Magazine, Barrons, Kiplingers,
Business Week, Fortune, Forbes, the San Francisco Chronicle, the San Jose
Mercury News, The New York Times, the Los Angeles Times, the Boston Globe, the
Washington Post, the Chicago Sun-Times, Investor Business Daily, Worth, Bank
Investor, American Banker, Smart Money, the 100 Best Mutual Funds (Adams
Publishing), Morningstar or Value Line.
The Company also may disclose in sales literature, the distribution rate on
the Fund's shares. Distribution rate, which may be annualized, is the amount
determined by dividing the dollar amount per share of the most recent dividend
by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by
the standard 30-day yield as required by the SEC.
The Company also may disclose, in advertising statements and other types of
literature, information and statements that the Company's investment adviser,
Wells Fargo Bank, is listed in Nelson Publications' ("Nelson's") "Top 20"
performance rankings as published in the 1994 edition of "America's Best Money
Managers." The Nelson survey ranks the performance of money managers in over
30 asset/style categories and is based on analysis of performance composites
and surveys of institutional money managers.
The Company may also disclose in advertising and other types of sales
literature the assets and categories of assets under management by the
Company's investment adviser and the total amount of assets under management by
Wells Fargo Investment Management Group ("IMG") or the amount of assets and
mutual fund assets managed by Wells Fargo Bank. As of December 31, 1995, IMG
had $30.1 billion in assets under management. As of June 30, 1996, Wells Fargo
Bank and its affiliates provided investment advisory services for approximately
$56 billion of assets of individuals, trusts, estates and institutions and $17
billion of mutual fund assets.
The Company may disclose in advertising and other types of literature
that investors can open and maintain Sweep Accounts over the Internet or
through other electronic channels (collectively, "Electronic Channels"). Such
advertising and other literature may discuss the investment options available
to investors, including the types of accounts and any applicable fees. Such
advertising and other literature may disclose that Wells Fargo Bank is the
first major bank to offer an on-line application for a mutual fund account that
can be filled out completely through Electronic Channels. Advertising and other
literature may disclose that Wells Fargo Bank may maintain Web sites, pages or
other information sites accessible through Electronic Channels (an "Information
Site") and may describe the contents and features of the Information Site and
instruct investors on how to access the Information Site and open a Sweep
Account. Advertising and other literature may also disclose the procedures
employed by Wells Fargo Bank to secure information provided by investors,
including disclosure and discussion of the tools and services for accessing
Electronic Channels. Such advertising or other literature may include
discussions of the advantages of establishing and maintaining a Sweep Account
through Electronic Channels and testimonials from Wells Fargo Bank customers or
employees and may also include descriptions of locations where product
demonstrations may occur. The Company may also disclose the ranking of Wells
Fargo Bank as one of the largest money managers in the United States.
16
<PAGE> 76
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the prospectus section under "Purchase of Shares."
Expenses and fees, including advisory fees, are accrued daily and are taken
into account for the purpose of determining the net asset value of a Fund's
shares.
Net asset value per share for the Fund is determined as of 12:00 noon
Pacific time on each Business Day as described in the prospectus.
The Fund's instruments are valued on the basis of amortized cost. This
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than
the price a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on Fund shares computed as described
above may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its instruments. Thus, if the use of
amortized cost by the Fund resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from investment in a fund utilizing
solely market values and existing investors in the Fund would receive less
investment income. The converse would apply in a period of rising interest
rates.
The valuation of the Fund's instruments, based upon their amortized cost
and the concomitant maintenance by the Fund of a net asset value of $1.00, is
permitted in accordance with Rule 2a-7 under the Act, pursuant to which the
Fund must adhere to certain conditions. The Fund must maintain a
dollar-weighted average maturity of 90 days or less, purchase only instruments
having remaining maturities of 397 days (thirteen months) or less, and invest
only in securities that are determined to present minimal credit risks pursuant
to guidelines adopted by the Directors or the adviser under guidelines approved
by the Directors. Instruments having variable or floating interest rates or
demand features may be deemed to have remaining maturities as follows: (a) a
government security with a variable rate of interest readjusted no less
frequently than every thirteen months may be deemed to have a maturity equal to
the period remaining until the next readjustment of the interest rate; (b) an
instrument with a variable rate of interest, the principal amount of which is
scheduled on the face of the instrument to be paid in thirteen months or less,
may be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (c) an instrument with a variable rate of
interest that is subject to a demand feature may be deemed to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand; (d) an instrument with a floating rate of interest
that is subject to a demand feature may be deemed to have a maturity equal to
the period
17
<PAGE> 77
remaining until the principal amount can be recovered through demand; and (e) a
repurchase agreement may be deemed to have a maturity equal to the period
remaining until the date on which the repurchase of the underlying securities
is scheduled to occur or, where no date is specified but the agreement is
subject to demand, the notice period applicable to a demand for the repurchase
of the securities.
The Company's Board of Directors has established valuation procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions. Such procedures
include the determination, at such intervals as the Directors deem appropriate,
of the extent to which the Fund's NAV as calculated by using available market
quotations deviates from $1.00 per share, such deviation may result in material
dilution or other unfair results to existing shareholders or investors. In the
event the Directors determine that such a material deviation exists, they have
agreed to take such corrective action as they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind or without monetary or other
consideration; or establishing a net asset value per share by using available
market quotations. It is the intention of the Fund to maintain a per share net
asset value of $1.00, but there can be no assurance that the Fund will do so.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Payment for shares may, in the discretion of the adviser, be made in the
form of securities that are permissible investments for the Fund as described
in the Prospectuses. For further information about this form of payment please
contact Stephens. In connection with an in-kind securities payment, the Fund
will require, among other things, that the securities be valued on the day of
purchase in accordance with the pricing methods used by the Fund and that the
Fund receives satisfactory assurances that (i) it will have good and marketable
title to the securities received by it; (ii) that the securities are in proper
form for transfer to the Fund; and (iii) adequate information will be provided
concerning the basis and other matters relating to the securities.
Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
NYSE is closed (other than customary weekend and holiday closings, or during
which trading is restricted, or during which as determined by the SEC by rule
or regulation) an emergency exists as a result of which disposal or valuation
of portfolio securities is not reasonably practicable, or for such periods as
the SEC may permit.
The Company may suspend redemption rights or postpone redemption payments
for such periods as are permitted under the 1940 Act. The Company may also
redeem shares involuntarily or make payment for redemption in securities or
other property if it appears appropriate to do so in light of the Company's
responsibilities under the 1940 Act.
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<PAGE> 78
In addition, the Company may redeem shares involuntarily to reimburse the
Fund for any losses sustained by reason of the failure of a shareholders to
make full payment for shares purchased or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
shares of the Fund as provided from time to time in the Prospectus.
PORTFOLIO TRANSACTIONS
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policies
established by the Company's Board of Directors, Wells Fargo Bank is
responsible for the Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the dealer's general execution and operational
facilities, the type of transaction involved and other factors such as the
dealer's risk in positioning the securities involved. While Wells Fargo Bank
generally seeks reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that Wells Fargo Bank manages, and for which it
has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When Wells Fargo Bank determines that a
particular security should be bought or sold for the Fund and other accounts
managed by Wells Fargo Bank, Wells Fargo Bank undertakes to allocate those
transactions among the participants equitably.
Purchases and sales of securities usually are principal transactions.
Portfolio securities normally are purchased or sold from or to dealers serving
as market makers for the securities at a net price. The Fund also purchases
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, municipal obligations and taxable money
market securities are traded on a net basis and do not involve brokerage
commissions. The cost of executing the Fund's portfolio securities
transactions consists primarily of dealer spreads and underwriting commissions.
Under the 1940 Act, persons affiliated with the Company are prohibited from
dealing with the Company as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is obtained from the SEC
or an exemption is otherwise available.
The Fund may purchase certain obligations from underwriting syndicates of
which Stephens or Wells Fargo Bank is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act and in
compliance with procedures adopted by the Board of Directors.
Wells Fargo Bank, as the Fund's investment adviser, 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
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<PAGE> 79
services to Wells Fargo Bank. By allocating transactions in this manner, Wells
Fargo Bank is able to supplement its research and analysis with the views and
information of securities firms. Information so received is in addition to,
and not in lieu of, the services required to be performed by Wells Fargo Bank
under the advisory contracts, and the expenses of Wells Fargo Bank are not
necessarily reduced as a result of the receipt of this supplemental research
information. Furthermore, research services furnished by dealers through which
Wells Fargo Bank places securities transactions for the 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.
Consistent with the Rules of Fair Practice of the NASD, and subject to
seeking the most favorable price and execution available and such other
policies as the Directors may determine, the adviser may consider sales of Fund
shares as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Brokerage Commissions. Subject to the general supervision and approval
of the Board of Directors, the adviser makes decisions with respect to and
places orders for all purchases and sales of securities for the Fund.
Securities are generally purchased and sold either directly from the issuer or
from dealers who specialize in money market instruments. Such purchases are
usually effected as principal transactions and therefore do not involve the
payment of brokerage commissions.
During the fiscal periods ended September 30, 1995, May 31, 1995, May 31,
1994 and May 31, 1993, the predecessor portfolio of the Fund did not pay any
brokerage commissions, because all of its portfolio transactions occurred in
the over-the-counter market.
Securities of Regular Broker Dealers. The Fund may from time to time
purchase securities issued by its regular broker/dealers. Prior to October 1,
1995, ALPS Mutual Funds Services, Inc. ("ALPS") served as
administrator/distributor for the Fund, and reported no holdings of securities
by the Fund of its regular broker/dealers or of their parents that derive more
than 15% of gross revenues from securities-related activities.
Portfolio Turnover Rate. The portfolio turnover rate is not a limiting
factor when Wells Fargo Bank deems portfolio changes appropriate. Because the
Fund's portfolio consists of securities with relatively short-term maturities,
it can expect to experience high portfolio turnovers. A high portfolio
turnover rate should not adversely affect the Fund, however, because portfolio
transactions ordinarily will be made directly with principals on a net basis
and, consequently, the Fund usually will not incur brokerage expenses.
FEDERAL INCOME TAX
The Prospectus describes generally the tax treatment of distributions by
the Fund. This section of the SAI includes additional information concerning
taxes.
20
<PAGE> 80
Qualification as a "regulated investment company" under the Code requires,
among other things, that (a) at least 90% of the Fund's annual gross income be
derived from interest; payments with respect to securities loans; dividends;
and gains from the sale or other disposition of stock, securities or foreign
currencies or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to the Fund's business of
investing in such stock, securities or currencies; (b) the Fund generally
derives less than 30% of its gross income from the sale or other disposition of
certain assets held for less than 3 months, such as (i) stock or securities;
(ii) options, futures, and forward contracts (other than those on foreign
currencies), and (iii) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities)); and (c) the Fund diversifies its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the market value of the Fund's assets is represented by cash, U.S.
Government obligations, the securities of other regulated investment companies,
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of the
Fund's total assets is invested in the securities of any one issuer (other than
U.S. Government obligations or the securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. As a regulated investment company, the Fund will not be
subject to federal income tax on its net investment income and net capital
gains distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income (including its net
tax-exempt income) earned in each year.
Generally, dividends and capital gain distributions are taxable to
shareholders when they are received. However, dividends and distributions
declared payable as of a record date in October, November or December of any
calendar year are deemed under the Code to have been paid by the Fund and
received by the shareholder on December 31 of that calendar year if the
dividend is actually paid in the following January. Such dividends and
distributions will, accordingly, be taxable to the recipient shareholders in
the year in which the record date falls. In addition, a nondeductible 4%
excise tax will be imposed on the Fund (other than to the extent of the Fund's
tax-exempt income) to the extent it does not meet certain minimum distribution
requirements by the end of each calendar year. The Fund will either actually
or be deemed to distribute substantially all of its net investment income and
net capital gains by the end of each calendar year and, thus, expects not to be
subject to the excise tax.
All income received by the Fund from sources within foreign countries
(e.g., interest dividends) may be subject to withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Because not more than 50% of
the value of the total assets of the Fund is expected to consist of securities
of foreign issuers, the Fund will not be able to "pass through" foreign tax
credits to shareholders.
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<PAGE> 81
Gains or losses on sales of portfolio securities by the Fund generally will
be long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases including where the Fund acquires a
put or grants a call thereon. Gain recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by the Fund at a market discount (generally, at a price less than its
principal amount) will generally be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation. Other gains or losses on the sale of securities
will generally be short-term capital gains or losses. To the extent that the
Fund recognizes long-term capital gains, such gains will be distributed at
least annually. Such distributions will be taxable to shareholders as
long-term capital gains, regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in
a written notice mailed by the Fund to shareholders not later than 60 days
after the close of the Fund's taxable year.
If a shareholder receives a designated capital gain distribution on a Fund
share and such Fund share is held for six months or less, then any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
(unless otherwise disallowed) to the extent of the designated capital gain
distribution. This rule shall not apply to losses incurred under a periodic
redemption plan.
As of the printing of this SAI, the maximum individual tax rate applicable
to ordinary income is 39.6% (marginal rates may be higher for some individuals
due to phase out of exemptions and elimination of deductions); the maximum
individual tax rate applicable to net capital gains is 28%; and the maximum
corporate tax rate applicable to ordinary income and net capital gains is 35%
(except that corporations with taxable income in excess of $100,000 for a
taxable year must pay an additional amount of income tax of up to $11,750 and
corporations with taxable income in excess of $15,000,000 for a taxable year
must pay an additional amount of tax of up to $100,000).
Sales charges incurred to acquire Fund shares with reinvestment rights are
not taken into account when calculating the gain or loss on the disposition of
such Fund shares if (i) the shares are disposed of within 90 days of
acquisition and (ii) Fund shares or shares of another regulated investment
company are purchased subsequently at a reduced or eliminated sales charge,
pursuant to the reinvestment rights attendant with the initial acquisition of
Fund shares. Any sales charge not taken into account is treated as having been
incurred in the subsequent acquisition. In addition, any loss realized on a
redemption or exchange of shares of the Fund will be disallowed to the extent
substantially identical shares are reacquired within the 61-day period
beginning 30 days before and ending 30 days after the disposition date of such
Fund shares.
Foreign Shareholders. Under the Code, distributions of net investment
income by the Fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign corporation or foreign partnership (a
"foreign shareholder") will be subject to U.S.
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<PAGE> 82
withholding tax at a rate of 30% or lower treaty tax rate, if applicable.
Withholding will not apply if a dividend paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business, in which
case the reporting and withholding requirements applicable to U.S. citizens,
U.S. residents or domestic corporations will apply. Distributions of net
long-term capital gains are generally not subject to tax withholding.
If, in the opinion of the Fund, ownership of its shares has or may become
concentrated to an extent that could cause the Fund to be deemed a personal
holding company within the meaning of the Code, the Fund may require the
redemption of shares or reject any order for the purchase of shares in an
effort to prevent such concentration.
Other Matters. Investors should be aware that the investments to be made
by the Fund may involve sophisticated tax rules such as the original issue
discount and real estate mortgage investment conduit ("REMIC") rules that would
result in income or gain recognition by the Fund, without corresponding cash
receipts. Although the Fund will seek to avoid significant noncash income,
such noncash income could be recognized by the Fund, in which case the Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
CAPITAL STOCK
The following information supplements and should be read in conjunction
with the section in the Prospectus entitled "The Funds and Management."
The Company, an open-end management investment company, was incorporated in
Maryland on September 9, 1991. The authorized capital stock of the Company
consists of 48,000,000,000 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 twenty-three series of shares, each representing an interest in one
of the following funds -- the Aggressive Growth, Arizona Tax-Free, Asset
Allocation, Balanced, California Tax-Free Bond, California Tax-Free Income,
California Tax-Free Money Market Mutual, Corporate Stock, Diversified Income,
Equity Value, Ginnie Mae, Government Money Market Mutual, Growth and Income,
Intermediate Bond, Money Market Mutual, Money Market Trust, National Tax-Free,
National Tax-Free Money Market Mutual, Oregon Tax-Free, Prime Money Market
Mutual, Short-Intermediate U.S. Government Income, Small Cap, Treasury Money
Market Mutual and U.S. Government Allocation Funds -- and the Board of
Directors may, in the future, authorize the issuance of other series of capital
stock representing shares of additional investment portfolios.
Pacifica was a Massachusetts business trust established under a Declaration
of Trust dated July 17, 1984, consisting of series of separately managed
portfolios. The capitalization of Pacifica consisted solely of an unlimited
number of shares of beneficial interest with a par value of $0.001 each.
23
<PAGE> 83
Voting. On any matter submitted to a vote of shareholders, all shares then
entitled to vote are voted separately by series unless otherwise required by
the Act, in which case all shares are voted in the aggregate. For example, a
change in a series' fundamental investment policy affects only one series and
are voted upon only by shareholders of the series and not by shareholders of
the Company's other series. Additionally, approval of an advisory contract is
a matter to be determined separately by each series. Approval by the
shareholders of one series is effective as to that series whether or not
sufficient votes are received from the shareholders of the other series to
approve the proposal as to those series. As used in the prospectus and in this
SAI, the term "majority" when referring to approvals to be obtained from
shareholders of the Fund, means the vote of the lesser of (i) 67% of the Fund
shares represented at a meeting if the holders of more than 50% of the
outstanding Fund shares are present in person or by proxy, or (ii) more than
50% of the outstanding shares of the Fund. The term "majority," when
referring to the approvals to be obtained from shareholders of the Company as a
whole, means the vote of the lesser of (i) 67% of the Company's shares
represented at a meeting if the holders of more than 50% of the Company's
outstanding shares are present in person or by proxy, or (ii) more than 50% of
the Company's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. The
Company may dispense with an annual meeting of shareholders in any year in
which it is not required to elect directors under the 1940 Act.
Each Fund share represents an equal proportional interest in the Fund with
each other share and is entitled to such dividends and distributions out of the
income earned on the assets belonging to the Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of the Fund are entitled to receive the assets
attributable to the Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular investment
portfolio that are available for distribution in such manner and on such basis
as the Directors in their sole discretion may determine.
Shares have no preemptive rights or subscription. All shares, when issued
for the consideration described in the prospectus, are fully paid and
non-assessable by the Company.
Below is the name, address and share ownership of each person known to
Pacifica to have beneficial or record ownership with respect to 5% or more of a
class of a Predecessor Portfolio as of May 15, 1996.
<TABLE>
<CAPTION>
Pacifica Name and Address Amount of Shares Owned; Percentage Percentage of Percentage of
Portfolio Type of Ownership of Class Portfolio Portfolio
Post-Closing
<S> <C> <C> <C> <C> <C>
Money Virg & Co. 901,016,484 Shares 100% 100% 100%
Market Attn: MF Dept. A88-4 Record Holder
Trust P.O. Box 9800
Calabasas, CA 91372
</TABLE>
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<PAGE> 84
<TABLE>
<S> <C> <C> <C> <C>
Short-Term Investment Fund 90,897,113 Shares 11.09% 11.09% 11.09%
c/o Wells Fargo Bank Beneficially Owned
201 3rd Street
11th Floor
San Francisco, CA 94163
DCIA Fund 92,210,981 Shares 10.23% 10.23% 10.23%
#2/PACTRUST Beneficially Owned
c/o Wells Fargo Bank
201 3rd Street
11th Floor
San Francisco, CA 94163
Short-Term Income Fund 55,636,951 Shares 6.18% 6.18% 6.18%
c/o Wells Fargo Bank Beneficially Owned
201 3rd Street
11th Floor
San Francisco, CA 94163
Employee Benefit Reserve 46,978,171 Shares 5.21% 5.21% 5.21%
Fund Beneficially Owned
c/o Wells Fargo Bank
201 3rd Street
11th Floor
San Francisco, CA 94163
</TABLE>
For purposes of the 1940 Act, any person who owns directly or through one
or more controlled companies more than 25% of the voting securities of a
company is presumed to "control" such company. Accordingly, to the extent that
a shareholder identified in the foregoing table is identified as the beneficial
holder of more than 25% of a class or is identified as the holder of record or
more than 25% of a class and has voting and/or investment powers, it may be
presumed to control such class.
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<PAGE> 85
OTHER
This 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 the
prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP has been selected as the independent auditors for the
Company. KPMG Peat Marwick LLP provides audit services, tax return preparation
and assistance and consultation in connection with review of certain SEC
filings. KPMG Peat Marwick LLP's address is Three Embarcadero Center, San
Francisco, California 94111.
Other auditors served as the independent auditors for the predecessor
portfolio until the Reorganization. The audited financial statements
incorporated by reference into this SAI and the audited financial highlights
that appear in the Prospectus have been audited by the Fund's former
independent auditors, Deloitte & Touche LLP.
FINANCIAL INFORMATION
The unaudited financial statement of assets and liabilities, including the
statement of investments, of the former Pacifica Money Market Trust portfolio
as of March 31, 1996, and the related unaudited statement of operations for
the six-month period ended March 31, 1996, and the statement of changes in net
assets and the financial highlights for the period indicated, as filed with the
SEC on June 7, 1996, are incorporated by reference into this SAI.
The statement of assets and liabilities, including the statement of
investments, of the former Westcore Trust Fund (The Prime Money Market Fund) as
of September 30, 1995 and the related statement of operations for the
four-month period ended September 30, 1995, and the statements of changes in
net assets and the financial highlights for each of the periods indicated are
incorporated by reference in this SAI. These financial statements have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which has also been incorporated by reference in this SAI, and has been
so included upon the report of such firm given upon their authority as experts
in accounting and auditing.
The statements of investments, audited financial statements and independent
auditors' report are included with the SAI delivered to current or prospective
shareholders.
26
<PAGE> 86
SAI APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate and municipal bonds, municipal notes, and corporate and municipal
commercial paper.
Corporate and Municipal Bonds
Moody's: The four highest ratings for corporate and municipal bonds are
"Aaa," "Aa," "A" and "Baa." Bonds rated "Aaa" are judged to be of the "best
quality" and carry the smallest amount of investment risk. Bonds rated "Aa"
are of "high quality by all standards," but margins of protection or other
elements make long-term risks appear somewhat greater than "Aaa" rated bonds.
Bonds rated "A" possess many favorable investment attributes and are considered
to be upper medium grade obligations. Bonds rated "Baa" are considered to be
medium grade obligations; interest payments and principal security appear
adequate for the present, but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds
have speculative characteristics as well. Moody's applies numerical modifiers:
1, 2 and 3 in each rating category from "Aa" through "Baa" in its rating
system. The modifier 1 indicates that the security ranks in the higher end of
its category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end.
S&P: The four highest ratings for corporate and municipal bonds are "AAA,"
"AA," "A" and "BBB." Bonds rated "AAA" have the highest ratings assigned by
S&P and have an extremely strong capacity to pay interest and repay principal.
Bonds rated "AA" have a "very strong capacity to pay interest and repay
principal" and differ "from the highest rated issued only in small degree."
Bonds rated "A" have a "strong capacity" to pay interest and repay principal,
but are "somewhat more susceptible" to adverse effects of changes in economic
conditions or other circumstances than bonds in higher rated categories. Bonds
rated "BBB" are regarded as having an "adequate capacity" to pay interest and
repay principal, but changes in economic conditions or other circumstances are
more likely to lead to a "weakened capacity" to make such repayments. The
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the category.
Municipal Notes
Moody's: The highest ratings for state and municipal short-term
obligations are "MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG
3" in the case of an issue having a variable rate demand feature). Notes rated
"MIG 1" or "VMIG 1" are judged to be of the "best quality." Notes rated "MIG
2" or "VMIG 2" are of "high quality," with margins of protections "ample
although not as large as in the preceding
A-1
<PAGE> 87
group." Notes rated "MIG 3" or "VMIG 3" are of "favorable quality," with all
security elements accounted for, but lacking the strength of the preceding
grades.
S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest." Notes issued with "overwhelming safety
characteristics" will be rated "SP-1+." The "SP-2" rating reflects a
"satisfactory capacity" to pay principal and interest.
Corporate and Municipal Commercial Paper
Moody's: The highest rating for corporate and municipal commercial paper
is "P-1" (Prime-1). Issuers rated "P-1" have a "superior capacity for
repayment of short-term promissory obligations." Issuers rated "P-2" (Prime-2)
"have a strong capacity for repayment of short-term promissory obligations,"
but earnings trends, while sound, will be subject to more variation.
S&P: The "A-1" rating for corporate and municipal commercial paper
indicates that the "degree of safety regarding timely payment is either
overwhelming or very strong." Commercial paper with "overwhelming safety
characteristics" will be rated "A-1+." Commercial paper with a strong capacity
for timely payments on issues will be rated "A-2."
A-2
